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- 🎯 PayPal's Robot Army
🎯 PayPal's Robot Army
How they stole eBay's power-sellers
Read time: 3 minutes 2 seconds
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What we now know as PayPal started as a product called ‘FieldLink’: a wallet and payment network for Personal Digital Assistants (“PDA’s”).
While FieldLink plateaued in a small market of PDA users, the team noticed a trend that would change business history forever:
People using their service as an eBay auction currency.
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PayPal’s Robot Army
Chess Move
The what: A TLDR explanation of the strategy
Digital payments were a perfect fit for eBay power-sellers. They were used to paper checks and money orders sent via mail, resulting in payment delays and lengthy clearance processes.
The problem was - PayPal needed to win both sellers AND buyers.
Buyers would only sign up if sellers offered it, and sellers would only offer it if buyers actually wanted it.
The age-old “Cold start problem”.
So, their marketing team devised a novel campaign to simulate demand - a script that crawled eBay auctions, placed bids on items, and insisted on paying using PayPal.
Breakdown
The how: The strategic playbook boiled down to 3x key takeaways
1. Operating in ‘Stealth Mode’
“The real platform for auctions wasn’t the eBay website, as most people assumed. It was e-mail” — COO Reid Hoffman
PayPal’s bot would email sellers before it placed a bid, asking to transact via PayPal.
Even if the bot didn’t win the auction, sellers were exposed to PayPal, and perceived that it was already getting popular.
Because this all went down via email, PayPal started onboarding sellers without eBay even noticing.
Takeaway: Never (ever) underestimate the power of cold emails.
2. Network effects
By the time eBay caught on to PayPal’s tactics and built its native competitor ‘Billpoint’, it was too late.
PayPal had secured power-sellers, and buyers were committed to their preferred payment method.
Despite eBay’s advantage in pushing Billpoint as the default checkout experience, a first-mover moat had formed around PayPal:
Sellers accepted PayPal because it was what buyers wanted, and buyers wanted it because more sellers accepted it.
Users used it because other users used it.
Takeaway: If your product is more valuable with more users, it can be tough to kickstart, but it may also have built-in defensibility.
3. Automated distribution
PayPal’s end-to-end distribution strategy could be built and scaled with code.
This may seem obvious today, but at the time it was a key differentiator.
Since eBay’s network of sellers and auctions already existed online, PayPal didn’t have to locate users itself.
PayPal used eBay as a channel, scraping public information to target the most suitable prospects.
Based on available metadata, they generated emails with templated content to pitch PayPal at scale.
If the seller agreed to use PayPal, they could simply reply to the email and a bid would automatically be placed.
Takeaway: Always be on the lookout for opportunities to kill 1,000 birds with 1 stone.
Rabbit Hole
The where: 3x high-signal resources to learn more
[5 minute read]
eBay eventually acquired PayPal following a long, costly and ultimately futile attempt to compete directly.
[16 minute watch]
Slidebean is a YouTube channel that makes documentaries about tech companies.
If this newsletter had video production skills, it’d try to be like Slidebean and make videos like this one.
[5 minute read]
In our research, we came across this blog post from an obscure corner of the internet that does a surprisingly good job of explaining the 2015 breakup.
To the intern / analyst behind this Televisory.com back catalogue piece: whoever you are, wherever you are, nice work.
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