Nearly 13 years ago, eBay (a site that had pretty much had the auction marketplace nailed) acquired PayPal, a payments company that was actually making most of its money through those same purchases made on eBay. It made sense, for eBay especially– though, even then, analysts had their concerns that PayPal, who sold for $1.5 billion, was potentially selling themselves short.
Those concerns were brought to light again earlier this year, when activist investor Carl Icahn scooped up a minority stake in the company. His recommendation: split PayPal and eBay into two, allowing the latter to get out of the way of the former. Though eBay initially scoffed at the idea, months later, eBay has announced that it will, indeed, spin off PayPal into its own company beginning next year.
Why the change of heart?
Personally, I’m not convinced it really is; honestly, I imagine this is something eBay has pondered for some time, and didn’t do this earlier in the year to not be seen as “bending to the will” of Icahn. That said, it’s definitely time: just recently, the online payments’ space has become incredibly segmented, and PayPal hasn’t done much (their acquisition of Braintree aside) to keep up with the pack.
In addition, PayPal has suffered from a lack of talent retention since becoming part of eBay: Peter Thiel, Tesla’s Elon Musk, and LinkedIn founder Reid Hoffman all sprung from the PayPal talent well, and the company has had trouble bringing in fresh blood to reinvigorate itself ever since.
That’s a big problem in this industry– finding & keeping solid talent –but, as previously alluded to, there’s perhaps a bigger issue that PayPal now has to face: an increase in competition. Between Stripe and Square, the newly-announced Apple Pay, Google Wallet, and a dozen-plus others with their toes in the online payment pool, the industry itself is due for consolidation.
As part of eBay, PayPal just wasn’t in a position to make large-scale acquisitions (or be acquired by one of those companies mentioned themselves); in 2015, just as Apple Pay begins to ramp up, they now will.
But have they missed the boat?
No, probably not (though this would have put them in a better spot, say, a year ago). PayPal still commands a strong business— to the tune of 150 million accounts, generating $7.2 billion in revenue a year. It has great brand recognition, and becoming independent from eBay should give it the opportunity to further invest and make relationships with some of the other up-and-comers in the space; a unification that, frankly, the payments industry needs right now.