
EBay to Spin Off PayPal - murtza
http://dealbook.nytimes.com/2014/09/30/ebay-to-spin-off-paypal-adopting-strategy-backed-by-icahn/
======
CrazyCatDog
When the going gets tough, firms call in consultants. When Bain or McKinsey
arrive, they tell you to make a change. Is your firm centralized? Decentralize
it! Is your firm decentralized? Centralize it. Donahoe's "master fix" and
subsequent exit should give pause to industry thinking of hiring consultants
to run their companies in the long-run; for as the saying goes: the apple
doesn't fall far from the tree.

~~~
ChuckMcM
Hilarious and on point, but to their credit consultants look at what you are
currently doing which isn't working, and suggest you do the other thing on the
theory that worst case that won't work either but at least you will have tried
something new.

I generally think that it is a symptom that the management isn't able to
manage the business. Not everyone has the skill set to mix a tech and commerce
company into a living / breathing entity.

~~~
mathattack
The "higher brand" consultancies also live by their stamp of approval.

A CEO who wants to do a risky strategy will hire the biggest brand name
possible to provide cover. "Nobody got fired for hiring McKinsey for advice"
is similar to "Nobody got fired for buying IBM hardware". And in this case,
the CEO can say, "Well, I hired the best to help me think it up" when it goes
wrong.

------
btown
Is anyone else worried about the long term stability of Braintree under such
an aggressive board environment? I was always concerned about conflicts of
interest with PayPal acquiring Braintree - two competing and incompatible ways
to pay with a credit card. As much as I admire Braintree engineering, and I
would normally trust a board to believe in the Braintree brand of reliability,
it does no good if a single unpredictable actor, namely Icahn, could strongarm
the parent company into underfunding or cannibalizing Braintree. Am I just
being paranoid?

~~~
lbarrow
I'm an engineer at Braintree.

Speaking only for myself, I don't see a conflict of interest between us and
PayPal. PayPal has embraced our APIs and approach to support as the future of
how merchants will integrate with PayPal, and we've been able to leverage
PayPal's consumer brand to build better products for our merchants.

I was initially very, very skeptical of our acquisition, but I have to admit
it's turned out well. I don't think there is any risk of them underfunding or
cannibalizing us.

~~~
rkalla
For what it's worth, PayPal is embracing the shit out of BT acquisition -
really see that as the north star for our merchant integration story. Everyone
knows they know what they are doing and only want to help, they don't want to
hinder/hobble/mess with it.

~~~
zhengyi13
So what you're saying is that they learned their lessons from the VeriSign
Payment Services acquisition, and learned not to actively try to break things
that work?

(Yes, still very, _very_ bitter about that. If you have a different
perspective on that time/process, I would genuinely like to hear it.)

------
pratyushag
Great decision, allowing PayPal to grow beyond the virtual ceiling placed by
being governed by a marketplace company which rightly has its own agenda
before PayPal's.

~~~
Shivetya
As long as the split does not disrupt the current relationship for buyers and
sellers using Ebay. Right now the process is quite simple and there had been
recent efforts to link the two sites even more, as in not needing to ever log
into Paypal to complete ebay purchases.

hopefully that integration won't suffer.

~~~
pratyushag
I don't see why it would... ebay would still hold a significant percentage of
paypal and influence such decision making. The main benefit will come from
large competitors choosing Paypal as it becomes a less biased payment service
and not one that directly profits a competitor. Essentially, Ebay will now
have to pay closer to market-rate for processing.

------
bluedevil2k
Spinning off PayPal really hurts the long-term growth potential of EBay. They
haven't grown much at all over the past few years, once you take out the
PayPal revenue. That will really hurt the stock price. Meanwhile, I would
expect PayPal's stock price to grow as it's potential for growth is pretty
large. Will be very interesting to see how they split the existing EBay shares
for shareholder and at what price.

~~~
foobarqux
> Spinning off PayPal really hurts the long-term growth potential of EBay.
> They haven't grown much at all over the past few years, once you take out
> the PayPal revenue.

But, as a current shareholder, you will still own PayPal and Ebay shares. The
question is whether they are better together or better apart. There isn't any
obvious synergy between the two anymore.

