Tech

eBay Bought PayPal At $1.5 Billion; Now PayPal Is Worth $15 billion

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paypal-ebay

paypal-ebayWhen founding a company, one of the best and biggest favours you can do yourself is to be prepared to stick it out in the long run. Just ask Amazon Kingpin Jeff Bezos. When he started Amazon over 15 years ago, he had two things in mind, to have significant market share and have long-term profits. To fortify this, he mentioned the same in the very fist letter to shareholders back in 1997 where he made it clear his plans were not for the near term but for the mid-term; five to seven years at least.

He also made it clear that he believed that the market for e-books and e-commerce was sufficiently large to cater for a long-term projection of the company’s plans. But, unfortunately, the guys at PayPal simply did not have their very own Jeff Bezos when they needed him the most. That is why in the throes of the dot-com bubble, PayPal was running losses and floundering in the sea of digital mayhem and made what was probably the worst decision any large tech company has made in the last ten years; they sold out to eBay.

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eBay was at the same time enjoying robust growth during its golden era. The auction market was burgeoning and they had tremendous liquidity. When PayPal put up the for-sale sign, eBay were quick to snap it up (if it were now, Google would probably have outbid eBay). Little did they know it would be the single-most important decision they could have made in ensuring the survival of eBay. They also bought Skype during this period but they later offloaded Skype to Microsoft who may have better uses for it than did eBay.

The fit between eBay and PayPal was obvious but what eBay may not have known is how the rise of the smart phone would influence the fortunes of PayPal to epic proportions. Smartphones came along and brought with them mobile wallets and with PayPal’s experience and technology right up that alley, PayPal is poised to make a killing from mobile payments.

As a result of acquiring this golden goose, eBay shares are up close to 33% since October and are currently enjoying a three-year high. But as with all acquired companies there is always the challenge of adopting or adapting to the new philosophies and directions of the parent company that may not necessarily be what works. Thinking about the team that was at PayPal before they sold out only makes me wonder where PayPal would be today.

Here is the creme de la creme of the ninja team that was: Elon Musk who is Tesla’s (TSLA) CEO, Peter Thiel who went on to invest in Facebook, Keith Rabois who is COO at Square, Reid Hoffman who is Chairman at LinkedIn (LNKD),  Jeremy Stoppleman who is CEO at Yelp, Chad Hurley of YouTube, Roelof Botha who is Partner at Sequoia, Steve Chen of YouTube,  Dave McClure,Dave Sacks of Yammer, Jawed Karim of Youtube and Max Levchin of Slide.

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Now new kid on the block Square is going out all guns blazing licking up PayPal’s market share and it’s hard not to see how and why Square may end up becoming what PayPal could have been. This so much more after Square picked up some extra $100 million in funding three months back to take the company’s valuation to over $1 billion as well as being on course to processing over $2 billion in payments by the end of this year.

PayPal have a real fight on their hands and they will have to be young and nimble again in order to stake their rightful claim. The moral of the story, take Jeff Bezos’ advice and stick it out for the long-term, do what Facebook’s Mark Zukerberg did, don’t sell out!

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Daniel Mbure

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