PayPal IPO

xx yy
Sun, 21 Oct 2001 09:02:05 -0700 (PDT)

Ebay was one of  .net's  early verticals - passport is
probably more of a threat than billpoint; billg was
talking about micropayments as early as 95 in "The
Road Ahead."

B/c passport similarly uses an email address as a
unique identifier and sign-on too, and b/c there is no
mechanism in place to prevent MS from using a
"fast-follower" strategy (or @least a
doggedly-persistent follower strategy) there's a huge
danger of ms leveraging their existing positioning to
take a big piece of PayPal's it to the
Palm/PocketPC situation we are seeing now.

MS's vapourware value proposition on passport is
inherently more convenient than PayPal, too - I forget
the details of their eBay partnership, but one assumes
a potential passport use-case is tracking auctions; I
believe PayPal's best chance against the beast are is
ms's tarnished reputation, that the industry will
never let .net go Gorilla...I hope.

Paypal needs to become an integral part a value-chain
outside and beyond eBay - chances of first mover lock
in are diminished b/c they're too dependant on one
customer - the eBay customer. Becoming part of a new
value chain requires the forging of partnerships;
let's hope they do that/

> Right now, about 70 percent of PayPal's business
comes from auctions,
> "particularly eBay" auctions, according to PayPal's
prospectus. It's
> far and
> away the most popular electronic payment method on
eBay, dwarfing the
> auction company's in-house competitor, Billpoint.
> ...
> There are some points in PayPal's favor that would
make it an attractive
> purchase. For one thing, it's got the network effect
going--that is, the
> more people who use the service, the more desirable
it becomes.
> ---------
> While PayPal is probably close to achieving network
effects lock-in,
> they're
> not there yet. There are two major vulnerabilities
to their business:
> EBay's
> rival billpoint service, and the credit card
companies.  Since much of
> PayPal volume right now is EBay transactions, EBay
pulling the plug
> would be
> a big blow.  As well, in the most
> recent quarter, over 50% of the "real"
> money entering the PayPal system came from credit
> If you assume that PayPal will be able to navigate
past these
> obstacled to
> become *the* winner-take-all in this category, the
next question is
> whether
> online transaction brokering is a viable business
segment at all.  The
> quote
> in the article about fraud is concerning: "Between
July and October, a
> 'significant fraud episode' cost the company $5.7
million, 64 percent
> of all
> chargebacks for the year."
> My bold prediction is that PayPal will achieve
lock-in before other
> competitors in this space, and before the credit
cards enter with
> competing
> products. They will eventually become profitable,
and will survive for
> the
> long term. I'm less sure as to how to assess a
reasonable market
> valuation
> to them. $400-$500 million feels "right" to me, but
valuing companies is
> certianly not my area of expertise.
> - Jim

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