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Google or Ebay? The answer is… Paypal! February 25, 2006

Posted by deminvest in ebay, goog, growth stock, investment, Single stocks, stocks.
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There is a shadow on the Internet market stage: Paypal. When we think about successful .com companies our mind goes fast to Google, with its advertising business model on a web search engine. If we think any further, a little bit more calmly we must see Ebay's great success. Its auctions business model has changed the way to buy and sell.

Ebay's long term growth records are so stable to make us doubt about the ability of Google to prove itself so long lasting. Moreover Ebay has already won its battle against competition. Yahoo MSN and other great players had to give up their attempt to establish auctions on a large scale. Only some Chinese auction site is posing some local threat in world's fastest Economy. But Ebay does not seem able to continue growing at the same speed.

Ebay does not seem to be able to propose new ways to change the world like Google does… Or actually there is one: Paypal 100% owned by Ebay.

Paypal has recently passed the mark of 100 Million accounts. PayPal in 2005 processed more than $27bn in payment volume and exceeded $1bn in profits. It is something that could change the world. It started working with cell phones. Maybe soon we, the proletarians will be paying a Big Mac with our cell phone. It could really change the way the world pays.

Elon Musk, ex owner of Paypal now busy organizing colonization of other planets, said that the problem with online payments is getting to work with the good guys. PayPal’s business is all about having enough honest clients to offset the scammers. And one single scammer can make a damage that takes commissions by 100 good customers for a year to bring the same amount of money.

Any other company trying to sign up so many customers will be flooded with scams. Google included. Moreover, it is not easy to substitute a payment method used and recognized by sellers and buyers. Google could try to pour Adsense money into Gbuy accounts, but well until I see a successful Gbuy, I will always prefer Ebay to Google because Ebay owns Paypal.

Every month, it seems, a major company stares down the barrel of Google's brand recognition gun. The company of the month right now happens to be Paypal. The Wall Street Journal published an article on Ebay's Jeff Jordan's preparations for Gbuy, the so called Paypal killer (Paypal is owned by Ebay). Many news sources and blogs are anticipating Gbuy to quickly become a PayPal killer given Google's huge brand name recognition and reach with consumers.

But the whole PayPal killing talk is really much ado about nothing. I have no doubt whatsoever that Google will release Gbuy, but I do have significant doubts as to whether it will actually replace PayPal as many merchant's payment processor of choice. Given Google's recent releases, and given how PayPal has positioned itself in the marketplace, I would not be surprised of Gbuy proves itself to be a significant flop considering all the attention it has been given.

PayPal's Vulnerability

Jeff Jordan of Ebay has every right to be scared, however. Executives have a history of losing their dignity and control when they feel pressured by Google. Steve Ballmer is well known for his professional wrestling-like tirade in which he sent chairs flying and cursed the name of Google, and Yahoo is not much better having publicly given up its quest for search dominance, which in effect was Yahoo executives crying “Uncle!” with the hope that they could finally focus on something that they could actually excel in.

Professional wrestling aside, Jeff Jordan does have reason to be worried. PayPal, unlike Yahoo and Microsoft, is much more vulnerable to a direct attack from Google. The history of PayPal is filled with trouble with CEO's, run-ins with the mafia, and pressure from an Attorney General. This article, however, is not the place for a lesson on the history of PayPal (a book was written for that), regardless of how fascinating it might be.

Article Tip

Did you know that PayPal is one of the few companies with a single letter domain name? Check it out: X.com

The problem with PayPal is that it has not solidified itself in any other market besides the payment option of eBay merchants. The result is that many website owners view PayPal as a 'cheap' option. Furthermore, even though PayPal does allow non-members to purchase items through their system, it is not as easy as many merchant's would like. Many of the problems of PayPal were actually discussed on the forums a while ago.

These problems open up a vulnerability for PayPal. If Google releases a product that improves on the downfalls of PayPal in much the same way that they were able to revolutionize online maps, then PayPal should be worried. Google does have a knack for making web applications that make existing applications look outdated and simplistic.

Why Gbuy Will Not Kill PayPal

Experts have been predicting the wild success of Google in many different industries for some time. When Froogle was released it was thought by many to be a major threat to Amazon.com. Although Gmail has been a success, there have been no reports of Yahoo Mail suffering significant attrition (in fact the buzz over the new Yahoo Mail interface shows just how much interest there is in Yahoo Mail). And although Google News is a highly useful service, it is hardly considered the default news service for most web users.

