Eric M. Jackson - The Paypal Wars: Battles with Ebay, the Media, the Mafia, and the Rest of Planet Earth

THE PAYPAL WARS

BATTLES WITH EBAY, THE MEDIA, THE MAFIA, AND THE REST OF PLANET EARTH

ERIC M. JACKSON

Published by World Ahead Publishing, Inc., Los Angeles, CA

Copyright 2004 by Eric Jackson.

All rights reserved. No part of this book may be reproduced in any form or by any means, electronic, mechanical, photocopying, scanning, or otherwise, without permission in writing from the publisher, except by a reviewer who may quote brief passages in a review.

Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. The advice and strategies contained herein may not be suitable for your situation; consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

The contents of this book do not represent the views of and are not endorsed by eBay, Inc., or its subsidiary PayPal, Inc., and neither the publisher nor the author is in any way currently affiliated with eBay, Inc., or any of its subsidiaries.

World Ahead Publishings books are available at special discounts for bulk purchases. World Ahead Publishing also publishes books in electronic formats. For more information, visit www.worldaheadpublishing.com .

First Edition

ISBN 0-9746701-0-3
LCCN 2004107067

Printed in the United States of America

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To Beatrice, for standing by me during my PayPal
adventures and supporting me as I wrote about them

I wrote this book because I believed that PayPals story needed to be told, both for the business lessons it conveys and its broader statement about the American economy. Thats why I wanted to share this tale and to document the amazing events that befell our startup during that nearly forgotten twilight between the end of the dot-com boom and the onset of the global war on terror.

Given this objective, I hope the reader views this book neither as an exercise in self-promotion nor an attempt to settle old scores, but rather as an honest effort to analyze what makes PayPals experience significant. This tale is not an official history and is not meant to represent the views of PayPal or eBay. I am still a shareholder of eBay, Inc., and I wish CEO Meg Whitman and her staff all the best, but I do not speak on their behalf.

In writing this narrative I have gone to painstaking efforts to produce an accurate account. I have drawn upon my personal recollections and records, discussions with former colleagues, and extensive research using the media sources and SEC filings listed in the notes section of this book. While Ive endeavored to produce a thorough and precise account, any errors or omissions are entirely my own responsibility.

Stylistically, to compensate for my off-beat use of a non-omniscient first-person narrator Ive generally adhered to the traditional Chicago style of prose, employing only a few deviations to make the frequent citation of business metrics easier to read. And regarding those metrics, all of PayPals financial and customer data referenced in this narrative come from readily available public sources, including PayPals IPO prospectus and eBays quarterly reports; given this, I opted to spare the reader from the scores of repetitious notes that would have ensued had I documented each figure individually. (A file containing the complete data set can be downloaded at World Ahead Publishings Web site, www.worldaheadpublishing.com .)

It should be added that while Ive been careful to supply background information for the reader whenever appropriate, this narratives focus is on the events surrounding PayPal and not eBay, PayPals erstwhile competitor and current owner. Lest I be accused of dehumanizing eBay for the purpose of constructing a foil to PayPal, the reader is enthusiastically referred to Adam Cohens The Perfect Store: Inside eBay, (New York: Little, Brown, and Company, 2002) for an engaging account of eBays creation and rise to greatness.

No enterprise as complicated as writing a bookwhich turned out to be only slightly less demanding than working at a dot-com can be completed by just one person. Everyone connected with World Ahead Publishing has earned my heartfelt gratitude, especially Daniel J. Bramzon for his enthusiasm and sound counsel and Thorvin Anderson for his tireless support and constant feedback. Im indebted to Dr. Michael New from taking time away from his research at Harvard to supply thoughtful comments on my first draft, and to Jeff Giesea for never failing to dispense always-welcomed advice. My fellow authors Candice Jackson and Alec Rawls provided me with invaluable feedback as I prepared my manuscript. I also appreciate Ron Kenners editing assistance and Sharon Goldlingers astute guidance. Brandi Laughey, Jonathan New, Nancy Humphreys, and Steven Phenix have been wonderful to work with. And Ive never met a more thorough or trustworthy adviser than Hank Terry.

I would also like to thank my PayPal compatriots, including Peter Thiel, Max Levchin, David Sacks, and Paul Martin, for providing me with their time and feedback; while the conclusions reached in this book are ultimately my own, I nonetheless appreciate their support and enthusiasm.

Friends and family played no small role in this endeavor, and my wife, Beatrice, played a role above and beyond all others; without her steadfast devotion and countless hours laboring alongside me, this project would not have been possible. I also treasure the support of my parents, Ron and Teresa, and the advice of my sister, Kristina. Rod and Sherri Martin provided an invaluable dose of vim and vigor during the early stages of this process, and Pietro and Cristina De Lucas encouragement proved equally uplifting. And I consider Nick Vander Dussen to be a source of inspiration in deciding to write this tale thanks for bringing all those books to church every week, Nick.

PayPals story is one of war. Not conflict with guns or tanks, but a mighty business struggle waged with ingenuity, determination, and plenty of midnight oil. When PayPals online payment service debuted toward the end of the dot-com boom, it set in motion a chain of events that would ultimately pit the companys talented entrepreneurs, revolutionary technology, and bold vision for global currency change against one of the fiercest series of challenges ever endured by a Silicon Valley startup.

At the risk of giving away the ending, PayPal managed to survive the onslaughtbut just barely. After several years of erratic ups and downs, the venture reached profitability, registered 40 million users, became the first Internet company to stage an IPO following the 9/11 terrorist attacks, and eventually sold out to a much bigger firm. While this is an impressive track record by most standards, its far short of what our group initially hoped to accomplish.

Looking back, this term is certainly appropriate to describe what PayPal set out to do, and it also hints at the turbulence that accompanied our efforts.

Vigorous competition provided one source of that tumult. A torrent of competitors, including multinational banks and established Internet players, also saw the profit potential of our startups payment system and raced to construct their own versions. This slew of entrants into a brand new market touched off a furious race for dominance, one which ultimately led to a bruising one-on-one confrontation between PayPal and an unlikely rival.