September 9, 2024 • 41 mins
Today, Paypal is a 70+ billion dollar company, but how did it start out? And why are the founders sometimes referred to as the Paypal Mafia?
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Speaker 1 (00:04):
Welcome to Tech Stuff, a production from iHeartRadio. Hey there,
and welcome to tech Stuff. I'm your host, Jonathan Strickland.
I'm an executive producer with iHeart Podcasts and how the
tech are you? So? Here in America, the sport of
American football, whereas we call it football, is back in
(00:26):
full swing. And I heard a little rumor that tonight
during Monday Night football, PayPal's going to do something that's
something is I have no idea. I've heard that's going
to be entertaining and funny, and maybe it'll tie into
a recent ad they did with Will Ferrell where he
runs into a bunch of wind chimes. Don't know for sure,
(00:48):
but I do know that if you tune into the
game on ESPN, you can actually see whatever this is unfold.
And I think the hope is that this is going
to be a big talking point, and I'm certainly curious.
But in the meantime, I thought it would be cool
to talk about the origins and evolution of PayPal. So
(01:09):
this is kind of a high overview, mostly about the
formation of PayPal and then a little bit about its
evolution because this is a topic that I've actually touched
on a few times in tech stuff while talking about
other companies, primarily eBay, or when I was talking about
the origins of Elon Musk's obsession with the letter X,
because that actually plays a big part of it too,
(01:31):
But I have never done a full episode dedicated to
the fintech company that set the standard for everybody else,
Like PayPal is a pretty remarkable success story, especially when
you expand that out to say, okay, let's look at
some of the influential figures who are part of PayPal's founding.
They largely went on to do lots of other stuff
(01:54):
and become really really wealthy in the process. But in
the beginning, before there was PayPal, there were two other entities,
so starting first with one called Confinity, although even this
company reportedly had an earlier name called field Link, that
was co founded by Max Levchin and Peter Tiel in
(02:18):
nineteen ninety eight with a few other partners. Although Levchin
and tel are typically the only two you read about
in most histories, they weren't the only ones, but they
were the ones that were, you know, referenced the most. So.
Levchin was born in Ukraine in nineteen seventy five. His
family immigrated to the United States in the early nineties.
(02:40):
He was interested in computer science, and he earned a
degree in the field of computer science at the University
of Illinois at Urbana Champaign in nineteen ninety seven, and
then like the next year, he would co found this
company that would eventually evolve into PayPal, which is quite
a stratospheric rise. I mean, to go from a rush
(03:00):
college graduate to co founding a blockbuster of a company
in just a year, that's incredible. Of course, we also
know lots and lots of stories in Silicon Valley about
college dropouts who go on to forge incredibly successful entrepreneurial careers.
Just a quick reminder, for every great success story there is,
there are countless stories of people who dropped out of
(03:21):
college and then regretted it later. So it's by no
means a guarantee. I mean, if you've got a really
great idea and you're also lucky, then you know you
might have a really good shot anyway. The other co
founder Peter Tiel, he's almost a decade older than Lefchen.
He was born in nineteen sixty seven, and he was
born in what at that time was referred to as
(03:42):
West Germany. We just call it Germany now because it
unified again. He was just a year old when his
family immigrated to the United States. Teel majored in philosophy
at Stanford University, graduated in nineteen eighty nine, and he
leaned heavily into libertarianism, and to this day, Teal is
known as being a political activist as well as an entrepreneur.
(04:05):
Levchen would successfully convince Teal to serve as the CEO
for Confinity once it launched. Reportedly, Teal didn't want to
do that initially, he just wanted to be an investor,
but Levchen convinced him to serve as CEO. Now, there
were four other co founders of Confinity, whom, as I
mentioned earlier, they often don't get talked about nearly as
(04:29):
much in the various articles and histories of PayPal, But
those other four co founders included Upon ken Howery, Luke Nosek,
and Russell Simmons, all of whom have earned the descriptor
entrepreneur to say the least. So their goal, at least,
as described by Fintech magazine, was to quote democratize financial
(04:53):
services and empower people and businesses to join together and
exchange value for better experiences end quote. But that doesn't
really mean much, right, Like I mean, yeah, it tells
you what the end goal is, but it doesn't tell
you through which methods are they planning to achieve this goal.
So I would argue this gets maybe a tiny bit confusing.
(05:15):
So on a more specific and perhaps less grandiose level,
the original aim of Confinity was to develop a payments
platform built on top of the palm pilot. And you
may not remember what these devices were if you are
younger than someone likes say myself. The smartphones made old
personal digital assistants or PDAs obsolete, but way back in
(05:39):
the day these things were like the go to tech
accessory if you were in business. Palm pilots were a
type of PDA. So these are digital devices that could
access stuff like email and contacts and calendars and that
kind of thing. Often they didn't have any direct Internet
connectivity on their own. What you would do is you
(06:00):
would sync your device to a computer that did potentially
connect to the Internet, and you would do this through
various means. It might be through a cable, or it
could be through an infrared sensor. A lot of them
had those including the palm pilot, and you would carry
this around with you, and while it didn't have all
the capabilities of a smartphone, it did boost what you
(06:24):
could do just on a regular cell phone. So business
leaders would typically have each of these types of devices.
So it's no big surprise that gradually PDAs and cell
phones would converge into the form factor of smartphone, and
then it would take a few more years for smartphones
to become a consumer product beyond just the business elite. Anyway,
(06:45):
Levchin and Teal were essentially trying to make a product
that would let business leaders exchange money digitally through mobile devices,
and the way this would work was through beaming data
through infrared signals. So, like I said, they had infrared
lights and infrared sensors, sort of like a television remote,
but you know, TV remotes typically only just beam stuff
(07:06):
to a receiver connected to your TV. In this case,
the palm pilots had both the sending and receiving elements,
so it's like a transceiver. So you had to point
the devices toward each other, you know, you had to
have a line of sight between the two palm pilots
in order to make one of these transfers happen. Once
you did that, you still had another step to take.
(07:27):
Like you didn't just magically have money added into an account.
What you would have to do is you would have
to take your Palm pilot, synk it back to your computer,
log into the Confinity website, and then you would choose
how you wanted your money credited to you, like you
could receive a credit like a credit card. Some Essentially
you could have a check cut for you, so that
(07:48):
means you gonna have to wait for the check to
come to the mail, or you could do direct deposit
to your bank account. It all depended on how much
you trusted Confinity, I guess because in those early days,
I think a lot of people forget this, but in
the early days of e commerce, there was a lot
of worry and anxiety around how would you handle digital
transfers of money in a way that wouldn't put you
(08:10):
at risk. Like no one wanted to put their credit
card into a website, let alone have their bank account
connected to an online service. So this wasn't a seamless
service at this stage right the beaming of information between
palm pilots, but it was the beginning of something Teal
and Levchin saw that the world was likely going to
(08:33):
move more toward a mobile landscape. It would take about
a decade for that to actually happen, but it certainly did.
You can't deny that the mobile web completely changed the
way the Internet worked for the average person. So the
name Confinity itself was a portmanteau of confidence and infinity.