> Will be very interesting to see how they split the existing EBay shares for
> shareholder and at what price.

No, there is nothing interesting about that. Each shareholder get X shares of
Ebay, Y shares of Paypal and Z dollars of cash. The price of the shares is set
by the market. The values of X and Y are pretty much arbitrary.

------
fidotron
The recent Alibaba ipo demonstrates this is a stupid idea and that eBay has
been chronically mismanaged for years. That it has effectively squandered such
a massive lead and headstart is incredible.

~~~
adventured
Alibaba spun off Alipay. How does the Alibaba IPO demonstrate spinning off
PayPal is a stupid idea exactly?

~~~
rebelidealist
Alibaba spun off Alipay because Jack Ma wanted to control Alipay instead of
the Alibaba majority stakeholder such as Yahoo and Softbank. It was an
uncontested power move by Ma.

~~~
rebelidealist
Sorry, I don't know why my comment was posted 3 times...

------
metaphorm
Icahn is only interested in Icahn. I can't really see this as positive for
anyone just because Icahn has a track record of pressuring businesses into
destroying their value creating engines in order to enrich his own coffers.
He's a pillager, not a builder. Why does anyone tolerate doing business with
him anymore?

~~~
kolbe
Firstly, this is not an instance of a company being pillaged by an activist
investor. Icahn is not assuming control of the company, he's trying to make
them change direction.

Secondly, Icahn has been completely right about eBay. Andreessen functionally
stole billions from eBay via a deal with one of the most egregious conflicts
of interest we've seen in all of corporate America. Which, fine, it was a
fuckup. Sometimes companies fuck up. But then, eBay keeps the same board of
directors with the same crooks running the show. eBay needs an activist
investor or else these are the guys who are going to pillage the company (even
further). Not Icahn.

~~~
x0x0
To be fair, I think Andreessen only got a couple hundred million (3% on an
$8.5B acquisition [1]). But while pmarca says he recused himself, the whole
thing reeks.

Though don't forget what is actually the far far bigger failure. When that
idiot Meg Whitman acquired skype in 2005, she acquired skype but not the
underlying tech (Joltid), then fucked the founders on an earnout. So there was
tons of bad blood, and they were declining to relicense their p2p tech to
skype. You can read all about it [2] and elsewhere. That, plus some other
stupid stuff, made ebay give the founders 30% of the company back for $160m. I
don't think Andreessen was on the board for the initial acquisition, but what
idiocy.

It's hard to believe a reasonable technical person was involved in the initial
acquisition. Where the hell was the board? The point is, it's hard to say ebay
has had competent executive leadership or a board for a while.

[1] [http://www.bloomberg.com/news/2014-03-03/ebay-andreessen-
ref...](http://www.bloomberg.com/news/2014-03-03/ebay-andreessen-refute-icahn-
s-claims-on-skype-acquisition.html)

[2] [http://mashable.com/2009/11/06/skype-lawsuit-
settled/](http://mashable.com/2009/11/06/skype-lawsuit-settled/)

------
williwu
This article come to mind. Would Google be interested in buying a stake in
Paypal now?

[http://www.cnet.com/news/google-to-buy-slice-of-ebay-
unlikel...](http://www.cnet.com/news/google-to-buy-slice-of-ebay-unlikely-
says-analyst/)

------
ghobs91
I think one of the major sources of eBay's troubles is their decision to
slowly abandon their P2P focus, in favor of the "shopping mall of the
internet" model that Amazon uses. Rather than pursuing this model and doing it
better than the competition, they chose to ape them, and badly.

Like CrazyCatDog said, eBay is the textbook example of what happens when a
tech company is run by consultants who don't understand the users.

