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- 1. Transaction Fees
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The deal was sealed just a few months after PayPal went public. PayPal origin story PayPal founded in by a company called Confinity. In fact, just in PayPal was launched as a money transfer system.
At the time Confinity had a fierce competitor, called X. This was a company founded by Elon Musk yes that Musk!
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The companies rather than compete with each other, they just merged to take over the payment industry. Once the company merged, they could finally focus on the commercial strategy.
Rather than boiling the ocean, PayPal started with a small niche at the time, until they monopolized it and grew further. In fact, if you attended even for a day business school, you might have learned about the myth of market competition and how this is what makes capitalism work.
In reality, how Peter Thiel pointed out capitalism is way more about monopolizing a market to grab most of its profits. In fact, in a situation of perfect competition, margins are so thin that companies can go easily go bankrupt. The real market dominator is the one that takes it all. Thus, the reason why many are not aware of this can be attributed to the fact that monopolies reframe their market position to hide the fact that they control a particular market.
They do it because this is paypal make money secret that makes them successful. PayPal management understood they had to acquire users, quickly on an already established platform. There was an issue though. One way is to leverage on distribution agreements with large platforms.
For several reasons.
1. Transaction Fees
Second, a distribution agreement requires at times a certain level of organizational structure to handle the deal, which a start-up might not have. Third, and most important. A large corporation like eBay at the time has a strong brand. This is an asset but also a liability.
At the time eBay had purchased a startup, named Billpoint, to make the transactions on the website smooth. However, also covering paypal make money transactions side of the site for eBay was still too risky, as fraud detection was a primary concern.
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This, in turn, gave PayPal time to come up with a strategy before Billpoint could be rolled out. The strategy was meant to wipe out competition and take over the payment market. At that point, one idea came to mind, which was to enter in as many actions as possible and then convince the other part of the transaction to use PayPal as payment.
This strategy would be expensive but a good marketing acquisition tactic. How to scale this up? One option was to hire a web farm in Asia.
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Or, employ a bot a computer program that would look for specific auctions and bid on them. In the end, they went with the bot, on charity auctions with the aim of exposing PayPal to as many eBay users as possible. The bot together with other marketing and product initiatives brought PayPal to over 10, users per day. Growth picked up yet the competitive landscape was still very challenging, with companies, like X.
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Take this story as a reference, not as history as the account of the author might bias it. The merger that brought together PayPal and X. It was done by morning, the company became known as PayPal, and that was that.
Whether or not the merger was painful and whether or not it created stock option operation it also brought together a group of very smart people, the so-called PayPal Mafia.
How Does PayPal Work?
It seems though that at the time most PayPal users were coming from eBay. As reported by a release on July : The agreement also should benefit eBay shareholders. The combination of the two networks should expand both platforms while minimizing shared operational costs. Strengthening the marketplace and realizing the efficiencies made possible by the acquisition will increase the value of both businesses.
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- Starting off as a small company named Confinity, it established a system that allowed people to send and receive money online.
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In other words, on the one hand, eBay users were already accustomed to PayPal. On the other hand, PayPal could allow eBay to tap into a new audience as reported in the same press release: PayPal, which will continue to operate as an independent brandis a leading online payments solution.
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It paypal make money important to notice here that the acquisition of Billpoint that was to meant to allow eBay to have its own transactions system to speed up payments and enable fraud prevention was not successful. As it failed, this might also have been a critical reason for eBay to purchase PayPal at that price.
The PayPal family: the galaxy of payment systems and apps around PayPal PayPal, as part of eBay over the years, has created an ecosystem of payments that comprise platforms and mobile gateways that allow it to penetrate several markets. Around PayPal there are other four primary brands:.