Review: The Paypal Wars by Eric Jackson

If you made an online payment any time within the past decade, you have probably used a Paypal account to send the money. If you’re an Internet “power user”, you probably remember the time, when Paypal was free, promising to make the money off the float on the accounts, the times when free credit card payments were limited to a certain amount per month, and then a time when all the credit card services for sellers started included commissions.

If at any time you dealt with Paypal, you’re probably left wondering:

  1. How did eBay with all its market power failed at promoting its own BillPoint venture and killing Paypal meanwhile?
  2. How did Yahoo! with its tons of users and user-friendly interfaces fail to promote Yahoo! PayDirect and kill Paypal meanwhile?
  3. How did Citibank with its decades of banking and payment experiences and reaches into millions of households fail to establish c2it as primary online payment platform and meanwhile kill Paypal?
  4. Are the stories on Paypal wall of shame true or have any merit to them?
  5. Is Google’s Checkout a viable alternative to Paypal, or without person-to-person payment its bound to remain a niche product?

The book, written by Paypal’s interim VP of Marketing (the interim part got in there after eBay acquisition), provides quite a few answers, providing insight into tumultuous history of an Internet startup that was fighting off startup competition, online giant competition, international fraudsters and Planet Earth in general.

The author describes his recruitment process and starting with a pretty small team down on University Avenue in Palo Alto, the same place that previously served as a launching pad to Logitech and Google. Apart from the engineers, few people hired for early Paypal were hired based in their previous experiences, and Eric Jackson starts off with a marketing career at online payment company without any previous knowledge of marketing field.

At the early stage Paypal was pretty much defining itself as a business. The original model of sending electronic money from PDA to PDA didn’t seem to be materializing too soon, as penetration of those early days Palm Pilots left much to be desired. E-mail penetration, however, was beating all the records, and soon Paypal found itself competing with X.com, dotBank and companies with similar business models.

The author spends a great deal of pages portraying Paypal’s Big Idea – ruling the world’s personal markets, therefore enabling commonplace citizens to get better control of their money. Quite frequently in places like Argentina, Indonesia or Russia the government chooses to devalue the currency, and the ones who are hit the hardest are the poorest and middle-class citizens. With no real estate investments, most of their life savings frequently resides in savings accounts or large wads of cash stored under the mattress, and hence rampant inflation tends to enrich the political elite, while ruining the financial stability of helpless citizens.

Paypal’s merger with X.com is described at good level of detail, but unfortunately Jackson did not have access to the board room during the merger, and hence unable to render all the juicy details that usually accompany startup mergers. Jackson, however, was part of the group involved in ousting Elon Musk from the CEO’s position, and the tensions are described in great detail. The quickly evaporating competition also deserves only a passing reference in Jackson’s book. While insignificant in the hindsight, it’s still interesting to find out why Yahoo! and HSBC could not turn PayDirect into a successful venture, or why Citibank closed c2it.

Graduated from the early stages, Paypal has only two formidable opponents to fight – BillPoint, a joint venture between eBay and Wells Fargo, and international criminals, who are pretty excited at the opportunities presented to them by Paypal, where stolen credit card numbers can mysteriously be converted into cash and sent to a “pal”. The war with BillPoint is described in great detail, sometimes feature-by-feature, as it was the pinpoint of Jackson’s career, with the author being responsible for customer communication and for producing those nifty comparison tables butting BillPoint and other competitors feature by feature.

The relationship with eBay surrounds pretty much any chapter of this book. Early on Paypal became the vehicle for the nascent industry of online auctions, and while eBay focused on its core competency (providing Internet users with a platform to buy and sell products), Paypal focused on its (moving money between registered users). Turns out, online payments was the first area of expansion for eBay, and throughout its corporate life Paypal tried to fight off competition from its major benefactor, while enjoying most of the traffic and signups from eBay auction. To be fair though, Paypal’s success was driven not by eBay’s ineptitude, but by loyal and active user base, who was the company’s best defender, whenever eBay tried yet another trick to default its users into BillPoint’s payments.

The technical side of fighting fraud gets a few paragraphs in the book, but besides some mysterious descriptions of Max Levchin’s and team’s workings, little light is shed on all the drama that went into fighting international fraud. Overall, the book does lack a great deal of technical detail, but if you know that it was written by a marketing employee, and not an engineer, it’s expectable. Paypal Wars does, however, read like a detective story, primarily because the young company seemed to have an endless supply of crises and fights to overcome. With the book written like an action hero novel, the end (eBay’s purchase of Paypal) is almost anticlimactic, as pretty much anyone worth writing about left the company soon after that point. The paperback edition has author’s epilogue on Google’s recent entry into online payments world (not person-to-person payments, but merchant payments only), where Jackson is fairly optimistic about Google’s potential in the market, since Checkout can be a loss leader for Google, as long as merchants keep boosting its primary revenue line, Internet advertising.