~~~
CamperBob2
A contrarian view: there is some room to attack Amazon, primarily in the UX
department. I wouldn't rule that out as a strategy for growth, but is eBay the
right company to execute it? That's where it gets murky. They have a lot of
the same usability flaws.

~~~
toomuchtodo
> A contrarian view: there is some room to attack Amazon, primarily in the UX
> department.

Good luck with that. I've spent over $50K at Amazon over the last decade
according to the data I dumped out of my orders. I'm a prime member. Amazon's
site isn't perfect, but between the reviews, 2-day free shipping, 1 day at ~$5
extra, and product selection rivaled only by Walmart, I wouldn't look at Ebay
unless it was something exotic (5 ton military truck for example).

"Bid" on something? No. Use Ebay's UX compared to Amazon's? Again, no thank
you. Wait 5-7 days (at least) for something? Good luck Ebay!

------
hemancuso
This articles suggests only 20% of PayPal will be sold, although I doubt that
number is anywhere near final. It's just like EMC spinning off VMware. EMC
held on to 80% of VMware [and still does?]. It lets them capitalize much more
effectively on the faster growing subsidiary. Even today VMware trades at
double the PE ratio that EMC does.

~~~
lbarrow
The 20% figure quoted is describing an earlier deal that eBay considered and
rejected.

------
bhangi
The one question no one seems to be asking is how much of PayPal's revenue is
due to transactions on eBay. I suspect that it is the majority. If that's the
case, then with the spinoff, it would be in eBay's interest to make all other
types of payments equally attractive on its site -- not so good for PayPal,
I'd think.

~~~
slykat
Last year Ebay's marketplace accounted for 30% of Paypal's revenue. Ebay
mentioned that this number is declining and is forecast to hit 15% in the
future. So significant but declining.

"That’s no surprise since about 30 percent of PayPal’s business is still on
eBay, although that is down from 50 percent only a few years ago. Donahoe said
eBay projected it would get to 15 percent quickly."
[http://recode.net/2014/09/30/ebay-to-spin-off-paypal-with-
ne...](http://recode.net/2014/09/30/ebay-to-spin-off-paypal-with-new-ceos-for-
two-publicly-traded-companies/)

------
wheaties
Wait, payment processing is seeing a lot more competition and now they decide
to split? I don't know if this is such a "value creation" move.

~~~
CamperBob2
I think the argument is that as the landscape gets more competitive, eBay
can't afford to tie themselves so intimately to a single payment provider.

That is why eBay's stock lurched upwards as soon as the news was announced. To
someone looking to invest in an online marketplace, eBay is more important
than PayPal by itself.

------
dosh
Once this goes live, PayPal will sooner or later face stiff competition beyond
its current stage under the umbrella of eBay, competing against Chinese
players like those of alipay and tenpay which already have users in the
hundreds of millions. These players are agressively looking into the markets
outside of mainland China.

The landscape won't change in a few years, but in a decade, may look
completely different.

~~~
Shinkei
I agree that they are companies with promise, and certainly will be strong in
their domestic markets... but I remain skeptical of their success in the West.
I personally would not directly support Chinese businesses if I have an
equivalent Western business that I can support, not simply because of
xenophobia or some nationalistic nonsense, but because what China does as a
Government is reprehensible. For all its faults, America is still a shining
emblem of Democracy when compared to other powers such as Russia and China.

~~~
adventured
Not only that, but China doesn't allow an even playing field in any regard
what-so-ever in their domestic economy.

Foreign investors still can't own more than the majority share in a Chinese
company.

China is anti-West when it comes to supporting their domestic companies. They
block out major competitors, such as Google or Facebook, and they make life
very difficult for anyone that attempts to compete with their domestic
companies.

The crap Alibaba pulled in stealing tens of billions in wealth from Yahoo by
spinning off Alipay without proper compensation and forcing Yahoo to sell half
its stake in Alibaba is par for the course in China.

------
modeless
I wonder if this will affect PayPal's recent enthusiasm for Bitcoin one way or
the other.

------
ghshephard
The first thing that comes to mind is that the clock has just started ticking
for PayPal to become accepted all over the web in places that it may not have
been as welcome. For example, I'm sure Amazon will add PayPal within 90 days
of Paypal going public (if not sooner).

~~~
michaelt
Isn't Paypal just another middleman between the retailer and the banks?

I mean, Paypal is all very well for a small site where customers don't trust
you with their card details or you're not doing enough volume to get a decent
merchant account - but neither of those applies to Amazon.

Paypal will want a bigger cut than Amazon's existing credit card processors.
So why would Amazon want to use Paypal?

