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EBay to Spin Off PayPal (nytimes.com)
230 points by murtza on Sept 30, 2014 | hide | past | web | favorite | 94 comments

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.

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.

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.

Or perhaps for some reason management needs an external blame sink for doing something they wanted to do...

This move has nothing to do with consultants and everything to do with activist shareholder Carl Icahn.

In this case it is more likely that the consultants were brought in to "independently" provide justification for something that had already been decided.

This is what they repeatedly did to collective farms mid 20th century in USSR. Nothing helped. One can only wonder why :)

Wasn't the prior CEO (Meg Whitman) also Bain?

In his defense, he was there for almost 10 years, no?

Yes the GP comment is totally off base as far as its attacking Donahoe is concerned (if that was even the intention). He's a very long time eBay exec, and Meg Whitman was nearly with eBay from the beginning. From all outward appearances Donahoe and his colleagues only made this decision after a lot of careful consideration.

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?

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.

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.

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.)

I see the opposite problem on the horizon. With the Braintree acquisition, Paypal is a lot less likely to integrate with Stripe. Braintree is going to be a worse version of Stripe, but we will use it because it will give us PayPal out of the box. It is a good time to work at Braintree.

As someone who has worked a ton with the Stripe API, whenever I use Braintree's (vZero) API it looks soo much like they are trying to copy Stripe, but fail so so hard. Want to get the subscriptions for a customer? Sure, first get all the cards the customer has, then iterate through that list of cards and combine all the subscriptions for each card. Oh, is that a paypal customer, well credit cards and paypal accounts are separate and each can contain subscriptions.

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.

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.

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.

integration has been live on my account for several months.

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.

> 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.

eBay has most of the profit in the business. PayPal has sales growth, but is nowhere near as profitable as the eBay auction platform. There's no doubt the market wants access to PayPal's growth, but eBay is the profit machine in that relationship. eBay's platform margins are extreme.

PayPal will have to become five times larger to equal the profit that eBay spins off. Perhaps they can pull that off, but it's going to take a decade or longer.

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.

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

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.

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

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?

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.

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...

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

I wasn't commenting about the board of Ebay or Andreesen. they may well be pillaging assholes in their own right. that doesn't mean that Icahn isn't also a pillager. He certainly has the track record of one.

Everyone keep your eyes peeled for same thing re Value Act Capital and Microsoft.

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


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.

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.

> 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!

I love to think that a web shop with decent search would beat Amazon.

However, even though I really freaking hate some aspects of the Amazon website I am a repeat customer. I don't have much money but the small amount of disposable income I do have goes to Amazon.

Competitors would need to have similar customer protection and customer service; and at least similar pricez or justification for higher prices.

Not only in the UX department, but also in their flawed and not very useful personalization system. "We noticed you bought an iPad, here are some more iPads" is not helpful.

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.

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

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.

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...

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.

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.

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.

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.

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.

PayPal will probably be eaten by Visa (if it can pass anti-trust criticism, not easy).

Visa has a $134 billion market cap and is the payments juggernaut globally. I'd bet on them at least attempting to acquire PayPal.

To put Visa in perspective, their profit for 2013 was roughly 60% greater than Alibaba's.

These would still have a massive trust issue in most parts of the "Western World". Certainly doable under the umbrella of buying an established western (banking) brand but Asian brands will have a hard time communicating trust, reliability and security.

Even though it makes no sense, I'd rather use an unknown western banking company than an unknown asian banking company and I'm sure many feel the same.

Maybe these competitors would want to invest/partner with paypal and splitting from Ebay opens up that opportunity

PayPal and AliPay have been in competition since 2005, when PayPal launched a payments platform in China. So... definitely sooner rather than later.

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

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).

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?

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.

Amazon accepts debit cards and other payment methods in those countries though. For a company of Amazon's scale, supporting different payment methods across European borders is not the challenge that it would be for a small business.

The existing marketplace solution for that is prepaid credit cards, essentially gift certs that can be redeemed by being run as a credit card. Teens use them to shop online, or at least my kids do.