(08:54):
The team focused on cryptography because obviously it's necessary to
protect any sort of financial transactions between mobile devices. You
want to make sure that only the parties that are
involved in the transaction are able to access that. You
don't want anyone snooping in and being able to, you know, digitally,
steal cash. They also worked on the concept of digital wallets,
so a virtual account where you could keep deposits, withdrawals,
(09:18):
and transfers in a way that was reliable and secure
and didn't necessarily require you to constantly tap into that
through like a more established financial institution to get like
a check cut or something like that. So this would
help reduce the number of steps needed to interface with
money from a user perspective. Confinity developed a money transfer service,
(09:38):
and this is the service that ended up getting the
name PayPal. So originally PayPal was not the name of
a company. It was just this service from Confinity. But
as I mentioned earlier, Confinity was just one of two
entities that ultimately would evolve into PayPal. There was, as
(09:59):
Yoda might say, another sky Walker or you know, just
another another company. That another company was the original X
dot com. Well not the original X dot com actually,
because X dot com existed before this did. This is complicated. Okay,
so today, if you say x dot com, you're referring
(10:19):
to the entity that was formerly known as Twitter. Now,
at the time of PayPal's founding, X dot com was
known as an online financial company. More on that than
just a moment. But really, the original x dot com
was neither of those things. It was instead the URL
for a company called Pittsburgh Power Computer. I found that
(10:41):
thanks to Jimmy Sony, who wrote a piece on Medium
about the origins of X dot Com. He's also written
extensively about various founders in Silicon Valley in a book
called The Founders. Pretty handy there. Anyway, even this story
gets more complicated, of course it does. So the owners
of Pittsburgh Power Computer were in a jam, so they
had established a website at www dot PPC dot com. However,
(11:07):
they lost that URL after a company called Network Solutions
bought out the contract for their domain hosting that granted
them that address. So they reached out to Network Solutions
to find out what other URLs they might be able
to secure for themselves, and they found that www dot
x dot com was available and they said, oh, we'll
(11:28):
have that one please. Now, this almost didn't happen because
while they were able to secure the URL from the
DNS point of contact through the network company, their Internet
service provider said that looks totally sus and we are
not going to let you have it. However, the owners
builled out the necessary paperwork to establish this as their URL,
(11:51):
and whoever it was that objected to x dot com
at their ISP must not have looked at the forum
because when it was all sudden and done, they they
were able to secure x dot com after all. Shortly thereafter,
the Internet Assigned Numbers Authority scooped up all the remaining
one letter URLs that were left. There were twenty three
unassigned ones at that time. The ones that had been
(12:13):
taken at that point were x, Q, and Z, So
if the pair had even dawdled a little bit, they
wouldn't have been able to get x dot com at all,
because it would have been sort of a manifest destiny
kind of land grab from the Iana. Anyway, the pair
of business owners held onto this URL even though they
ultimately sold the computer company. So they kept the URL
(12:36):
after selling the company, and they kept it for stuff
like their personal emails, because like having name at x
dot com. That's kind of fun, right, And then we
get up to nineteen ninety nine. That's when Elon Musk,
who was fresh off of selling his first company, zip Too,
popped up with an interest in buying the x dot
com URL. He had not been the first person to
(12:57):
approach the pair, but he was the first to have
a pick that they actually found to be interesting, and
that pitch was to bring investment and banking to the
internet writ large. The early services would be similar to
what Confinity would provide, like linking banking and transfers to
email addresses, but Musk's grand plan was to get into
(13:17):
all things financial, with x dot com being kind of
a portal to everything you can think of in the
finance world online. The former owners of x dot com
accepted some cash and perhaps more importantly, a stake in
Musk's company. And Musk groused about that last bit. He
actually publicly groused about it in an article, but he
agreed to the terms so that he could gain possession
(13:39):
of x dot com, and initially X dot COM's focus
was on being able to make payments online through email. Interestingly,
Musk's HQ for X dot com was in an office
building and the company occupying the office next door to
them was you guessed it, Confinity. We'll talk more about
that in just a moment, but first let's take a
quick break to thank our sponsors. We're back, okay, before
(14:12):
the break I had mentioned. Now we have two different
fledgling fintech companies occupying office space literally next door to
each other. Now, both companies had large scale plans to
become like all encompassing online financial institutions, but they were
taking slightly different pathways in order to get to that destination,
(14:33):
and in the early days, they were not directly competing.
They each offered complementary methods to process payments online, but
they didn't directly overlap. They also chatted with each other
a bit. According to the aforementioned Jimmy Sony. Each company,
the employees felt like the employees of the other company
were taking the wrong path. So essentially they were both saying, like, man,
(14:56):
those lunkheads over next door, Gosh, they sure do have
it wrong. And they had both groups saying this at
the same time about the other ones. Anyway, we should
also set the scene a little bit to remind ourselves
of what the world was like, because this is the
late nineteen nineties, right We were in an inflationary period
of the dot com bubble. Like startups were going banana
(15:18):
at this time. They were popping up all over the place.
A lot of them were flush with cash, either from
angel investors or going public really early on before they
had much to show for it, and just getting flooded
with you know, people buying tons of stock. And investors
saw the Internet in general and the Web in particular
as being the digital equivalent of a gold rush, so
(15:39):
investors didn't want to be too late to the party
or else they would miss out. So a lot of
startups were getting injected with way too much money for
their own good, and this would become undeniable once the
bubble did begin to burst in like two thousand and
two thousand and one, and at the time in the
late nineties, it just seemed like even the sky wasn't
(16:00):
the limit. There was no limit. The limit does not exist,
as mean girls would tell you. But it turned out
that the mean girls were being extra mean because the
limit did exist, and people ran up against it pretty
hardcore in two thousand and two thousand and one. But
on top of that, in the environment, there was also
this looming specter of Y two K. Now, in case
(16:22):
you're not familiar with Y two K, maybe you were
born after two thousand. You don't even know what the
deal is with Y two K. Well, here's the short version.
So early on in the days of computer coding, programmers
would often take a shortcut if they had to include
digits representing a year in their code. It's like a
(16:42):
lot of different software would keep track of the year,
and each year the digits would go up by a number,
But rather than use four digits, which would take up
more valuable space, they used two digits. I mean, why
wouldn't they So Like, if you were a computer programmer
in nineteen seventy seven, and you were right, some software
you might designate the year just by seven to seven,
(17:04):
and then the next year it would go up to
seven eight. That sounds like a trifle, but keep in
mind that, you know, computer science was really tied to
what we could achieve through semiconductor design and manufacturing, and
that in itself was progressing at a very steady rate,
a fast rate, but steady, and computers were under tighter
limitations than what we have today, so conserving space when
(17:26):
you were coding was actually a priority. You couldn't just
you know, be extravagant with the amount of code you
were putting into your software. So this became a convention
of using two digits to designate the year, help you
save a little bit of time and pluss what everybody
else was doing. And it stuck around even as the
(17:47):
limitations in computing became less of a problems as we
got to a point where we could afford to use
four digits to designate a year or more if we wanted.
