Three Valuable Teachings from the PayPal Wars
Many founders of the worlds largest startups came from a payments company called PayPal. In 1998, things were very different back then. There was no Twitter or Facebook at a time where Yahoo was dominating the search engine.
The PayPal Wars by Eric Jackson is a great book to read for anybody looking at the origins of all the great founders of today. It not only explains who but also how they were back then. It contains the entire journey of PayPal from the start to the Godzilla it became. Elon Musk criticised the book by saying Eric Jackson was an intern and had no insight into what was really going on at the executive level.
Building a team of A plus players
The team do not need to be experts, but they needed to be hungry, talented and driven to achieve goals. Reid Hoffman and Peter Thiel had met each other while studying at Stanford University. Today, most of the people who had worked at PayPal had moved onto launching and leading bigger projects with more generations to follow. Mark Zuckerberg had looked for funding for the then The Facebook. Hoffman introduced Thiel and they became one of the first investors for the platform. The first part the executive team had to do was bring all the entrepreneurs together and hire the smartest people in the business. Indeed, the executive team was full of hungry people. Needless to say smart people they hire do change their positions a lot of the time since it is a startup. Startups are less structured compared to large corporate companies. Thiel delivered a guest lecture at Stanford and that is how he met Levchin. Levchin was a Computer Scientist while Thiel was a lawyer.
- Peter Thiel the Co-founder, CEO and Chairman of PayPal (President of Clarium)
- Elon Musk the Co-founder and CEO (CEO of Tesla and founder of SpaceX)
- Reid Hoffman — PayPal executive (CEO and founder of LinkedIn)
- Jeremy Stopplmeman — PayPal VP of technology (CEO of Yelp)
- Max Levchin — Co-founder and CTO (CEO and founder of Slide)
- Steve Chan, Chard Hurley and Jawed Karim — PayPal engineers (co-founders of Youtube)
Develop a product for a specific company
There strategy was quite simple. That was to target a company (eBay) and provide their customers with a service like none other. eBay was growing, in 1999 they had 2 million users by the following year have grown to 10 million users. They were hosting around 3 million auctions per day. Most eBay users never qualified for merchant accounts and this is where PayPal came to solve the problem. Without a merchant account sellers had to sometimes wait a whole week before receiving payment.
Keeping the money securely safe in the cloud without government manipulation. In addition this was also a safe way to transfer money as opposed to a bank. Their marketing team went to auctions to get the company to grow. Customers treated PayPal like a digital wallet where a customer could do a person to person payment. Those days they were limited to cash, mail or writing a check. Debit and Credit Cards expanded but only limited to merchants.
The vision was to become the “Microsoft of payments, the financial operating system of the world”. They were initially targeting palm pilot technologies since smart phones did not exist in those years. Palm pilot or PDA (personal digital assistant) was a specific kind of device that connected to the internet.
They had a series of challenges to go through — from the dot com boom and the currency crises that took place around 1998 and 1999. Every payment that was sent they had to pay the Credit Card company which resulted in some form of losses. This goal of being the financial operating system of the world has been achieved. Eventually eBay bought PayPal.
Be fast with speed to market
Elon Musk’s vision for building x.com was to build an online bank. It became a licensed bank with a partnership with Barclays where the headquarters were in London. X.com gave $20 for signing up and $10 for referrals. They offered everything a normal bank would with an additional service of person to person payments just like Confinity (PayPal was previously known as). PayPal gave $10 for signing up and $10 for referrals. While Confinity was targeting PDA’s and x.com also had their own growing customer base.
This was the best opportunity for Confinity to merge with x.com and become known as PayPal since they were competition to each other and the vision was very similar. They shifted their marketing strategy to eBay users because of the growing demand for person to person payments. They helped their customers market their brand by giving them the PayPal html code which included the logo to add to the eBay site.
