PayPal President: No Spinoff

Posted by: Douglas Macmillan on June 17, 2009

After eBay said in April that it planned to spin off its Skype business, some investors and analysts started wondering about the e-commerce company’s other major subsidiary: What about PayPal? In the past two weeks, a number of sources have said they have heard talk that eBay is exploring different options for realizing more value from the lucrative payments business.

One source said he had heard the company was considering selling PayPal to a consortium of private equity investors while keeping an equity stake. Another heard a rumor that eBay would issue a tracking stock for PayPal.

But during a visit to BusinessWeek, PayPal president Scott Thompson dispelled these notions. Thompson says that although even he has heard the speculation about spinning off PayPal, he and eBay CEO John Donahoe have not discussed any such options. “We have not talked about that,” he says. “I think we’re going to be part of the eBay Inc. family for a long time to come.”

Thompson admits that he “understands the logic” of wanting to unlock value in PayPal, but he argues that eBay’s strong balance sheet is an important asset to have while his business is growing. The parent’s deep pockets helped with the $945 million acquisition of Bill Me Later in October, Thompson says. “If we were a separate company, would we have done it? I’m sure we would have tried because it was the right thing to do for the business. But it was fundamentally easier having that very strong balance sheet.”

Donahoe faces a difficult challenge in regaining momentum at eBay. The one-time Internet star has struggled in recent years, as people have turned away from its traditional auction business and it has tried to compete in the retail business with Amazon and others. eBay’s stock price has tumbled by more than 50% in the past five years, to $17.25. Donahoe is trying to improve the usability of the core shopping site, while doing away with non-essential assets.

eBay was cheered on for announcing the plan to spin off Skype in an initial public offering next year. The move would put an end to what has been a disastrous acquisition, and perhaps unlock some value for Skype, the high-growth voice-over-Internet service that brought nothing to the company’s core e-commerce business.

Sources suggest tensions inside PayPal are growing the longer eBay remains a drag on its value. “It has been a frustration within PayPal that eBay’s stock is not fully reflective of the value of PayPal,” says one former eBay executive.

The option of spinning off PayPal may become more attractive as the payments business continues to expand well beyond eBay’s own sites. In the past year, PayPal has struck partnerships with thousands of e-commerce sites, including big players like Walmart.com. Recent releases of mobile PayPal applications for the iPhone, Blackberry and other devices are one of the first steps in what Thompson views as an integration of online and brick-and-mortar shopping experiences. And the executive says online payments have a long way to go in emerging economies like China and India.

With Peter Burrows in Silicon Valley and Spencer E. Ante in New York.

Reader Comments

Angry Ebay Sellers

June 18, 2009 9:57 AM

We are all previous sellers and buyers on ebay. And we have grown to hate ebay due to the litany of practices they've pioneered to establish a monopoly and squeeze every drop of money out of their sellers and thus buyers.

Here is a list of ebay's actions that we are most displeased about...

1.) Just in the past few years, ebay has slowly increased the percentage of their commission for goods sold from a little over 6% to 8.75% of the final ending fee!! A 50% increase in your commission/share of the profit in just a few years is absolutely unacceptable!!

2.) When overstock.com popped up as a competitor to ebay offering lower commission rates, ebay proceeded to buy them out, gut the auction portion of their site, and only then did it start to increase it's commission rates ever higher.

3.) Ebay has gone to extraordinary lenghts to shut down other competitors like yahoo auctions and amazon auctions, and are now engaged in buying up any online auction and classified listings left over.

Recently, they bought up 27% of Craigslist (a rival) and are currently being sued by Craigslist for using that stock share to undermine Craigslist. Once any remaining competition is done away with, expect to see ebay's commissions rise even higher. This is the definition of monopolistic anti-competitive tactics.

4.) When paypal first opened to provide people a cheap easy way to pay for online auctions and other purchases, ebay proceeded to buy out the company, and later increased it's commission rates. Whereas ebay used to allow sellers to enable buyers to pay for items with cashier's checks, and money orders even just a few months ago, ebay recently changed this policy. Now the only payment method that can be used on ebay is paypal.

Any sellers that tell their buyers they can pay via money order or check if they don't have a paypal account, get their auction closed by ebay, without a refund of the listing commission fees. This ensures that ebay gets a cut of the price twice, first for the auction's ending price itself, and then a percentage of the paypal payment as well. Most sellers including I've had auctions that ebay ended prematurely, without warning , and without refunding the listing fees because they mentioned that they will accept payment via either paypal or money order from buyers that don't have a paypal account.

