PayPal Merchant Services (Final version)

Q1

One can see PayPal’s early success from 3 different angles:

1. The entry time: As the transaction quantity and amount of e-tailing increased during early Y2K (year two thousand), incumbent methods of money transferring (checks and money orders; even eBay was fuelled by payments made by regular land mail) were being outdated. Whoever introduced secure, fast, easy funds exchange model on the internet was going to hit the jackpot big time. Although there were some participants in the internet money transfer sector, trouble was that people did not trust these payment systems because they were new and were flawed because they were not trusted as real currencies. PayPal had a few vital differences: 1. It used the dollar as its medium of exchange, rather than trying to create a new currency for online payments, 2. It used email for faster, less troublesome communications; and 3.It used the existing bank networks for making the payment, guaranteeing less fraud, more safety.

2. The viral or network effect of PayPal: As you gain new user, each user becomes a viral marketer for PayPal. To increase their customer base, PayPal began aggressively marketing the firm through special promotions, such as offering $10 to new sign-ups for PayPal accounts. The result was that PayPal surged from just 12,000 accounts in January 2000 to over 2.7 million by August 2000.

3. Minimization of the cost of transactions and authentication: They paid close attention and to the existing credit, debit card payment system and found out a meticulous way of keeping transaction cost to the minimal point. On the other hand, they enabled smaller scale merchants to accept credit card payments made from buyers to the merchants’ accounts through PayPal system. Buyers, on the other hand, were relatively safe to do business online owing to the fact that PayPal payments didn’t show private information (card number, credit history…) to merchants. The bonds created between buyers and PayPal, sellers and PayPal ultimately meant the ever increasing online purchases.

There are more reasons as following: First, PayPal discover the needs before competitors came in the market. First-mover takes all at that time. Second, PayPal seized the appropriate entry time. Not too fast or too slow. If PayPal entered the market too early, people probably not used to purchase online; and if it came in too slow, there might be several company competed for the market. Third, PayPal provided easy access and a safe payment method then. That was important when starting a new online business which builds trust with customers. This is three factors that PayPal made early successes.

This was also attractive for the small businesses or even individuals who can not use credit cards . Moreover than this PayPal offered for the auction sellers a better service for receiving the payments. (a quicker and convenient service by which the sellers do not have to wait before they ship the goods)So basically the reason for Pay Pal costumer-centered business model, which was developed to focus on any consumer problem or need to make their life easier .

Q2

70% of all e-commerce is initiated through web search, and Google is the largest search engine. What’s more, as Google is targeting customers through keyword advertising, content network advertising (needless to mention that YouTube and other most visited sites on the internet are of Google’s). Google has strengths for so many reasons: like the brand, service quality, the potential of users, search engine advantage and of course the technical experience and excellence. Google can offer all these service for free of charge and by the time they can be charged through advertisements. Or maybe they can charge the costumers as soon as they can sell their products through Google. This will be the efficient way for both Google and the online sellers. Because it is clear that besides earning money and increasing revenue the main competition is for the number of costumers which is an important factor to generate revenue from advertisements.

For Google to succeed, it should first acquire large enough customer base that use Google IDs. Although Google search engine is the most used engine, e-mail accounts base is not one of its core competencies. The current 2% of the sales amount and 20 cents on each transaction is a bit more expensive than that of PayPal’s, but compared to direct credit card sales, that is cheap. Google has three aspects as follows: Firstly, Google has much more resources to support the service. Those resources not only tangible, such as technical support and staffing but also intangible, like brand name effect. As a household brand name, people trust Google and it could alleviate the feeling of uncertainty when approaching its new services. Secondly, those who had Google’s account might get more easy access to its payment service. Most of people in the world have Google’s account or at least YouTube one. This will accelerate the growth of users and will be more likely to get in touch with its payment service. Thirdly, Google’s payment service is free to buyers and it costs less to sellers. The pricing creates more bargaining power comparing to PayPal.

The only way for PayPal to stay on the same business would be increase the amount on sites that allow PayPal transactions. Already they have expanded through different modes of transactions – mobile… If that doesn’t work, perhaps it is time for PayPal to invest in new technology, rather than in new business. They might work on RFID + online payment model. Cell-phones fitted with RFID chips are increasing in number. Why can’t PayPal come up with a system that combines the internet payment with daily cash payments? That way, PayPal might become the universal currency of tomorrow.