Posted: Tue 7th Oct 2014
Hundreds of thousands of British small businesses use eBay and PayPal every month selling their goods to buyers all over the world. So news that eBay will be spinning off its payments arm PayPal will be significant to many.
First some history..."¨The importance of PayPal to the growth and success of the eBay marketplace over the years cannot be overstated. eBay bought PayPal in 2002 after a campaign from sellers. Up to that point sales were largely paid for by cash and cheque sent through the post. Not only was this a pain it was slow, meaning that a transaction could take days to turn around."¨"¨
eBay tried developing its own online payments system but independent upstart PayPal was already enjoying success with buyers and sellers. eBay even tried to suppress the young pretender but to no avail. The people had spoken: they liked PayPal and eBay had to back down. They bought the payments system for $1.5bn."¨"¨ Many considered that folly and criticized the price tag but in retrospect it's proved something of a bargain. PayPal's revenues in Q214 were $1.98bn."¨"¨
Times have changed. PayPal is now firmly embedded in eBay but it's increasingly making more of its profits elsewhere. There is a strong case that says an independent PayPal will benefit not just in terms of its freedom to innovate and take on the big boys like Visa and Amex but also by losing its association with the eBay brand."¨"¨ eBay too will benefit from the freedom to lavish not just its attention but resources on the marketplaces alone.
For a while now the massive profits generated by eBay's ecommerce wing have disproportionately been invested in PayPal. eBay should benefit from having a bit more ready money to spend on itself."¨"¨
The divorce will take nearly a year at least with the formal split expected in the second half of 2015. So in the short term it is unlikely that anyone will notice any difference.
Even when the split is completed you'll have two different logins just like today."¨"¨There's also plenty of speculation about how the two companies will fare when they go it alone. After all, each will be more easily swallowable out there as smaller enterprises."¨"¨
PayPal is the more attractive bet in some ways and a good acquisition target for Google, Microsoft or indeed any of the device makers out there like Samsung. eBay too is a tasty morsel for a lot of the same buyers."¨"¨There is even speculation that the pair may be swallowed up in advance if the split, such is the attractiveness and potential of PayPal. My suspicion is that neither will be single for long. The simple fact is that we don't know how this one will pan out. But it's going to be interesting to watch.