5.) In addition to the continual increases in the commission fees, ebay has taken away sellers right to leave nonpaying buyers and buyers who abuse the auction site bad feedback. Sellers no longer can leave negative feedback to bad buyers. This policy along with the higher commission rates led to many sellers boycotting ebay as well.

Seriously, does ebay's management not see the direct correlation between the higher commission rates it started charging 2 years ago, with the loss of sellers (and thus buyers) from it's site?

Yet, in an effort to squeeze every drop of money out of us, ebay has continuously increased the commission fees more and more and each year. And as a result, it has become less and less profitable for all of us. Many ebay stores have had to close. Ebay's repeated milking of your sellers with higher and higher commissions and more restrictions is only going to continue your sites trend of losing business, and it's stock's decline. And as this petition goes to show, we, the previous buyers and sellers on your site, are well aware of what you have been doing to squeeze every drop of profit out of us.

We strongly urge to google or some other competitor to launch an auction site to compete with ebay that is FREE and completely supported by ad revenue to provide relief to the many sellers that have had to close up shop on ebay due to the commissions going up from 6% to 8.75% in just two years. And we urge them to do so before ebay completes it's current buyout of craigslist.

sure

June 18, 2009 12:39 PM

complete FREE site ! thats certainly true, who will worry about fraud, who will worry about other logistics. As a platform people are using ebay to earn, and if some chunk is taken by ebay i would say thats fine as long as i have a platform thats 20th most popular website in the world.

fruity

June 24, 2009 12:24 AM

They wont spin off PP because they're too focused on tripling the revenue by finding all ways to do a payment hold, rolling reserve etc. I bet you didn't ask Scott about that. besides pp has plans to do credit type reporting err trust ratings for the internet. Wow Mister reporter, you really are in the dark.

google auction site

June 24, 2009 8:07 AM

i think everyone is slowly had enough of ebay come on google the time is now for that auction site

Smith

July 23, 2009 3:57 AM

Ill tell you the main reason ebay is going down hill. Its a great company. Tons of upside, but they are way too strict about their account restrictions. Most of the original sellers and countless businesses that ran on ebay in the company's peak, had one small incident, such as a misunderstanding and had a small suspension (1 week, 1 month) and sold on another account. Automatic lifetime suspension for doing something so small. Or even havign bad credit. If you ever get kicked off paypal because you dont have great credit, you also get suspended from ebay. These are good sellers too. 100% feedback, power sellers, etc. these people can never use ebay again. So think of all these people and how much money they could generate for paypal. If they keep banning all the sellers then why will buyers bother using ebay.

so the original heart of ebay is now unable to use it. And Every day countless people, mostly sellers, are getting kicked off ebay and it is such a pain to get reinstated. So there are not too many new people on ebay. Most people now know what ebay is and already have accounts if they wanted one. the only market to expand is international and younger Americans.

They need to give these suspended people, the ones who were not a serious threat. Sellers who had good feedback, small offenses, and let them have second chances. Tell them they can have a clean slate. To come clean about their accounts and information. this will allow ebay to clean their records up, and have these sellers able to sell again. If it has to be then keep it probationary.

ebay would have a huge resurgence of the people who want to use ebay but can not because of their suspensions. and its become even more difficult to sell on ebay now that paypal is tightly integrated with ebay. The two companies are now able to exchange information and it is nearly impossible to open an ebay account if you have ever been suspended.

I know this because i am suspended. 2 years ago i got kicked off becaue a VERO buyer who wrongly accused me of bootlegging. I had almost 2000 feedback, 99%. I have one incident. I had a month suspension, i just spent all my money on new inventory so i had to do something. So i sold a few items on my other ebay account. Now i am permanently banned because i used my other account while i was suspended. i was selling 300,000 a year. that's close to $30,000 in profits to ebay and paypal from me alone.

There are tons of people just like me. Enough to give a massive boost to ebay. People like me who are honest, had good records, know how to sue ebay and sell in large quantities. but most of these people are no longer allowed to use ebay.

If ebay allows 10,000 sellers who anually sell 50,000 in goods, or 100,000 who sell $5000 a year. Seems pretty reasonable. that would be alone about 3% increase in profits a year after costs for ebay. Or about 50 million in extra revenue.

So seems like it could make a big dent.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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