Tuesday, September 30, 2014

The Ballad of eBay and PayPal

EBay and PayPal are preparing to split next year. It is all too easy to see this story in metaphorical terms — a corporate couple of the online auction era, their glory days behind them, no longer able to make the sacrifices required to stay together. The story has all the hallmarks of those hyperemotional breakup songs of pop music: foolish personal mistakes and communication failures covering over deeper problems and a much more profound mutual failure. It could just as easily be a soap opera scene. “You don’t understand me anymore!” PayPal wails. “You just don’t care what happens to me, do you?” “Well, look,” eBay responds in a huff, “my life isn’t exactly the same as it was before either! So what have you done for me lately?”

Metaphor aside, the situation is a big mess. No business that depends on Christmas shoppers for its survival wants to have this kind of distraction hovering over it during the fourth quarter. Workers will be wondering about the future while trying to struggle through the holiday rush. Of course, the fourth quarter begins tomorrow, and that might well be the reason the announcement was made today, to get it out of the way before the respective businesses and their seasonal workers have to start dealing with the millions of eager online shoppers and their inevitable transaction problems. The carefully written corporate statement put the blame on the rapid pace of change in online commerce, an oblique reference to Apple Pay (which hasn’t even launched yet) along with other competitors such as Square. But competitive pressure is not reason enough to dump such a big distraction on the two companies the day before the holiday quarter gets underway. Consider also the way the announcement hinted broadly at more big changes in the works, especially at eBay, not yet decided in enough detail to mention. Obviously there was internal dissension severe enough that the action couldn’t hold off (or be kept quiet) until January. It had to come out now. I won’t dig through all the scuttlebutt, which you can find easily enough elsewhere. It is enough to say that eBay had become a strategic impediment to PayPal, and perhaps vice versa.

Just the language that we use to discuss eBay and PayPal shows that they don’t really belong together. EBay bought PayPal 12 years ago when PayPal was a much smaller company. Now PayPal is bigger than eBay — and not just bigger, but in the world’s estimation, more interesting, more intriguing, with more potential. At the same time that PayPal has grown, eBay has faded from the public eye. There is a great deal of discussion and speculation tonight about what PayPal might be able to do as an independent company, freed from the restrictions of eBay. Everyone, except for one bitcoin blogger I found, seems to agree that the split will be good for PayPal. Logically, there should also be a discussion about what might happen to eBay, and whether it can survive financially on its own. But it is only eBay, so who really cares? Whether you agree or disagree with the popular perception of the two companies’ merits, the fact remains that even stockholders and directors can’t manage to think of eBay and PayPal as one company. They don’t share a name, management, or business purpose. They don’t go together that well even after 12 years of trying. They aren’t in the same business, so it isn’t possible for them to work that closely together.

This starts to sound like the dysfunctional relationship from the metaphor I started out with. EBay may be the older and wiser one of the couple, but it has also become complacent in a way that threatens both of them to a future of decline and irrelevance. For all I know, it could be too late to save either eBay or PayPal. But if they are to be saved, it will be by shaking things up — and getting them out of each other’s way.