“PayPal had a suitable grand mission - the kind that post-bubble skeptics would describe as grandiose: we wanted to create a new currency that would replace the US dollar.”
Peter Thiel
One of the founders of PayPal Peter Thiel in his brilliant book ‘From Zero to One’ tells that the secret of PayPal’s success is in its uniqueness. Great minds such as Peter Thiel, Elon Musk, Max Levchin and some others created disruptive technology that fulfilled a non-existing niche. They were the first who offered an alternative to the US dollar. ‘By 2002, it became the go-to brand name in online money management and was bought by eBay. Total PayPal volume hit a record in Q2 2015 with almost $66 billion in total net payments, but it is far from monopolizing the industry; 2015 is expected to see north of $430 billion in mobile payments alone.’
The concept of the vertical of intensive growth (described in P. Thiel’s book) worked. The company became more than successful. And no competitor for a very long time could come even close to the level of PayPal’s prosperity. But today new disruptive technology conquers the world with the speed of the lightning. And while some may argue that cryptocurrency is another bubble that will burst and vanish, the news proves otherwise. It seems like PayPal got a strong competitor, but let’s go over the concept of the company and its main competitors before jumping to any conclusions.
II. PayPal and Competitors
Today PayPal has strong competitors. Venmo (PayPal owned company) is an excellent alternative since it doesn’t charge a commission for sending money, any bank has similar service, Stripe, etc. But the biggest competitors are Google Wallet and Apple Pay. Let’s make a brief comparison of the competing in digital currency niche companies.
As a rule of thumb for investors, companies with lower P/E Ratio have much higher chances of sustainable growth, whereas higher P/E Ratio indicates that the company is over-priced and may be sold soon. Apple’s shares look more tempting than competitor’s. Regarding revenue, Apple again bits everyone. And it is not surprising since it is the ninth biggest company in the world.
Now let’s have a look at how PayPal and its competitors are doing compared to S&P 500.
The graphs of Google and PayPal surprisingly mirror each other in the past months and do much better than the market overall. Apple goes hand in hand with the market.
III. PayPal Strategy
As Michael E. Porter says in his article “What Is Strategy?”, ‘The essence of strategy is choosing to perform activities differently than rivals do.’ In the case of PayPal, it meant to go ‘from zero to one,’ to create something new and disruptive that the world hasn’t seen before but desperately needed it. And Thiel with his tech-star companions succeeded at it, at least it looked like it in the beginning.
‘ PayPal will give citizens worldwide more direct control over their currencies than they ever had before. It will be nearly impossible for corrupt governments to steal wealth from their people through their old means because if they try the people will switch to dollars or pounds or yen, in effect dumping the worthless local currency for something more secure.’ - said Peter Thiel few weeks before the product launch in 1999.
PayPal didn’t fulfill its original strategy. After eBay acquisition (2002) the company changed strategy and became a digital wallet for small businesses and later enterprises. Recently eBay announced that they are not going to work with PayPal. Instead, they choose a smaller PayPal’s competitor - small European company Adyen.
It looks like PayPal will need another shift in strategy. In my personal opinion, Peter Thiel’s strategy original of the company was very beautiful, life-changing (on the global level), visionary, disruptive and much-needed. And it looks like the company fell short on its goals. But the original strategy wasn’t forgotten.
Satoshi Nakamoto’s creation gained insane popularity all over the world and now has different names and meaning - but they are all united by the word ‘cryptocurrency.’ And it looks like cryptocurrency is a new PayPal and it will take care of PayPal’s original focus strategy.
It is exciting to see what steps will PayPal take with eBay decision and with new rapidly evolving blockchain technology.