~~~
foldor
PayPal allows people who don't have a credit card to make purchases online.
Many people in European countries don't have a credit card for example.
Accepting PayPal is an easy alternative to supporting all of the different
payment methods that you might need to meet certain regions expectations.

~~~
icebraining
Not sure how widespread it is, but here in Portugal banks offer a service that
allows you to create virtual CCs tied to your bank account. You just set a
limit (in €) and it returns all the CC info needed to make a payment.

~~~
SEJeff
Bank of America has the exact same thing.

[https://www.bankofamerica.com/privacy/accounts-
cards/shopsaf...](https://www.bankofamerica.com/privacy/accounts-
cards/shopsafe.go)

~~~
ericcope
do any other banks have this?

~~~
dkarapetyan
Chase.

~~~
SEJeff
Really? Where? I've been a chase customer since they bought BankOne in ~2006
and haven't seen this.

~~~
dkarapetyan
Sign in to the online portal. If you have a credit card with them you can
generate virtual ones tied to that same card.

------
davidgerard
eBay's acquisitions have rarely made sense, PayPal being the only one I can
think of that had synergy. Does anyone understand why they bought Magento, for
instance?

------
calcsam
Next target: Yahoo.

------
danesparza
I'm amazed that this jackass who ran TWA into the ground still has so much
staying power. [http://www.businessinsider.com/marc-andreessen-carl-icahn-
ki...](http://www.businessinsider.com/marc-andreessen-carl-icahn-killed-an-
entire-airline-2014-3)

~~~
rattray
What, you're only allowed to learn from failure in Silicon Valley?

~~~
ceejayoz
TWA wasn't a failure for Icahn. He made hundreds of millions of dollars by
selling its assets to pay himself.

~~~
aml183
A win for them (Icahn and Andreessen) is measured by their wallet not about
the societal impact.

~~~
toomuchtodo
We shouldn't confuse what normal people consider success to be with with what
a sociopath considers success.

------
Rachelgee
NoOoOoOo!

------
moony320
market share is the most important thing. Paypal will hurtle without Ebay. I
think this is a wise and significant decision. And hope Paypal could reduce
rates or even chance the fees.

------
wstcha
market share is the most important thing. Paypal will hurtle without Ebay. I
think this is a wise and significant decision. And hope Paypal could reduce
rates or even chance the fees.

~~~
jessaustin
"hurtle" might be kind of an ambiguous verb here. I think you mean that PP
will take off, but hurtling usually seems to imply traveling under the
influence of inertia and gravity alone.

EDIT: why have two green accounts posted the same non-idiomatic comment in a
matter of minutes?

------
conchy
Smart move, eBay divests before bitcoin really starts eating PayPal's lunch

~~~
DanBC
Bitcoin provides zero protection to buyers.

It's delusional to think people would want to buy stuff from ebay without the
protections from Paypal or their credit card provider.

Current consumer protection advice is to walk away from any sale that uses
things like Western Union or cash transfer - and this is likely to be extended
to include Bitcoin as soon as anyone in the general public hears about
Bitcoin.

~~~
icebraining
Still, a simple escrow system on top of Bitcoin could provide the same
guarantees while potentially being cheaper. It's not like Bitcoin prevents
such systems from being created - on the contrary, it has mechanisms to
support them.

~~~
jfoster
What makes you think it would be much cheaper? I think it might have to be
more expensive. The anonymity aspects of bitcoin could result in more
fraudsters getting away with fraud.

~~~
nmj
_The anonymity aspects of bitcoin could result in more fraudsters getting away
with fraud._

Ignorance creates comments like this. Bitcoin transactions are not reversible,
you have zero opportunity for fraud as a buyer.

~~~
jfoster
Read above. We are discussing a hypothetical system that provides a PayPal-
like guarantees layer on top of bitcoin. As you point out, bitcoin
transactions are always irreversible. That's what could make it more expensive
in my view. The service would always be reimbursing buyers involved in failed
transactions at its own expense.

