Disrupting Markets – Why PayPal Is Worth More Than Ebay

Disrupting Markets – Why PayPal Is Worth More Than Ebay

by | Aug 2, 2015 | Current Affairs, In the Rapids, In the Swamp, Leadership, Web/Tech

eBay was once a game changer.  When the internet was very young, and few businesses provided ecommerce, eBay was a pioneer.  From humble beginnings selling Pez dispensers, eBay grew into a powerhouse.  Things we used to sell via garage sale we could now list on eBay.  Small businesses could create stores on eBay to sell goods to customers they otherwise would never reach.  And collectors as well as designers suddenly discovered all kinds of products they formerly could not find.  eBay sales exploded, as traditional retail started it slide downward.

To augment growth eBay realized those selling needed a simple way to collect money from people who lacked a credit card.  Many customers simply had no card, or didn’t trust giving out the information across the web.  So eBay bought fledgling PayPal for $1.5B in 2002, in order to grease the wheels for faster ecommerce growth.  And it worked marvelously.

But times have surely changed.  Now eBay and Paypal have roughly the same revenue.  About $8B/year each.  eBay has run into stiff competition, as CraigsList has grown to take over the “garage sale” and small local business ecommerce.  Simultaneously, powerhouse Amazon has developed its storefront business to a level of sophistication, and ease of use, that makes it viable for businesses from smallest to largest to sell products on-line.  And far more companies have learned they can go it alone with internet sales, using search engine optimization (SEO) techniques as well as social media to drive traffic directly to their stores, bypassing storefronts entirely.

Growth Stall primary slideeBay was a game changer, but now is stuck in practices that have become far less relevant.  The result has been 2 consecutive quarters of declining revenue.  By definition that puts eBay in a growth stall, and fewer than 7% of companies ever recover from a growth stall to consistently increase revenue by a mere 2%/year.  Why not?  Because once in a growth stall the company has already missed the market shift, and competition is taking customers quickly in new directions.  The old leader, like eBay, keeps setting aggressive targets for its business, and tells everyone it will find new customers in remote geographies or vertical markets.  But it almost never happens – because the market shift is making their offering obsolete.

On the other hand, Paypal has blossomed into a game changer in its own right.  Not only does it support cash and credit card transactions for the growing legions of on-line shoppers, but it is providing full payment systems for providers like Uber and AirBnB.  It’s tools support enterprise transactions in all currencies, including emerging bitcoin, and even provides international financial transactions as well as working capital for businesses.

Paypal is increasingly becoming a threat to traditional banks.  Today most folks use a bank for depositing a pay check, and making payments.  There are loans, but frequently that is shopped around irrespective of where you bank.  Much like your credit cards, which most people acquire for their benefits rather than a relationship with the issuing bank.  If customers increasingly make payments via Paypal, and borrow money via operations like Quicken Loans (a division of Intuit,) why do you need a bank?  Discover Services, which now does offer cash deposits and loans on top of credit card services, has found that it can grow substantially by displacing traditional banks.

Paypal is today at the forefront of digital payments processing.  It is a fast growing market, which will displace many traditional banks.  And emerging competitors like Apple Pay and Google Wallet will surely change the market further – while aiding its growth.  How it will shake out is unclear.  But it is clear that Paypal is growing its revenue at 60% or greater since 2012, and at over 100%/quarter the last 2 quarters.

Paypal is now valued at about $47B.  That is roughly the same as the #5 bank in America (according to assets) Bank of New York Mellon, and number 8 massive credit card issuer Capital One, as well as #9 PNC Bank – and over 50% higher valuation than #10 State Street.  It is also about 50% higher than Intuit and Discover.  Based on its current market leadership and position as likely game changer for the banking sector, Paypall is selling for about 8 times revenue.  If its revenue continues to grow at 100%/quarter, however, revenues will reach over $38B in a year making the Price/Revenue multiple of today only 1.25.