There is also limited liability with prepaid CCs, no matter what happens you can't be out more than the value of the CC, but you can get into considerable financial trouble with paypal WRT overdrafts and overdraft fees and bounced check fees ... its just not worth it unless you're well disciplined.

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.

Bank of America has the exact same thing.


do any other banks have this?


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

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

Anybody who doesn't have a credit card can't buy from Amazon (easily) right now, even if you have a paypal account. Given that EBay and Amazon are direct competitors in the retail space, it made good sense not to share purchasing/sales information with Paypal.

Once Paypal and EBay are separate entities, Amazon now can reasonably enter into a merchant agreement with Paypal.

I don't buy into the Amazon/Paypal being competitors - while in theory this is true, Amazon has far more to gain by accepting paypal customers, than it has to lose by not winning the online payment business.

Put your money where your mouth is, I will bet £100 that this won't happen.

How about, for the same reason credit card processors accept multiple credit card networks? PayPal is a pretty well-known payment brand now, and some people prefer to pay with it. It doesn't have to completely displace every other payment method Amazon offers to be worth a look.

Really? Given that Amazon have a competing product (Amazon Payments), I'd be surprised if they supported Paypal?

Amazon payments already replaces most of what PayPal provides. Why on earth would amazon add paypal?

So when are they adding Google Wallet?

Amazon has their own payments solution. I've actually seen it replacing PayPal several places, like buying WiFi on flights.

Let's hope that the competition between Amazon and PayPal results in some significant value for the consumer/user/business users. Years ago, when I first built my e-commerce site, the only viable payment method that could be easily integrated was PayPal. Unless I wanted to pay a significant premium to have a payment gateway before I was ready to take on those initial sunk costs, PayPal was the most attractive and likely solution.

Hopefully, the industry will shift as more options become available and user-friendly. PayPal has the advantage of name recognition, but Amazon shares the same, and frankly, I personally regard Amazon more positively than PayPal. Hopefully, the industry continues its trend, now a quasi-oligopoly and eventually monopolistic competition.

Like others have mentioned, I too wonder how they are going to divvy shares.

I dont think so that will happen any soon. PayPal and eBay have split to fight off competition and Amazon is quite a competitor for PayPal.

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?

Next target: Yahoo.

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...

I totally agree with your assessment of Icahn. Andreesen's no saint however, he supports government spying and trampling of civil rights for his personal gain.

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

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

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

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

As long as you have massive amounts of money you'll always be relevant.


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.

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.

"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?

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

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.

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.

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.

I'm not saying it would; I'm saying it potentially could.

But the CC system also provides anonymity, since most cards used for fraud are stolen anyway, so the fact they're tied to a real person is irrelevant.

Bitcoin, on the other hand, doesn't suffer from the same problem as CC - that the payment info must be shared with every single merchant - so it's potentially must harder to steal; Target wouldn't have a copy of your bitcoin wallet just because you bought something from them, for example.

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.

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.

And credit cards provides zero protection against identity theft. In fact, they even enable it because you give your full billing info (credit card number, address, etc) when paying an online merchant with a card.

You see, no payment technology is perfect. Credit cards have flaws. Bitcoin has flaws. But Bitcoin is better than credit cards for the average consumer. In the last 10 years:

- I have had to deal with 2 identity theft incidents that caused me major hassles and waste of time. Bitcoin would have prevented this because a Bitcoin transaction authorizes 1 and only 1 payment to a specific address. Bitcoin utilizes cryptography to guarantee that, not blind faith in the merchant not being compromised by hackers...

- on the other hand I have never had the need to issue a credit card chargeback, so this protection of credit cards was, although real, unneeded, useless to me.

PayPal protections are usually considered a disaster for everyone involved. Sellers and companies are constantly getting their accounts frozen, buyers are constantly getting shipped bottles of shampoo instead of camera equipment, priceless violins are being destroyed, etc..

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