But the convention was already in place, And meanwhile, I'm
kept on advancing as time often does, and it meant
that those two digit counters were getting closer to nine
to nine, and that led people to say, huh, what's
(18:10):
going to happen when the calendar turns to January first,
two thousand and that was a huge question. Some folks
thought nothing really important was going to happen. Others worried
that it could mean global chaos. So in the financial world,
for example, there were a lot of very understandable concerns
because the worry was that the computer systems that were
(18:30):
now responsible for financial operations around the world would suddenly
interpret the two digits to mean that it had turned
back to nineteen hundred again, and this in turn would
affect all these calculations that depended in part on what
year it was, So, for example, calculating the amount of
interest an account was accruing, that could totally create an
(18:51):
issue like no one knew what would happen either would
it credit the wrong amount, would it take money away?
Would it just crash the system? If suddenly the appeared
to term back in time ninety nine years, what happens then?
So people were worried that everything from total financial collapse
to everyday appliances going haywire would occur. Thanks to these
(19:13):
space saving measures. Some programmers that introduced decades earlier, but
companies like Confinity and x dot Com they started up
well after the world had started to worry about what
might happen upon the dawn of two thousand. As such,
they were able to anticipate and sidestep those issues, largely
because they could take measures to make sure their systems
(19:34):
would continue to operate as designed after we were done partying.
Because it was nineteen ninety nine, so in a way,
they were being looked at as the future of finance
because unlike the established financial world, these weren't legacy companies
like legacy institutions that were then attempting to digitize and
(19:58):
become modern nice. They were in fact of the digital
age themselves, and so they weren't burdened by this massive
legacy of systems that may or may not be compatible
in the new era. So that ended up being like
a big selling point for both Confinity and x dot Com. Meanwhile,
(20:19):
Confinity had landed a pretty sweet deal, and it was
a deal that forced the company to pivot. But that
pivot might have been what ensured its ultimate success, and
that was partnering with a little online e commerce platform
called eBay. So in the old days of eBay, users
could put stuff up for auction and bid for stuff
(20:42):
that was for auction. You could also eventually put in
an actual buy price and just buy things outright rather
than bidding for them. But once someone won this bidding war,
even if they're the only one bidding on something, whatever
it may be, well, then it was time for the
person who won the auction to pay up. Except there
(21:02):
was no digital means to transfer money. So originally on eBay,
the deal was if you won an auction, you were
expected to write a check to the seller and to
send the check to them through the mail like the
postal service, like a caveman, essentially, so obviously, this slowed
(21:23):
things down considerably. Sellers had no incentive to send stuff
right away because they didn't yet have cash in hand.
They weren't guaranteed to have actually received a check yet. Meanwhile,
the buyers might worry that they were sending a check
off only to never receive that you know, he man, body, pillow,
or whatever it was they were buying. Confinity's PayPal service
(21:45):
sped things up considerably. eBay would urge customers to sign
up for PayPal accounts to expedite payment. You know, you
just connected your email to PayPal and then you could
start depositing money into a PayPal account and use that
to purchase stuff, and Confinity saw great success because lots
(22:06):
of people on eBay preferred this to the old method
of cutting a check and sending it through the mail,
So PayPal and Confinity started to see a lot more
folks sign up for service. Now, by this time x
dot Com and Confinity were more directly competing with one another,
and this meant that Confinity was doing pretty darn well.
(22:27):
And I'm sure that rubbed musk the wrong way, but
neither company was doing as well as it could have
been because they were spending a lot of their time
and effort in an attempt to out compete the other.
And that just meant that they were trying to drink
each other's milkshakes, and they could have been directing that
attention toward fostering a stronger business. Gradually, the two Camps
(22:51):
came to a realization that by merging the two companies together,
they could bolster their services. They could combine where it
made sense and incorporate the complementary features that each one
offered to make a better product overall for customers, and
that this would be a fifty to fifty partnership a
true merger. Bill Harris, who had served as CEO of
(23:15):
X dot Com leading up to this merger, would continue
on as CEO of the newly merged company. Must would
be a sort of co CEO. Peter Thiel, who had
been CEO of Confinity, would become the executive vice president
of finance, and Levchen would become the company's Chief Technology
Officer or CTO. And initially the plan was that the
(23:37):
Confinity brand name would ride off into the sunset. They
were going to retire Confinity. The new company would instead
be called not PayPal but X dot Com. PayPal would
continue to be the name of the payment service, the
money transfer service, but it would not be the name
of the company, at least not initially. There were actually
(24:00):
talks of rebranding the name of the service as ex
hyphen PayPal, which seems confusing to me because you're like
X PayPal, you mean something that used to be PayPal
but isn't PayPal anymore. And in fact, the folks over
at PayPal were not crazy about this idea. They did
not agree with Elon Musk that X was the coolest
letter in the alphabet and that everything should be named
(24:21):
after X. Meanwhile, Musk was very much adamant on that,
and things did not go very smoothly for this newly
merged company. It turned out that there were a lot
of disagreements between the various parties who were coming together
to form this new entity. So Peter Thiel resigned as EVP,
(24:42):
and Musk and the Board of Directors had Bill Harris
removed as CEO and Musk took his place because Bill
Harris was seen as not being focused enough on the
technology side of things. From what I understand this is
based off of various articles that were written well after
all of this happened. Teal actually came back to the
(25:04):
company after Bill Harris was removed as CEO, and Teal
would become the chairman of the board of directors. Elon
Musk began making some pretty hefty demands of the company,
like really really aggressive goals, ones that would have been
difficult to achieve both from a business standpoint and a
(25:24):
technological standpoint. This might sound familiar because his style doesn't
seem to have changed much over at formerly known as Twitter,
where he has both reduced the staff dramatically through layoffs
and also placed some really aggressive goals for the people
who were left behind. Well, he was doing that over
(25:45):
at X dot com as well, and he was really
gung ho on that name, Like he was just absolutely
fixated on X, thinking that it was the coolest letter
and that this was going to really make people want
to use the company's products and services. Other stakeholders were
not so sure about that. They were worried that one,
(26:05):
no one was going to know what X dot com
was all about because the name was not particularly evocative
of what it was doing anyway. And they were also
more worried that people might think it was linked to
pornography because of the designation of X rated movies. So
they were worried like, one, they're not going to know
what we do, and two, if they do think they
know what we do, they're going to think it's pornography
(26:26):
related and that's not the case. So what happens next
has become something of internet legend, or really tech legend.
The story goes that while Musk was traveling to Australia
to celebrate his honeymoon with his first wife, Peter Teel
organized the board of directors to remove Musk from the
position of CEO so to hold a coup the way
(26:50):
Musk did with Bill Harris and boot Musk from the company.
So this was in two thousand. Also on the board
of directors at that time was Rydehoff, who would go
on to found the company LinkedIn. There are a lot
of luminaries in the tech world wrapped up in the
story of PayPal. We'll touch back on that before the
end of this episode. So Musk was ousted, however, he
(27:13):
retained his stake in the company and that would go
on to make him really filthy rich. Now, to be clear,
Musk was already rich, It's not like he was coming
from humble beginnings, but this would be a really big boost.