Meanwhile, eBay is valued at about $34B.  Given that all which is left in eBay is an outdated on-line ecommerce conglomerator, stuck in a growth stall, that valuation is far harder to justify.  It is selling at about 4.25x revenue.  But if revenues continue declining, as they have for 2 consecutive quarters, this multiple will expand.  And values will be harder and harder to justify as investors rely on hope of a turnaround.

eBay was a game changer.  But leadership became complacent, and now it is very likely overvalued.  Just as Yahoo became when its value relied on its holdings of Alibaba rather as its organic business shrank.  Meanwhile Paypal is the leader in a rapidly growing market that is likely to change the face of not just how we pay, but how we do personal and business finance.  There is no doubt which is more valuable today, and likely to be in the future.

Do you Facebook?

by | Mar 23, 2010 | Current Affairs, Leadership, Lock-in, Openness, Web/Tech, Weblogs

Let's see, would you rather spend $4million to reach 100 million people once – say via a Super Bowl ad – or spend almost nothing to reach 400million people every day?  Seems obvious economics.  Yet, how good is your Facebook presence?  Because that is the route to all those people who are on-line daily.

Most of today's business leaders grew up in the world of one-way advertising.  They watched TV, listened to the radio, read magazines and newspapers.  They were taught that to get a message into potential buyer heads, unfiltered by journalists, you had to advertise.  And for a long time, that was pretty true.  So they Locked-in on advertising and traditional PR as the route to name awareness and brand image.  But that was before the market shift which is dampening enthusiasm for traditional media while social media (broadly – including YouTube) is exploding.

Now your customers, and potential customers, are most likely using Twitter, Facebook, Linked-In and other social media every day.  And when they search on your products, they get Google responses from social media.  If you aren't putting some effort into the media, your image and message could be far removed from your goal! 

I remember talking to the CEO of Rolex in 1997.  Rolex did not have a web site.  His point of view was that as a luxury good, the internet was "below" his company's standards for communicating.  If there was to be a web site, he thought Tourneau – the world's largest retailer of luxury watches – would build it.  In 10 minutes I demonstrated to him how a simple search on "Rolex" turned up gobs of used dealers, unauthorized dealers, unauthorized repair shops, and outright fakes!  Several near the top of the list!  He was shocked.  His brand was rapidly being marginalized via a channel he had never even considered.  His worst fears about how the brand would be stolen, manipulated and value minimized were happening – and he was blithely ignorant.  Of course, Rolex got involved quickly to protect its brand.

So when was the last time you reviewed your brand, or image, or message across social media channels?  Are you possibly, blithely letting someone else manipulate your image?

At MediaPost.com in "Ensuring A Successful Corporate Facebook Presence" the authors outline a 4 step approach for doing a good job.  My biggest fear is that Lock-in to old approaches to sales and marketing mean too few companies are paying even a shred of interest in social media.  Over and over I hear marketers of large, established companies saying that social media access is blocked at work – and nothing is being done to leverage the channel!  In some instances, I've heard of Chief Marketing Officers making a "command decision" to avoid social media, because they can't "control" it. 

Secondly, the competition that is going to ruin your day just might do it via social media!  An existing company may have an image, advertising and effective PR.  So how would a Disruptive new competitor go after you?  Why, using the very low cost channel of social media.  We've all heard about disgruntled customers that have used songs, videos and other clever tools to spread extremely negative information like wildfire through a customer base.  Yet, by ignoring the channel – by ignoring the opportunity to develop a strong and effective presence that ties to customers – we encourage competitors to use this channel to our detriment.

Don't let Lock-in cause you to ignore this powerful, and shockingly low cost, communication tool.  Realize that social media is here to stay, and incorporate it into your future scenarios.  Additionally, social media is where your competition – especially fringe competitors – are likely to target you.  Why not study them, learn from them, and use the tool to grow instead of being a target?  And when it's time to implement, Disrupt your old decision-making and spending patterns so you allocate some resources to build out your social media campaign.  Then put together a White Space team with Permission to really go for success using the resources you've now dedicated to the project.

Applying the Phoenix Principle can result in a rapid improvement in social media marketing – and it just might save you a huge amount of spending on your traditional marketing communications plans.  While bringing in new customers and markets!