Book Review: The Paypal Wars

By Yaro Starak
6 Comments

The Paypal Wars by Eric M. JacksonThe Paypal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth
by Eric M. Jackson

Amazon: When PayPal launched its online payment service and set out to overhaul global currency markets it successfully weathered the dot-com bust and a fierce competitive struggle with the auction giant eBay. But hordes of government regulators, trial lawyers, and organized crime rings soon targeted PayPal for destruction, turning its quest to make Internet history into a desperate struggle for survival.

Review

Ever since I finished reading The Perfect Store – Inside eBay by Adam Cohen I’ve compared other dot.com business books against it. It’s the bar that other books must strive for. The Paypal Wars was high on my ‘to read’ list because of PayPal’s tight relationship with eBay, first as a competitor to eBay’s Billpoint service and then replacing Billpoint as the official payment system for eBay after being purchased by the auction giant for 1.5 billion in 2002. I had high hopes this story would be as good as eBay’s but I also knew from my own experiences and familiarity with Paypal that the background story wasn’t quite as rosy as eBays.

This book recounts the story from Eric M. Jackson’s point of view, a senior marketing employee with Paypal from the very early days. Jackson appears to be privy to most inside goings on within Paypal but didn’t quite have all the top level secret knowledge as say the executive management team or founder would have had, or an extremely investigative journalist as was the case in the eBay book (he didn’t learn about the eBay buyout until it was reported by the media for example). Regardless he still manages to tell a reasonably comprehensive tale but not quite as detailed and polished as I would have liked. I must say that one thing really bothered me – the standard cliche sentences he constantly used at the end of sections. He re-used “this was only a taste of things to come” style of teaser over and over again. It’s okay to use these, but because he constantly used them in each chapter it made the book read a little bit amateurish.

The Paypal story is a good read if you want a feeling for what goes on behind the scenes in an entrepreneurial, innovative company riding the dot.com wave. I was amazed at times that a company could operate on such huge negative cashflow. At one point well above $20 million per quarter was lost. What made it worse was that the negative cashflow was not just because of credit card fraud, the mafia and other types of fraud, the business model itself was a contributing factor.

The business was not built to make profit, it was built to sign up new users by offering a free $10 sign up gift (later reduced to $5) and a referral commission system to entice a viral word of mouth. In hindsight it worked out okay and they later slowly managed to tweak the system and instigate a model that turned cashflow positive but still it was a very ballsy way to grow a company. Paypal was one of the lucky few that managed to do it and survive.

During this period the concept of network effects was driving many dot.com business models. If a company could be first to critical mass by gaining traction quicker than any other company they would be first over the line and eventually win a monopolistic position in the industry (much like eBay and PayPal have now). This goal was funded by venture capital groups and angel investors so many very very unprofitable businesses were cash rich and spending big. Paypal was one of these and it was interesting to read what went on behind the scenes at a business built for speed and growth at all costs.

The fact that Paypal was the first post September 11 dot.com IPO is tantamount to what a good idea it is. In essence it allows people to trade funds simply and easily over the Internet using email. It succeeded fundamentally because it was a good idea that met a clear need in the new world economy.

Early on Paypal did not target online auctions because they assumed it was mismatched targeting. Eventually they tested auctions and found that users were very keen and in one brief period they steered the Paypal ship squarely at eBay (and Yahoo! Auctions at the time) changing their strategic direction entirely. This was followed by an eventual war with several other online payment start-ups and a merger with one of them, X.com, that led to a clash of cultures and internal strife. These matters were resolved with some top level management culling and a realignment of goals. Finally as competitors dropped away only eBay’s Billpoint was left and a long hard fought struggle ensued finally culminating with the purchase of Paypal by eBay and the closing of Billpoint.

This book is worth a read because it gives a great window into a start-up business culture. The author clearly describes his work environment and later in the book proclaims the differences in culture between Paypal and eBay as one of the main reasons why Paypal was able to out manueveur Billpoint on so many occasions. It’s a great book if you enjoy stories of Internet business companies that grow excessively fast using venture funding. It also mentions some of the interesting marketing ploys Paypal employees used to outfox the competition, which are practical real-world examples of entrepreneur-driven company competitiveness.

Rated: 3 / 5

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6 Comments

  • […] The Paypal Wars – Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth by Eric M. Jackson [ Read Yaro’s review ] […]

  • […] I’ve read the book Paypal Wars which gives a good explanation for why Paypal has such a bad reputation. In a nutshell there were times in the company’s past where it was the target of all kinds of criminal action and it suffered millions of dollars worth of losses. As part of the retaliation against these criminals many honest customers were affected, losing access to their accounts and later resulting in the class action lawsuit which cost Paypal $9.25 million dollars. […]

  • […] I’ve written about Paypal plenty of times in previous articles on this blog. I did a review of Paypal, I talked about Paypal vs Paymate, the Australian competitor to Paypal and I reviewed the book, Paypal Wars, which chronicles the rise of the company and the battles it went through against eBay before it was eventually purchased by the online auctions giant. […]

  • Interesting take on a curious plot…the PayPal wars. Do you think it was mostly the founders skills, dumb luck or an effective model that has allowed them to survive all the attaks?

  • You have to read the book and then make up your own mind Allen – way too many variables in this story.

  • Wow.

    I remember when Paypal first started up (I had an account with X.com at the time) back when I had that GeoCities site.

    I had no idea PayPal went thru so much. I don’t like to admit to any naivete, but the backstory is fascinating and scary.

    Looks like I’ll have to read this one! thanks for bringing it to my attention!

    ~cj

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