Saturday, February 16, 2019

How PayPal Started and Two Lessons it Teaches Us

I came across this story while reading the book- Platform Revolution – How Networked Markets Are Transforming the Economy–and How to Make Them Work for You

1. The year was 1998. One of the key events happening during this time, was the explosion of internet. Many new businesses emerged.
2. In this tumultuous atmosphere, entrepreneurs named Peter Thiel (31 years,German, philosophy/law graduate at Stanford, one of US's top ranked Chess player) and Max Levchin (23

years, Ukrainian, Studied computer science at University of Illinois, had a passion for cryptography).

3. They opened a start-up named 'Confinity' with the vision of enabling money transfers on Palm Pilot and Personal Digital Assistants, the popular mobile devices of that time. Confinity gathered around 10000 users in 2 years but eventually had to be shut down due to the lack of momentum.
4. During their Confinity stint, one of their engineers built a prototype for receiving and send

payments over email.

5. Thiel and Levchin immediately sensed an opportunity as this method was much simpler than sending payments by linking the accounts.
6. Armed with this insight and innovation started a company which they called 'PayPal'.

7. PayPal started building the community of users (who wanted easy to use payment service) and the sellers (who would leverage PayPal as the default payment interface).
8. They overcame dotcom bust to emerge as winners in their chosen category.

9. Due to it's ease of use, more and more users from marketplaces like eBay started demanding support from the sellers. The positive feedback loops resulted in sellers supporting PayPal.
10. The growing popularity of PayPal caused eBay to launch a competitive payment method (Billpoint). But it failed to achieve traction.
11. Eventually, eBay acquired PayPal for $1.4 billion in stocks.

What learnings can one draw from this fascinating story ?

1. Diversity amplifies Innovation :

Recently, on the flight back to India I watched Bohemian Rhapsody, a movie that wonderfully captures the extraordinary journey of the legendary band named Queen, their music and their iconic lead singer Freddie Mercury.

There's a scene early in the movie when the band gets its first offer with an agent. The agent asks the band why should he consider singing them up. One of the band members responds saying that we are not same, we are all different people. And Freddie adds- (yet) We’re family. We believe in each other. Later on in the movie, he also remarks 'We're four misfits who don't belong together, we're playing for other misfits.'

There's another scene that i am reminded of later in the movie. After achieving super-stardom, Freddie decides to leave the band and go solo. A series of events makes him realize his mistake of leaving the band and he makes honest efforts to meet the other band members. Upon meeting them, he makes an emotional pitch to them by conveying that during his solo stint, he hired few people to assist him and he did all that he said them to do without asking any question. Freddie then tells the band that he missed their feedback, their nagging, their questioning of his decisions that eventually made him and the band better.

The band was really a diverse group of people with different backgrounds, different temperaments, different choices, different personalities and yet united by music. This diversity led them to be each other's best critiques but also led them to be each other's trusted and respected advisors. It is no wonder Queen produced outstanding music with great consistency.

The case of PayPal just proves the connection of diversity and innovation beautifully. Peter Thiel and Max Levchin were from different age groups, different nationalities, different educational backgrounds, different interests yet they got together and built a lasting legacy with PayPal.

2. Frictionless user experience:

My professional career started in an era when the reach of software was primarily the enterprises. There were hardly any consumer centric software. In that era, organizations could get away easily with user experience issues as long as the software functioned.

We now live in an era when consumers are primary audience for software. With proliferation of mobile devices and mobile apps, applications dominate our lives. This has given altogether a new meaning for user experience and design. If users cant figure out an app in first few seconds, we have probably lost them to competitors forever. This consumer focus has eventually made it to enterprises and we often hear the terms such as 'consumerization of technology' being used often.

One of the reasons, users got hooked on to PayPal was that it reduced the friction involved in accepting online payments. User just needed email address and a credit card. Previous systems were complex due to many verification phases involved that made user acquisition difficult.

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#userexperience #diversity #innovation #paypal

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