More on that than just a moment. But Peter Thiel
took on the job of CEO, and ultimately the folks
remaining at the company needed to figure out what they
(27:33):
were going to call it. Confinity had been retired as
a brand, and no one really felt like that was
the strongest name X dot com everyone agreed was confusing
and potentially self defeating, so they turned to the most
successful service that the company had offered, and that was
the one used by countless people on eBay. They chose
to rename the company PayPal. Okay, we've got some more
(27:55):
to talk about with PayPal's origins and a little bit
about evolution, but first let's take another quick break. Okay,
we're back. So between two thousand and two thousand and two,
(28:17):
PayPal establishes its identity using the PayPal name for the company,
and begins to innovate even further in the payment space
and establish itself as a successful payments processing platform for eBay,
and by two thousand and two, it was ready to
hold an initial public offering an IPO, and thus become
(28:39):
a publicly traded company on the stock market. Now, I
often say that tech startups really all startups, but tech
startups in particular usually have one of two goals. Either
go public, which brings in tons of money through the
stock market, and thus early investors angel investors can see
a big return for supporting the company when it was
a weedy little startup. Or option two, get acquired by
(29:02):
a much larger company for hopefully a huge amount of
cash that also allows early investors to see a really
big return on their initial investment. PayPal actually managed to
do both in two thousand and two. It went public
in two thousand and two in February and raised more
than seventy million dollars in the process. But that was
chicken scratch. I mean, part of the reason it was
(29:24):
chicken scratch is that this is two thousand and two.
That means the world had already seen the dot com
bubble burst at that point. So while the market was
in recovery, the craze around tech stocks where it would
rocket a stock to the moon, those were a thing
of the past. PayPal still did well. It just didn't
explode like the dot com companies that went public in
(29:46):
the late nineties before everyone came to terms with reality.
But then later in October two thousand and two, eBay
made an offer that the shareholders couldn't refuse. So hasn't
even been a publicly traded company for a year yet,
and eBay says, we want to acquire you. And it
ended up being for the princely sum of one point
(30:07):
five billion dollars billion. With a B. PayPal would become
the official payment provider for eBay. In the process, not
just not just an option, it's the official one. The
founders would all become millionaires. Musk was the largest shareholder.
He would pocket a quarter of a billion dollars himself. Y'all,
I would not mind getting tossed out of a company
(30:28):
if it meant that a couple of years later I'd
be paid two hundred and fifty million. Smack aarows. That
seems like a fate I would welcome. Several of the
co founders left the company upon the completion of this acquisition.
So Max Levchin, who kind of was the guy who
came up with the idea for Confinity in the first place,
he left, and he would go on to found a
media sharing service called Slide. Peter Thiel left and he
(30:50):
founded a hedge fund called Clarium Capital, and then later
on he founded the data analysis firm Palanteer, which all,
that's a podcast topic that's just waiting to happen, but
I'll leave it for now. The folks who were part
of those early days at PayPal would a lot of
them would go on to create some really large tech companies,
or they would take existing tech companies and then boost
(31:13):
them considerably. Musk did this. Like Musk gets credit for
creating a lot of tech companies, but in many cases
those were companies that were founded by other people, and
then Musk kind of came in and sort of took
them over. So like with Musk, you've got Tesla and SpaceX,
and these days you have like x, Dot Ai and
lots of others. With tel you've got Pal and Tier,
(31:35):
which is that big data analytics company. You've got LinkedIn, YouTube,
Yelp affirm. All of these came from people who had
previously worked over at PayPal. The group of entrepreneurs who
fostered PayPal into a company that eBay acquired for one
point five billion became known as the PayPal Mafia. It's
a group of business leaders who largely became serial entrepreneurs.
(31:58):
They often invest in one another products and projects. Not always,
but I mean there's a lot of cross pollination going
on between the group, and so they were just seen
as this incredibly influential and powerful group of tech business
owners who went on to create success after success. Several
of them today are billionaires, So that is a heck
(32:21):
of an alumni to belong to. As for PayPal, under
the operation of eBay, it actually largely got to operate
as an independent entity. It was not micromanaged by eBay
for the most part, so there was a lot of
innovation in digital payments, and PayPal as a result, continued
to grow its influence. It began to find its way
(32:43):
into lots of different types of storefronts, not just eBay. Meanwhile,
eBay itself was starting to encounter a few challenges with
PayPal flourishing while eBay was not growing as quickly. One
investor in particular began to push for the two to
part ways more than a decade after they first joined.
So in twenty fourteen, Carl Icon, who is often referred
(33:06):
to as an activist investor, which means he invests a lot,
like he buys a lot of shares of companies, and
that gives him pretty powerful rights as a shareholder to
tell companies what they should do, and he gets kind
of irritated if they don't do it. Anyway, That's what
he was known for. He called on eBay to spin
(33:26):
off PayPal, and he argued that PayPal was doing well,
but it would do even better if it were freed
from the corporate oversight of eBay, that eBay was essentially
holding PayPal back. Now. eBay's board of directors initially dismissed
this suggestion, but then later in twenty fourteen, they kind
of came around to the same conclusion, and in twenty fifteen,
(33:48):
eBay did in fact spin PayPal off and PayPal once
again became a publicly traded company on the stock market.
So it had done that in February two thousand and two,
and then in twenty fifteen it would come back to
the stock market as its own company. PayPal continued to
offer news services, and like I said, lots of storefronts
(34:08):
began to use PayPal as at least a payment option
for customers, if not the only one. Interestingly, in twenty
twenty one, eBay announced it would end support for sellers
to use PayPal accounts in order to handle funds. You
can still use PayPal to buy stuff on eBay, but
the people selling it, they wouldn't collect the funds in
their PayPal accounts. Instead, those funds would have to be
(34:31):
directed to their bank accounts. This would mean that eBay
would be able to institute a processing fee for each
of those transactions, which was I think thirty cents plus
a percentage of however much the transaction was. And that
really is the reason for this, right eBay decided to
(34:52):
get rid of PayPal because PayPal was getting those transaction fees.
This way, eBay could get those transaction fees and PayPal
would not have access to that anymore. You can still
again purchase through PayPal, like if you go on eBay
today and you want to buy something, you can use
PayPal to complete your half of the transaction, but on
the back end of the seller side, it was a
(35:13):
different story. Over the years, PayPal has formed partnerships with
many other financial institutions, which gives it, you know, definitely
the era of legitimacy right Like Initially, there was a
lot of skepticism about digital money companies, Like there was
just a lot of fear that these things would be
(35:34):
a flash in the pan and then ultimately you would
have investors and customers left holding the bag when it
would fail. But PayPal stuck around and it formed partnerships
with companies like credit card companies like Visa and MasterCard,
and major banks like Wells Fargo, as well as with
big tech companies like Google and Apple. So if you
were to use Google Pay or Apple Pay, then PayPal
(35:55):
would be incorporated into those offerings as well. It also
acquired numerous other companies in the fintech space over the
years and back In twenty twenty one, PayPal introduced the
ability to pay for purchases using cryptocurrency, So again, pretty innovative.
