Ebay’s (EBAY) Paypal under attack!

By: ispeculatornew
Date posted: 05.05.2010 (4:21 am) | Write a Comment  (1 Comment)

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This case represents both the great part and the difficult part about having an online business. Ebay’s Paypal seems like a great business. It facilitates electronic payments between individuals and institutions. In a few minutes, users from almost everywhere in the world can create an account that will be linked to their bank account and/or credit card. Once that is done, users can buy or sell goods and services and avoid all the hassles involved in bank wire transfers, especially when not in the same country. The great part of course is that as Paypal gained users, it became the best way to do payments for almost all online transactions. I don’t have to tell you that the amount being exchanged on the web is important and growing fast.

No competition??

I’ve mentioned on this blog many times how surprised I was that Paypal was not facing more competition. It is huge and will be difficult to overtake, but that doesn’t mean no one will try right? Just ask Google. As big as it is, companies keep trying to compete in the search market. But for some reason, no major competitors have been able to pose a significant threat to Ebay‘s valuable unit yet.

Online business pros and cons

The beauty of an online business is that it’s so easy to launch. Give me a few months and under 100,000$ and I could compete with most online businesses (some such as search wouldn’t be possible obviously), but even a sophisticated company like Paypal can be built from the ground quickly and without the millions of dollars involved in most offline businesses.

The downside of course is that any online business can become irrelevant or uncompetitive very quickly. Sometimes it will be because a company has not innovated or improved its product quickly enough. I would say that MySpace is one of those examples. But in other cases, the answer is far more complex and I would say that what could happen to EBay might fall into that category.

Possible competition has arrived

EBay is now facing possible competition from two major companies:

-Facebook – by all accounts the top social website and a major force in today’s and tomorrow’s internet has announced it would be building a payment system that will be used for all applications and other areas on the network. Suddenly, Paypal could be more or less forced out of transactions that are now generating millions of dollars.

-Iphone: The top Smartphone maker Apple has announced that a new peer to peer payment system would be made available, through an alliance with Visa and DeviceFidelity. It’s difficult to see how much of a threat this represents for Paypal but there is no doubt that it needs to be addressed. So much money flows through the Iphone that being locked out could become a major danger to its dominance.

Will Paypal remain #1 if both of these competitors are up and running in a few months? Perhaps. But unfortunately, Paypal will have little control over the next steps… When I see events like this, it helps me understand the behaviour of companies like Apple & Google. Both companies are clearly all about “hardware” and “search” but they are venturing very quickly into everything else. Google has gone from search to cloud computing, operating systems, phone maker and even broadband provider. The wider the company, the less chances it can get squeezed in the same way that Paypal might be in the coming months/years.

The same is true of Apple which has gone from hardware to an operating system, strict control over all content available on its devices, advertising and more.

Where will it end? It’s not quite clear, but I bet that Paypal will have its fingers crossed for some time now…

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1 Comment

  1. […] week, we wrote an article about Paypal being under attack, one of the main ways that is being done is through Facebook. The arrival of a new Facebook […]

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