March 12, 2013

What are effects of eBay's Acquisition of Paypal ?

I have just given a presentation on merger and acquisition of Paypal by eBay.This is a transcript of the presentation, it can be used as a pointer in further studies.

eBay- An Introduction

  • AuctionWeb was founded in San Jose, California, on September 5, 1995, by French-born Iranian-American computer programmer Pierre Omidyar 
  • eBay Inc. provides online platforms, tools, and services to help individuals and merchants in online and mobile commerce and payments in the United States and internationally
  • A multi-billion dollar business with operations localized in over thirty countries
  • On April 18, 2012 eBay reported a 29% Q1 revenue increase to $3.3 billion compared to their Q1 in 2011. Net income was reported to be at $570 million for the quarter

Key Dates : Ebay

  • In November 1996, eBay entered into its first third-party licensing deal, with a company called Electronic Travel Auction to use SmartMarket Technology to sell plane tickets and other travel products.
  • The company officially changed the name of its service from AuctionWeb to eBay in September 1997.
  • In February 2002, the company purchased IBazar, a similar European auction web site founded in 1993 and then bought PayPal on October 14, 2002.
  • By early 2008, the company had expanded worldwide, counted hundreds of millions of registered users, 15,000+ employees and revenues of almost $7.7 billion

PayPal- An Introduction

  • PayPal enables any business or consumer with an email address to securely, conveniently, and cost-effectively send and receive payments online.
  • It builds on the existing financial infrastructure of bank accounts and credit cards to create a global, real-time payment solution.
  • It delivers a product ideally suited for small businesses, online merchants, individuals and others currently underserved by traditional payment mechanisms.

Key Dates: Paypal

  • 1998: Peter Thiel and Max Levchin found Field Link, soon renamed Confinity.
  • 1999: Confinity launches first version of the PayPal electronic payments system.
  • 2000: Confinity is acquired by Corporation.
  • 2001: makes initial offering of stock on NASDAQ; firm is renamed PayPal Inc.
  • 2002: eBay Inc. acquires PayPal for $1.5 billion in stock

Why PayPal was sold ?

  • Competitive Landscape: eBay was in talks to make Billpoint (a credit card processing service) free to all eBay auctioneers.
  • Billpoint had small market,but this subsidy would have undercut PayPal in its core market at a point when the company had not yet broadly diversified outside of auctions.
  • Mutual Dependence with eBay: At the time of the sale, 70% of all eBay auctions accepted PayPal payments, and roughly 1 in 4 closed auction listings were transacted using the payment service.
  • Regulatory Risk: The company had to apply for money transmitter licenses on a state-by-state basis once the FDIC established that it was not a bank
  • Regulators, such as NY Attorney General Eliot Spitzer, sought to challenge the company’s business practices.
From Eric M. Jackson article
Benefits to  PayPal

  • PayPal is a diversified business that generated only 33% of its revenue from sales in eBay’s marketplace
  • It’s accepted as a payment method with gigantic merchants such as Home Depot and Dell.
  • The company is also on sure legal footing.
  • A decade ago, over two-thirds of its revenue came from eBay auctions.
  • A decade ago, there were still lingering questions as to whether some regulatory body would try to shut it down.

Image courtesy:

 Benefits to eBay

  • eBay’s core business getting tough fight
  • PayPal's revenues have grown at about 25% over the past two year and experts expect it to continue growing at similar rates in the near term.
  • PayPal contributed $1.37 billion in sales, or just over 40% of all of eBay Inc’s net revenue
  • PayPal constitutes 46% of the price estimate for eBay's stock.
  • Merchant services contributes about 65% of PayPal’s Total Payment Volume
  • Some notable customers include Barnes & Noble, Dell, and NorthWest Airlines


Naviya Nair said...

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Paul Miller said...

Wonderful post!!Java is written once and used anywhere, means general it is platform independent so it can run any platform like in android, linux, etc..,.It Is general purpose programming language. It was Origin by two programming language c and c++(c with classes).Thank you for sharing your article.
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