I mean, I still have issues of cryptocurrency not really
acting much like a currency, well, specifically Bitcoin. Other cryptocurrencies
(36:19):
are a little more stable. Bitcoin, though, is so volatile
that I don't really see it being used as a
currency in a way that makes anyone feel comfortable. Anyway. Also,
I've heard some younger folks say they don't like PayPal,
they don't trust PayPal. Instead they use Venmo, which, well,
I got some bad news for you if that's your
(36:40):
point of view, because Venmo has been part of PayPal
since twenty thirteen. It didn't start that way. Venmo was
a service created by another company in two thousand and eight,
two thousand and nine, somewhere around there. But in twenty thirteen,
PayPal bought that company, so Venmo is a subsidiary of PayPal.
If you think that Venmo is more trustworthy than PayPal,
(37:03):
you just need to know that they're all the calls
coming from inside the house. Anyway. PayPal has also been
the center of a few different controversies, more than a few.
I mean, any company that has been around for a
while certainly has had a few. But if you're a
financial company, well, for one thing, you got a big
target painted on you, right like, if you are handling
digital payments, hackers are going to want to try and
(37:26):
find a way to get access to that. You know,
it's essentially a digital bank robbery. But apart from the
fact that PayPal is constantly having to invest in security
because of its attractiveness as a target, there are also
other issues. There have been a couple of data breaches.
There was one in twenty seventeen that leaked the personal
identifiable information of more than one and a half million customers.
(37:49):
That's not great. In twenty fifteen, there was a really
nasty case where the US Treasury Department pursued PayPal because
they were accused of processing payments that were for illegal activities,
including things like black market nuclear weapons, which is a
big old yaoza. So, like a lot of cryptocurrency companies
(38:09):
that are under scrutiny for similar situations, PayPal had to
deal with that as well. Today the market cap for
PayPal is more than seventy billion dollars. That's not too shabby,
And as I said, a lot of the people who
were involved in PayPal in the early days, they went
on to create some of the most influential companies in
the tech sector. Even those who were staying with PayPal,
(38:33):
you know, the ones who didn't necessarily become millionaires overnight
when eBay purchased PayPal, the ones who were there when
eBay spun PayPal back off. A lot of them became
millionaires when PayPal became publicly traded. And you know, people
who had been compensated in part through stock options. If
they executed those options, they could have walked away with
(38:53):
quite a bit of money too. So PayPal has certainly
fueled quite a few people's personal wealth as well as
a lot of my purchases of vinyl online. PayPal's kind
of my way to go for that. So yeah, that's
a quick look at the birth and evolution of PayPal.
There's a lot more we could talk about. I mean,
a lot obviously happened between two thousand and two and today,
(39:17):
way too much for just one episode. A lot of
that ends up being kind of the growing pains of
a division underneath a larger company. That's something that I
have experienced personally as well, having been part of how
stuff works, and then that was purchased by Discovery Communications.
That was me getting a first hand experience of what
(39:37):
it's like to be part of a company that was
once really nimble and agile and then incorporated into a
much larger corporation. PayPal kind of saw similar things, although
obviously the details were totally different. But yeah, maybe I'll
do another episode where I'll specifically talk about what happened
at PayPal under the umbrella of eBay, beyond just the
(40:00):
highlights that I touched on in this episode. But that's
it for today's episode of Tech Stuff, A quick look
at the history of PayPal. Just a quick reminder. Like
I said, there's apparently going to be some sort of
cool slash funny thing going on during Monday night football
on ESPN involving PayPal, and I'm certainly curious as to
(40:23):
what that might be. It's not often that I hear
buzz and get a chance to pass it on to
everybody else, but this is one of those cases where
I have heard the buzz, so I wanted to communicate
it to all of y'all. Anyway. In the meantime, I
hope everyone out there is doing well and I'll talk
to you again really soon. Tech Stuff is an iHeartRadio production.
(40:51):
For more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,
or wherever you listen to your favorite shows. You
Welcome to Tech Stuff, a production from iHeartRadio. Hey there,
and welcome to tech Stuff. I'm your host, Jonathan Strickland.
I'm an executive producer with iHeart Podcasts and how the
tech are you? So? Here in America, the sport of
American football, whereas we call it football, is back in
(00:26):
full swing. And I heard a little rumor that tonight
during Monday Night football, PayPal's going to do something that's
something is I have no idea. I've heard that's going
to be entertaining and funny, and maybe it'll tie into
a recent ad they did with Will Ferrell where he
runs into a bunch of wind chimes. Don't know for sure,
(00:48):
but I do know that if you tune into the
game on ESPN, you can actually see whatever this is unfold.
And I think the hope is that this is going
to be a big talking point, and I'm certainly curious.
But in the meantime, I thought it would be cool
to talk about the origins and evolution of PayPal. So
(01:09):
this is kind of a high overview, mostly about the
formation of PayPal and then a little bit about its
evolution because this is a topic that I've actually touched
on a few times in tech stuff while talking about
other companies, primarily eBay, or when I was talking about
the origins of Elon Musk's obsession with the letter X,
because that actually plays a big part of it too,
(01:31):
But I have never done a full episode dedicated to
the fintech company that set the standard for everybody else,
Like PayPal is a pretty remarkable success story, especially when
you expand that out to say, okay, let's look at
some of the influential figures who are part of PayPal's founding.
They largely went on to do lots of other stuff
(01:54):
and become really really wealthy in the process. But in
the beginning, before there was PayPal, there were two other entities,
so starting first with one called Confinity, although even this
company reportedly had an earlier name called field Link, that
was co founded by Max Levchin and Peter Tiel in
(02:18):
nineteen ninety eight with a few other partners. Although Levchin
and tel are typically the only two you read about
in most histories, they weren't the only ones, but they
were the ones that were, you know, referenced the most. So.
Levchin was born in Ukraine in nineteen seventy five. His
family immigrated to the United States in the early nineties.
(02:40):
He was interested in computer science, and he earned a
degree in the field of computer science at the University
of Illinois at Urbana Champaign in nineteen ninety seven, and
then like the next year, he would co found this
company that would eventually evolve into PayPal, which is quite
a stratospheric rise. I mean, to go from a rush
(03:00):
college graduate to co founding a blockbuster of a company
in just a year, that's incredible. Of course, we also
know lots and lots of stories in Silicon Valley about
college dropouts who go on to forge incredibly successful entrepreneurial careers.
Just a quick reminder, for every great success story there is,
there are countless stories of people who dropped out of
(03:21):
college and then regretted it later. So it's by no
means a guarantee. I mean, if you've got a really
great idea and you're also lucky, then you know you
might have a really good shot anyway. The other co
founder Peter Tiel, he's almost a decade older than Lefchen.