The fact is, the past few Google releases have been relative failures. Google admitted that they screwed up with their video service (the Apple iPod Video is much more successful and sets the bar much higher than Google is currently meeting). Google Reader was met with a collective 'ho-hum' from the webmaster community (as was Google Pack), and even though Google Sitemaps may be useful, it is still under used. Google Analytics still is not able to accommodate mass signups, and the buzz over analytics has also declined significantly since its release.

Really, if we were to look at Google's recent releases, the only relatively successful releases have been Google's Search (obviously), Adwords and Adsense (also obvious), Google Maps, and Gmail. The fact is, with the exception of Adwords and Adsense, Google has not been very successful in launching commercial products.

Google's Lack of Simplicity for 'Everyday' Users

The problem with most of Google's recent releases has been its lack of simplicity. Google's initial success in search was powered by the extreme simplicity they brought to the process. All the user saw was a search box and search results. What could be simpler? On top of that, search results were stunningly accurate compared to the other results available.

Although Adwords is confusing to many website owners, Adsense also carries the trait of being extraordinarily simple. Add in the benefit of being able to make a significant income from Adsense and it is no wonder that Google has a firm hold on the contextual ad market. For potential advertisers there is no greater reach than Google Adwords.

Yet most of Google's recent releases have either lacked the simplicity that made them the choice for every day users or offer no significant advantages over existing products. If PayPal is genuinely going to be threaten by Gbuy, then Google is going to have to perfect the simplicity that PayPal has capitalized on.

Gbuy – Finding a Niche among Website Owners

A few years back when K-Mart filed for bankruptcy, I remember listening to an analysis which looked at the reasons why K-Mart was having difficulty. The analyst explained how there were three major players in the mega-stores: Wal-Mart, K-Mart, and Target. Wal-Mart had successfully positioned itself as the price-leader out of the three mega-stores while Target, although still inexpensive, positioned itself as slightly more expensive, but higher quality. K-Mart, in this environment, lacked an identity to shoppers.

Gbuy could very well fall into the same problem. PayPal has done a great job in solidifying itself as the payment solution of choice for millions of Ebay merchants. In addition, thousands of other website owners have chosen to at least add PayPal as a payment option on their website due to its extreme simplicity for those who have PayPal accounts.

In a best case scenario Gbuy could really only hope to fit in as an alternate payment system to those who have already established how users are supposed to pay for their goods. In all reality, though, the market is crowded, and Ebay users will likely continue to use the integrated, easy to use PayPal over any new-comer – especially of Google fails to make a relatively simple product.

Comments»

1. deminvest - February 26, 2007
2. deminvest - June 19, 2007
3. deminvest - October 29, 2007

Paypal has now 153 million accounts worldwide according to
http://blog.washingtonpost.com/small-business/2007/10/how_do_i_use_paypay.html

4. deminvest - June 18, 2009

Stats have changed. They are about “active” accounts. More interesting,but also easier to manipulate numer

March 2008, June 30, September 30, December 31, March 31 2009

Active registered accounts (1) 60.2 62.6 65.3 70.4 73.1
Current quarter vs prior quarter 5% 4% 4% 8% 4%
Current quarter vs prior year quarter 17% 19% 19% 23% 22%
Net number of payments 211.0 210.9 214.5 252.2 254.1
Current quarter vs prior quarter 3% (0%) 2% 18% 1%
Current quarter vs prior year quarter 23% 26% 25% 24% 20%

(1) All registered accounts that successfully sent or received at least one payment or payment reversal through the PayPal system or Bill Me Later accounts that are currently able to transact and that received a statement within the last 12 months.

Net number of payments 211.0 210.9 214.5 252.2 254.1
Current quarter vs prior quarter 3% (0%) 2% 18% 1%
Current quarter vs prior year quarter 23% 26% 25% 24% 20%

Net total payment volume (3) $ 14,417 $ 14,930 $ 14,812 $ 15,988 $ 15,859
Current quarter vs prior quarter 3% 4% (1%) 8% (1%)
Current quarter vs prior year quarter 34% 35% 28% 14% 10%


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