If you have ever been on the internet, chances are you have either bought something from eBay or at least heard of eBay. EBay is one of the biggest online marketplaces today, with Amazon being their only real competitor. Since 2002, eBay has owned PayPal, which is the most used online payment system in the world. After almost thirteen years, eBay recently announced they are splitting off from PayPal.
EBay’s Chief Executive Officer, John Donahoe, says that the separation actually gives both companies an advantage in their specific markets. EBay’s annual revenue is $9.9 billion with a growth of 10 percent every year. On the other hand, PayPal’s revenues are $7.2 billion, but they are growing 19 percent every year. PayPal’s revenues are growing almost twice as fast as eBay’s! Donahoe says that keeping both companies together will hold the companies from their full potential and reduce the other’s revenue growth.
The separation will be more beneficial for PayPal than it will for eBay. PayPal is the current online payment source for over 200 markets worldwide and is expected to process over one billion mobile payments this year! In order for PayPal to expand and fill the orders of the worldwide marketplaces, the companies had to separate. Also with Apple coming out with Apple Pay (a new online payment system), the best way for PayPal to compete was for the separation to happen. EMarketer said that in the US alone, mobile payments will reach to 3.5 billion in 2014. That amount is supposed to increase exceedingly to 118 billion by 2018!
This is a big step for both companies! They believe this choice will give them the advantage in the online market world. Do you think this is a good strategy? Do you think both companies will prosper or do you think one or both will decline from the separation? How do you think the online community will respond to this news?
I think this is a great strategy, because it allows each company to not consider the performance of the other which is important if they both plan to continue to perform as well as they have which is necessary to continue to attract investors.
ReplyDeleteHowever, PayPal has its work cut out for it. With computer giants like Apple and Google entering the payment processing market, they have everything to gain and PayPal has everything to lose. While the market is 'expected' to dramatically increase over the next 4 years, my experience has been that those numbers are consistently off by a lot. For example, 2012 was supposed to be the year of mobile marketing. We still haven't reached the numbers predicted by some very intelligent marketers. 3.5 to 118 is a lot.
Is important to understand that the statistics or proyections of a specific product or service most of the time are off since is something that cannot be measured exactly. The reason why probably this methods of payment are taking a little bit longer is because changes the consumer minds completely, so it will take a while for the consumers to feel safe and secure to use this new types of technologies. But once this is achieved by google or Apple it will be a huge increase in usage.
DeleteAaron,
DeleteI agree with your concern for PayPal. However, PayPal does have a leg up on Google and Apple since they have been in this space already for so many years. They could even partner with one or both of them to provide users who already have PayPal accounts to link their accounts with Google and Apple if users demand this!
In my opinion, PayPal's 2 most significant advantages are its learn curve experience and its market share. But both Google and Apple are market share monsters in the high tech sector. They have each entered industries before and taken them over. While PayPal could and may even partner with its new competitors that's not an optimal decision. Again, PayPal has much more to loose than either Google or Apple, each of which know how to gather and mine data. On the other hand, Facebook and Microsoft have not been able to steal much search market from Google and Google has not been able to steal social market share from Facebook. On the other hand, digital wallets are new territory and both Google and Apple have something that PayPal doesn't. They collectively dominate the lion share of the mobile Operating System market, which means their phones will come preloaded with their wallet software and will likely soon be activated as part of the initial new user setup process. PayPal will have to convince people to ignore the functionality they already have, go to an app store, download, install, and configure their own different app. That is a huge hurdle.
DeleteYou said that the split was better for PayPal, how do you think eBay will deal with the split and how it affects their revenue.
ReplyDeleteDaphne,
DeleteI believe eBay will be able to partner will multiple payment systems now. Many users that sign up for online payment systems like PayPal commit to one to limit how many places store their info. So if eBay is not tied to one exclusively, users who are committed to non PayPal sites may be more willing to shop on eBay now. Thanks for your comment!
Do you think that with more payment options there will be more risk for identities and customer information being compromised? I agree that those who do not use Paypal will be happy with more options for payment. I wonder how much risk will be associated with this.
DeleteI think that eBay will be able to handle the transition, as long as the website still supports the use of PayPal. PayPal allows for more security when dealing with transactions with unknown buyers and sellers.
ReplyDeleteLauren,
DeleteYou are absolutely correct. PayPal will still be used on eBay they are just no longer tied to another. Thanks!
In a way, this is a smart decision for eBay because now that they are split, eBay doesn't have to rely on Paypal to be successful. If for some reason Paypal declines in users and becomes obsolete one day, eBay will still be able to grow if consumers use other payment systems like Apple Pay.
ReplyDeleteDavid,
DeleteYour comments are spot on. Especially since Apple and Google have such devoted users already through there phones these users will be apt to either optionally sign or up their services or could even be required to one day like Google currently does with their email service to android users. Thanks!
i heard of ebay but what is padpay, i am not clear?
ReplyDeletePaypal is the online payment system developed by the same people that created eBay in order to process payments.
DeleteWith the market growing over the next 4 years, will ebay suffer from the growth?
ReplyDeleteIn terms of auction sites, eBay may suffer slightly due to the recent resurgence of penny auction sites coming out. However, many consumers view most penny auction sites to be scams, so I predict that eBay will remain on top in the end.
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