He was born in nineteen sixty seven, and he was
born in what at that time was referred to as
(03:42):
West Germany. We just call it Germany now because it
unified again. He was just a year old when his
family immigrated to the United States. Teel majored in philosophy
at Stanford University, graduated in nineteen eighty nine, and he
leaned heavily into libertarianism, and to this day, Teal is
known as being a political activist as well as an entrepreneur.
(04:05):
Levchen would successfully convince Teal to serve as the CEO
for Confinity once it launched. Reportedly, Teal didn't want to
do that initially, he just wanted to be an investor,
but Levchen convinced him to serve as CEO. Now, there
were four other co founders of Confinity, whom, as I
mentioned earlier, they often don't get talked about nearly as
(04:29):
much in the various articles and histories of PayPal, But
those other four co founders included Upon ken Howery, Luke Nosek,
and Russell Simmons, all of whom have earned the descriptor
entrepreneur to say the least. So their goal, at least,
as described by Fintech magazine, was to quote democratize financial
(04:53):
services and empower people and businesses to join together and
exchange value for better experiences end quote. But that doesn't
really mean much, right, Like I mean, yeah, it tells
you what the end goal is, but it doesn't tell
you through which methods are they planning to achieve this goal.
So I would argue this gets maybe a tiny bit confusing.
(05:15):
So on a more specific and perhaps less grandiose level,
the original aim of Confinity was to develop a payments
platform built on top of the palm pilot. And you
may not remember what these devices were if you are
younger than someone likes say myself. The smartphones made old
personal digital assistants or PDAs obsolete, but way back in
(05:39):
the day these things were like the go to tech
accessory if you were in business. Palm pilots were a
type of PDA. So these are digital devices that could
access stuff like email and contacts and calendars and that
kind of thing. Often they didn't have any direct Internet
connectivity on their own. What you would do is you
(06:00):
would sync your device to a computer that did potentially
connect to the Internet, and you would do this through
various means. It might be through a cable, or it
could be through an infrared sensor. A lot of them
had those including the palm pilot, and you would carry
this around with you, and while it didn't have all
the capabilities of a smartphone, it did boost what you
(06:24):
could do just on a regular cell phone. So business
leaders would typically have each of these types of devices.
So it's no big surprise that gradually PDAs and cell
phones would converge into the form factor of smartphone, and
then it would take a few more years for smartphones
to become a consumer product beyond just the business elite. Anyway,
(06:45):
Levchin and Teal were essentially trying to make a product
that would let business leaders exchange money digitally through mobile devices,
and the way this would work was through beaming data
through infrared signals. So, like I said, they had infrared
lights and infrared sensors, sort of like a television remote,
but you know, TV remotes typically only just beam stuff
(07:06):
to a receiver connected to your TV. In this case,
the palm pilots had both the sending and receiving elements,
so it's like a transceiver. So you had to point
the devices toward each other, you know, you had to
have a line of sight between the two palm pilots
in order to make one of these transfers happen. Once
you did that, you still had another step to take.
(07:27):
Like you didn't just magically have money added into an account.
What you would have to do is you would have
to take your Palm pilot, synk it back to your computer,
log into the Confinity website, and then you would choose
how you wanted your money credited to you, like you
could receive a credit like a credit card. Some Essentially
you could have a check cut for you, so that
(07:48):
means you gonna have to wait for the check to
come to the mail, or you could do direct deposit
to your bank account. It all depended on how much
you trusted Confinity, I guess because in those early days,
I think a lot of people forget this, but in
the early days of e commerce, there was a lot
of worry and anxiety around how would you handle digital
transfers of money in a way that wouldn't put you
(08:10):
at risk. Like no one wanted to put their credit
card into a website, let alone have their bank account
connected to an online service. So this wasn't a seamless
service at this stage right the beaming of information between
palm pilots, but it was the beginning of something Teal
and Levchin saw that the world was likely going to
(08:33):
move more toward a mobile landscape. It would take about
a decade for that to actually happen, but it certainly did.
You can't deny that the mobile web completely changed the
way the Internet worked for the average person. So the
name Confinity itself was a portmanteau of confidence and infinity.
(08:54):
The team focused on cryptography because obviously it's necessary to
protect any sort of financial transactions between mobile devices. You
want to make sure that only the parties that are
involved in the transaction are able to access that. You
don't want anyone snooping in and being able to, you know, digitally,
steal cash. They also worked on the concept of digital wallets,
so a virtual account where you could keep deposits, withdrawals,
(09:18):
and transfers in a way that was reliable and secure
and didn't necessarily require you to constantly tap into that
through like a more established financial institution to get like
a check cut or something like that. So this would
help reduce the number of steps needed to interface with
money from a user perspective. Confinity developed a money transfer service,
(09:38):
and this is the service that ended up getting the
name PayPal. So originally PayPal was not the name of
a company. It was just this service from Confinity. But
as I mentioned earlier, Confinity was just one of two
entities that ultimately would evolve into PayPal. There was, as
(09:59):
Yoda might say, another sky Walker or you know, just
another another company. That another company was the original X
dot com. Well not the original X dot com actually,
because X dot com existed before this did. This is complicated. Okay,
so today, if you say x dot com, you're referring
(10:19):
to the entity that was formerly known as Twitter. Now,
at the time of PayPal's founding, X dot com was
known as an online financial company. More on that than
just a moment. But really, the original x dot com
was neither of those things. It was instead the URL
for a company called Pittsburgh Power Computer. I found that
(10:41):
thanks to Jimmy Sony, who wrote a piece on Medium
about the origins of X dot Com. He's also written
extensively about various founders in Silicon Valley in a book
called The Founders. Pretty handy there. Anyway, even this story
gets more complicated, of course it does. So the owners
of Pittsburgh Power Computer were in a jam, so they
had established a website at www dot PPC dot com. However,
(11:07):
they lost that URL after a company called Network Solutions
bought out the contract for their domain hosting that granted
them that address. So they reached out to Network Solutions
to find out what other URLs they might be able
to secure for themselves, and they found that www dot
x dot com was available and they said, oh, we'll
(11:28):
have that one please. Now, this almost didn't happen because
while they were able to secure the URL from the
DNS point of contact through the network company, their Internet
service provider said that looks totally sus and we are
not going to let you have it. However, the owners
builled out the necessary paperwork to establish this as their URL,
(11:51):
and whoever it was that objected to x dot com
at their ISP must not have looked at the forum
because when it was all sudden and done, they they
were able to secure x dot com after all. Shortly thereafter,
the Internet Assigned Numbers Authority scooped up all the remaining
one letter URLs that were left. There were twenty three
unassigned ones at that time. The ones that had been
(12:13):
taken at that point were x, Q, and Z, So
if the pair had even dawdled a little bit, they
wouldn't have been able to get x dot com at all,
because it would have been sort of a manifest destiny
kind of land grab from the Iana. Anyway, the pair
of business owners held onto this URL even though they
ultimately sold the computer company. So they kept the URL
(12:36):
after selling the company, and they kept it for stuff
like their personal emails, because like having name at x
dot com. That's kind of fun, right, And then we
get up to nineteen ninety nine. That's when Elon Musk,
who was fresh off of selling his first company, zip Too,
popped up with an interest in buying the x dot
com URL. He had not been the first person to
(12:57):
approach the pair, but he was the first to have
a pick that they actually found to be interesting, and
that pitch was to bring investment and banking to the
internet writ large. The early services would be similar to
what Confinity would provide, like linking banking and transfers to
email addresses, but Musk's grand plan was to get into
(13:17):
all things financial, with x dot com being kind of
a portal to everything you can think of in the
finance world online. The former owners of x dot com
accepted some cash and perhaps more importantly, a stake in
Musk's company. And Musk groused about that last bit. He
actually publicly groused about it in an article, but he
agreed to the terms so that he could gain possession
(13:39):
of x dot com, and initially X dot COM's focus
was on being able to make payments online through email. Interestingly,
Musk's HQ for X dot com was in an office
building and the company occupying the office next door to
them was you guessed it, Confinity. We'll talk more about
that in just a moment, but first let's take a
quick break to thank our sponsors. We're back, okay, before
(14:12):
the break I had mentioned. Now we have two different
fledgling fintech companies occupying office space literally next door to
each other. Now, both companies had large scale plans to
become like all encompassing online financial institutions, but they were
taking slightly different pathways in order to get to that destination,
(14:33):
and in the early days, they were not directly competing.
