Shelley's summary

Q1. What explains PayPal’s early success?

The rise of PayPal was not an accident. Followed three-phase strategy, PayPal quickly earned lots of share in the marketplace and had gain revenues in a stable increase.

PayPal serves as a platform between two customer groups, one is cardholder and the other is merchants. PayPal has to rely on both sides to survive and gain profits. As long as one of the two vanishes, the platform will be unable to work. Through discovering the needs of both sides and the careful pricing method, PayPal builds its awareness from offering free charge on the beginning stage. As the first-mover, PayPal took huge risks but also reaped most of the benefits. At the first phrase, PayPal smartly cooperate with eBay to expand its user’s base. This strategy is pretty much like Microsoft’s one, which achieved success on the basis of the wide uses of IBM computers. On the other hand, PayPal expanded its target customers toward eBay’s international sites and thus swiftly opened its international markets.

Although eBay acts as the largest auction sites in the world and it brings traffics and large amounts of visitors and buyers, PayPal found out its brand was easily associated with eBay’s “online-flea-market-roots” impression. To set up an independent image, PayPal must start the business off eBay. Even PayPal met challenges afterwards; it had strengthened its profit model and the relationships with merchants early in the market.

See through PayPal’s strategies, we could find out sighs directly leading to its early success. 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.

Q2. Does Google represent a serious threat to PayPal? What strategy for payments would you recommend for Google? For eBay/PayPal in defending against Google’s attack?

Google does pose a threat to PayPal despite Google’s CEO denied. The problem is to find out how big the threat is. Google serves as the biggest search engine in the world and takes advantages as a leader in the market. However, it didn’t mean Google can absolutely replace PayPal in many ways. The influence of Google’s payment service toward PayPal is limited.
As Google CEO put it “It makes no sense to compete with what others are doing well….eBay and PayPal are very good partners to us.” It shows the new payment method that Google focused was only on online advertising.

For Google, it obtains advantages as the largest portal but not in payment service field. There are three advantages for Google to start up online payment service. 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.

On the other hand, Google has disadvantages which are exactly PayPal’s advantages. PayPal is an independent company focusing on payment method services while Base is one of the services under Google. That is, the relationship between Base and Google is inseparable; it makes it impossible for Base to compete with PayPal if Google collapsed (Just in that case, it might not happen). As the first-mover, once consumers get used to the services, it’s hard to change the behavior if incentives were not strong enough. Obviously, PayPal is more efficient and faster than the Google one. That makes it harder to compete.

If Google does want to share the market, it should firstly expand the users especially those merchants to have its account. To increase the incentives, Google could provide bonuses for new users and strengthen the links with its other services. Most importantly, Google should improve its quality in itself to follow up PayPal and continue to provide lower prices to attract new merchants and consumers.

For PayPal, it should target on both existing and new users’ segments in the same time but put more resources on new market. As a platform, the more people involved will attract lot more users. Also, PayPal should continuously improve its services to fight against Google. The bar for Google to surpass PayPal is still high.