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Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps

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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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Presentation Transcript
slide1
Wonsoo Chang

Petur Gislason

Patrick Léger

Joe Stamps

overview
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
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
introduction to paypal
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
advantages of paypal
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
paypal revenue stream
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
business premier accounts
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
paypal network effect
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
why it worked
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
paypal lock in
PayPal & Lock-in
  • Low entry barriers
  • Registration process
  • Entrenchment from free service
  • Solid value proposition
  • First-mover advantage
  • Lock-in of merchants
challenges
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?
managing lock in net effect
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.)
managing lock in net effect13
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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