They each offered complementary methods to process payments online, but
they didn't directly overlap. They also chatted with each other
a bit. According to the aforementioned Jimmy Sony. Each company,
the employees felt like the employees of the other company
were taking the wrong path. So essentially they were both saying, like, man,
(14:56):
those lunkheads over next door, Gosh, they sure do have
it wrong. And they had both groups saying this at
the same time about the other ones. Anyway, we should
also set the scene a little bit to remind ourselves
of what the world was like, because this is the
late nineteen nineties, right We were in an inflationary period
of the dot com bubble. Like startups were going banana
(15:18):
at this time. They were popping up all over the place.
A lot of them were flush with cash, either from
angel investors or going public really early on before they
had much to show for it, and just getting flooded
with you know, people buying tons of stock. And investors
saw the Internet in general and the Web in particular
as being the digital equivalent of a gold rush, so
(15:39):
investors didn't want to be too late to the party
or else they would miss out. So a lot of
startups were getting injected with way too much money for
their own good, and this would become undeniable once the
bubble did begin to burst in like two thousand and
two thousand and one, and at the time in the
late nineties, it just seemed like even the sky wasn't
(16:00):
the limit. There was no limit. The limit does not exist,
as mean girls would tell you. But it turned out
that the mean girls were being extra mean because the
limit did exist, and people ran up against it pretty
hardcore in two thousand and two thousand and one. But
on top of that, in the environment, there was also
this looming specter of Y two K. Now, in case
(16:22):
you're not familiar with Y two K, maybe you were
born after two thousand. You don't even know what the
deal is with Y two K. Well, here's the short version.
So early on in the days of computer coding, programmers
would often take a shortcut if they had to include
digits representing a year in their code. It's like a
(16:42):
lot of different software would keep track of the year,
and each year the digits would go up by a number,
But rather than use four digits, which would take up
more valuable space, they used two digits. I mean, why
wouldn't they So Like, if you were a computer programmer
in nineteen seventy seven, and you were right, some software
you might designate the year just by seven to seven,
(17:04):
and then the next year it would go up to
seven eight. That sounds like a trifle, but keep in
mind that, you know, computer science was really tied to
what we could achieve through semiconductor design and manufacturing, and
that in itself was progressing at a very steady rate,
a fast rate, but steady, and computers were under tighter
limitations than what we have today, so conserving space when
(17:26):
you were coding was actually a priority. You couldn't just
you know, be extravagant with the amount of code you
were putting into your software. So this became a convention
of using two digits to designate the year, help you
save a little bit of time and pluss what everybody
else was doing. And it stuck around even as the
(17:47):
limitations in computing became less of a problems as we
got to a point where we could afford to use
four digits to designate a year or more if we wanted.
But the convention was already in place, And meanwhile, I'm
kept on advancing as time often does, and it meant
that those two digit counters were getting closer to nine
to nine, and that led people to say, huh, what's
(18:10):
going to happen when the calendar turns to January first,
two thousand and that was a huge question. Some folks
thought nothing really important was going to happen. Others worried
that it could mean global chaos. So in the financial world,
for example, there were a lot of very understandable concerns
because the worry was that the computer systems that were
(18:30):
now responsible for financial operations around the world would suddenly
interpret the two digits to mean that it had turned
back to nineteen hundred again, and this in turn would
affect all these calculations that depended in part on what
year it was, So, for example, calculating the amount of
interest an account was accruing, that could totally create an
(18:51):
issue like no one knew what would happen either would
it credit the wrong amount, would it take money away?
Would it just crash the system? If suddenly the appeared
to term back in time ninety nine years, what happens then?
So people were worried that everything from total financial collapse
to everyday appliances going haywire would occur. Thanks to these
(19:13):
space saving measures. Some programmers that introduced decades earlier, but
companies like Confinity and x dot Com they started up
well after the world had started to worry about what
might happen upon the dawn of two thousand. As such,
they were able to anticipate and sidestep those issues, largely
because they could take measures to make sure their systems
(19:34):
would continue to operate as designed after we were done partying.
Because it was nineteen ninety nine, so in a way,
they were being looked at as the future of finance
because unlike the established financial world, these weren't legacy companies
like legacy institutions that were then attempting to digitize and
(19:58):
become modern nice. They were in fact of the digital
age themselves, and so they weren't burdened by this massive
legacy of systems that may or may not be compatible
in the new era. So that ended up being like
a big selling point for both Confinity and x dot Com. Meanwhile,
(20:19):
Confinity had landed a pretty sweet deal, and it was
a deal that forced the company to pivot. But that
pivot might have been what ensured its ultimate success, and
that was partnering with a little online e commerce platform
called eBay. So in the old days of eBay, users
could put stuff up for auction and bid for stuff
(20:42):
that was for auction. You could also eventually put in
an actual buy price and just buy things outright rather
than bidding for them. But once someone won this bidding war,
even if they're the only one bidding on something, whatever
it may be, well, then it was time for the
person who won the auction to pay up. Except there
(21:02):
was no digital means to transfer money. So originally on eBay,
the deal was if you won an auction, you were
expected to write a check to the seller and to
send the check to them through the mail like the
postal service, like a caveman, essentially, so obviously, this slowed
(21:23):
things down considerably. Sellers had no incentive to send stuff
right away because they didn't yet have cash in hand.
They weren't guaranteed to have actually received a check yet. Meanwhile,
the buyers might worry that they were sending a check
off only to never receive that you know, he man, body, pillow,
or whatever it was they were buying. Confinity's PayPal service
(21:45):
sped things up considerably. eBay would urge customers to sign
up for PayPal accounts to expedite payment. You know, you
just connected your email to PayPal and then you could
start depositing money into a PayPal account and use that
to purchase stuff, and Confinity saw great success because lots
(22:06):
of people on eBay preferred this to the old method
of cutting a check and sending it through the mail,
So PayPal and Confinity started to see a lot more
folks sign up for service. Now, by this time x
dot Com and Confinity were more directly competing with one another,
and this meant that Confinity was doing pretty darn well.
