Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps - PowerPoint PPT Presentation

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Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps. Overview. Market for online payment PayPal business model Network effect Lock-in Challenges Managing network effect & lock-in: Keys to PayPal’s future success. Market for Online Payment. Trust & Internet commerce

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Wonsoo Chang

Petur Gislason

Patrick Léger

Joe Stamps


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Overview

  • Market for online payment

  • PayPal business model

  • Network effect

  • Lock-in

  • Challenges

  • Managing network effect & lock-in: Keys to PayPal’s future success


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Market for Online Payment

  • Trust & Internet commerce

  • Credit cards and the Internet

    • Use of credit cards with multiple vendors

  • Problems with payment to individuals

    • Certified checks

    • Personal checks


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Introduction to PayPal

  • PayPal enables individuals and businesses to pay each other

  • Registration process

    • Financial information & email identifier

  • How it works…

    • Sender logs in

    • Enters amount and email identifier

    • Recipient logs in and directs fund


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Advantages of PayPal

  • Credit card information in one place

  • Enables financial transactions for users not equipped with credit card systems

    • Success in auction market

  • Supports international accounts

  • Fraud protection up to $100,000


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PayPal Revenue Stream

  • Differentiation between personal & business/premier accounts:

    • Personal accounts are free and have less than $100 of incoming funds per month

    • Business/premier accounts are charged 2.2% of incoming funds + 30 cents per transaction

  • Float interest


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Business/Premier Accounts

  • Accounts have enhanced services:

    • 24/7 customer service

    • Referral bonus

    • Use of PayPal as payment option on commercial site

    • Enhanced auction tools


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PayPal & Network Effect

  • Value of PayPal network increases as membership levels rise

  • User base has grown to over 5 million users in 14 months (increasing at 20,000 per day!)

  • 600,000 fee-paying accounts


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Why It Worked…

  • Easy transition & use of existing infrastructure

  • Viral marketing & referral reward

  • Popularity with auction market

  • Dichotomy between business and personal users creates demand

  • New recipients must register to receive funds


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PayPal & Lock-in

  • Low entry barriers

  • Registration process

  • Entrenchment from free service

  • Solid value proposition

  • First-mover advantage

  • Lock-in of merchants


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Challenges

  • Must develop better offline/online strategy

  • Traditional credit card companies can easily enter market & leverage existing customer base

  • BillPoint (Visa, Wells-Fargo, eBay)

  • How will PayPal attract mainstream Internet users?


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Managing Lock-in & Net Effect

  • Key to PayPal’s future success will be how it manages its lock-in & network effect

  • Find new markets & complementary applications:

    • PDAs & mobile commerce, B2B

    • Market to more mainstream users by partnering with more “trusted” name

    • Bundle products (checking, brokerage, credit service, bill payment, etc.)


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Managing Lock-in & Net Effect

  • Respect privacy of customer base: only cross-market when value proposition is clear

  • Do not compete on price

  • Leverage large customer base and lead the market in the quality of product offerings


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