PayPal and the cost of doing nothing
My Friday column in this week in Expansión, Spain’s leading financial daily, is called “The cost of doing nothing” (pdf in Spanish), and is about eBay’s announcement that it is to spin off PayPal into a separate company. eBay bought PayPal in 2002 after failing to compete with it as a payment system. The company had a talented team, the so-called PayPal Mafia, which left after the buyout, members of which went on to found Tesla (Elon Musk), LinkedIn (Reid Hoffman), YouTube (Steve Chen, Chad Hurley and Jawed Karim), Yelp (Jeremy Stoppelman and Russel Simmons) or Yammer (David Sacks) among others, some of whom are now billionaires.
Following the acquisition, the company stopped being a cash cow. Despite being a widely used online payment method, PayPal sat by as other services, such as Square or Google Wallet, overtook it in the transition to the physical world, payment offline, or carried out via a smartphone. PayPal’s efforts to compete in this segment can only be described as laughable. Finally, along comes the company that has made redefinition its business mode, launching Apple Pay.
I have been saying for the last six years that PayPal needs to become an independent company, and that its integration in eBay was a classic case of negative synergy. Now PayPal is about to pay the price for years of delay, sitting on its hands and showing no ambition. While PayPal was sleeping, Apple has developed new technologies, patents and alliances with the industry, including the banks, card issuers, transaction processors, retail chains, etc., and has launched its product right in PayPal’s face.
Below, the full text:
The cost of doing nothing
The history of PayPal is the history of the internet. Founded in 1998, its popularity mirrored the growth of the online auction site eBay, which, unable to beat it, ended up buying it in 2002.
Most of PayPal’s founders left to set up companies like Tesla, LinkedIn, Yelp, Yammer, YouTube and others. Three of their founders, Reid Hoffman, Peter Thiel and Elon Musk, are now billionaires.
For a while, PayPal was the way we paid for things online, thanks largely to the protection of eBay. But some companies weren’t about to accept this, and saw the development of the smartphone as an an opportunity. There was a growing feeling that PayPal was underachieving, and under the shadow of eBay was failing to reach its full potential, focused solely on the web.
This week, eBay has finally announced that it is to spin off PayPal in a bid to take on Apple Pay. Apple has quietly been doing what PayPal should have been doing all these years, and has no stolen a march on it. In reality, those early rumors of a spin off date back to 2009, or even earlier: the company clearly needed space to be able to create value.
What has been the cost of not allowing PayPal to develop independently? A new and powerful rival has been able to enter a market that PayPal pioneered, and which by rights it should have been able to continue dominating. Sometimes, environments change quickly, and companies that don’t keep up get left behind.
(En español, aquí)