(22:27):
And I'm sure that rubbed musk the wrong way, but
neither company was doing as well as it could have
been because they were spending a lot of their time
and effort in an attempt to out compete the other.
And that just meant that they were trying to drink
each other's milkshakes, and they could have been directing that
attention toward fostering a stronger business. Gradually, the two Camps
(22:51):
came to a realization that by merging the two companies together,
they could bolster their services. They could combine where it
made sense and incorporate the complementary features that each one
offered to make a better product overall for customers, and
that this would be a fifty to fifty partnership a
true merger. Bill Harris, who had served as CEO of
(23:15):
X dot Com leading up to this merger, would continue
on as CEO of the newly merged company. Must would
be a sort of co CEO. Peter Thiel, who had
been CEO of Confinity, would become the executive vice president
of finance, and Levchen would become the company's Chief Technology
Officer or CTO. And initially the plan was that the
(23:37):
Confinity brand name would ride off into the sunset. They
were going to retire Confinity. The new company would instead
be called not PayPal but X dot Com. PayPal would
continue to be the name of the payment service, the
money transfer service, but it would not be the name
of the company, at least not initially. There were actually
(24:00):
talks of rebranding the name of the service as ex
hyphen PayPal, which seems confusing to me because you're like
X PayPal, you mean something that used to be PayPal
but isn't PayPal anymore. And in fact, the folks over
at PayPal were not crazy about this idea. They did
not agree with Elon Musk that X was the coolest
letter in the alphabet and that everything should be named
(24:21):
after X. Meanwhile, Musk was very much adamant on that,
and things did not go very smoothly for this newly
merged company. It turned out that there were a lot
of disagreements between the various parties who were coming together
to form this new entity. So Peter Thiel resigned as EVP,
(24:42):
and Musk and the Board of Directors had Bill Harris
removed as CEO and Musk took his place because Bill
Harris was seen as not being focused enough on the
technology side of things. From what I understand this is
based off of various articles that were written well after
all of this happened. Teal actually came back to the
(25:04):
company after Bill Harris was removed as CEO, and Teal
would become the chairman of the board of directors. Elon
Musk began making some pretty hefty demands of the company,
like really really aggressive goals, ones that would have been
difficult to achieve both from a business standpoint and a
(25:24):
technological standpoint. This might sound familiar because his style doesn't
seem to have changed much over at formerly known as Twitter,
where he has both reduced the staff dramatically through layoffs
and also placed some really aggressive goals for the people
who were left behind. Well, he was doing that over
(25:45):
at X dot com as well, and he was really
gung ho on that name, Like he was just absolutely
fixated on X, thinking that it was the coolest letter
and that this was going to really make people want
to use the company's products and services. Other stakeholders were
not so sure about that. They were worried that one,
(26:05):
no one was going to know what X dot com
was all about because the name was not particularly evocative
of what it was doing anyway. And they were also
more worried that people might think it was linked to
pornography because of the designation of X rated movies. So
they were worried like, one, they're not going to know
what we do, and two, if they do think they
know what we do, they're going to think it's pornography
(26:26):
related and that's not the case. So what happens next
has become something of internet legend, or really tech legend.
The story goes that while Musk was traveling to Australia
to celebrate his honeymoon with his first wife, Peter Teel
organized the board of directors to remove Musk from the
position of CEO so to hold a coup the way
(26:50):
Musk did with Bill Harris and boot Musk from the company.
So this was in two thousand. Also on the board
of directors at that time was Rydehoff, who would go
on to found the company LinkedIn. There are a lot
of luminaries in the tech world wrapped up in the
story of PayPal. We'll touch back on that before the
end of this episode. So Musk was ousted, however, he
(27:13):
retained his stake in the company and that would go
on to make him really filthy rich. Now, to be clear,
Musk was already rich, It's not like he was coming
from humble beginnings, but this would be a really big boost.
More on that than just a moment. But Peter Thiel
took on the job of CEO, and ultimately the folks
remaining at the company needed to figure out what they
(27:33):
were going to call it. Confinity had been retired as
a brand, and no one really felt like that was
the strongest name X dot com everyone agreed was confusing
and potentially self defeating, so they turned to the most
successful service that the company had offered, and that was
the one used by countless people on eBay. They chose
to rename the company PayPal. Okay, we've got some more
(27:55):
to talk about with PayPal's origins and a little bit
about evolution, but first let's take another quick break. Okay,
we're back. So between two thousand and two thousand and two,
(28:17):
PayPal establishes its identity using the PayPal name for the company,
and begins to innovate even further in the payment space
and establish itself as a successful payments processing platform for eBay,
and by two thousand and two, it was ready to
hold an initial public offering an IPO, and thus become
(28:39):
a publicly traded company on the stock market. Now, I
often say that tech startups really all startups, but tech
startups in particular usually have one of two goals. Either
go public, which brings in tons of money through the
stock market, and thus early investors angel investors can see
a big return for supporting the company when it was
a weedy little startup. Or option two, get acquired by
(29:02):
a much larger company for hopefully a huge amount of
cash that also allows early investors to see a really
big return on their initial investment. PayPal actually managed to
do both in two thousand and two. It went public
in two thousand and two in February and raised more
than seventy million dollars in the process. But that was
chicken scratch. I mean, part of the reason it was
(29:24):
chicken scratch is that this is two thousand and two.
That means the world had already seen the dot com
bubble burst at that point. So while the market was
in recovery, the craze around tech stocks where it would
rocket a stock to the moon, those were a thing
of the past. PayPal still did well. It just didn't
explode like the dot com companies that went public in
(29:46):
the late nineties before everyone came to terms with reality.
But then later in October two thousand and two, eBay
made an offer that the shareholders couldn't refuse. So hasn't
even been a publicly traded company for a year yet,
and eBay says, we want to acquire you. And it
ended up being for the princely sum of one point
(30:07):
five billion dollars billion. With a B. PayPal would become
the official payment provider for eBay. In the process, not
just not just an option, it's the official one. The
founders would all become millionaires. Musk was the largest shareholder.
He would pocket a quarter of a billion dollars himself. Y'all,
I would not mind getting tossed out of a company
(30:28):
if it meant that a couple of years later I'd
be paid two hundred and fifty million. Smack aarows. That
seems like a fate I would welcome. Several of the
co founders left the company upon the completion of this acquisition.
So Max Levchin, who kind of was the guy who
came up with the idea for Confinity in the first place,
he left, and he would go on to found a
media sharing service called Slide. Peter Thiel left and he
(30:50):
founded a hedge fund called Clarium Capital, and then later
on he founded the data analysis firm Palanteer, which all,
that's a podcast topic that's just waiting to happen, but
I'll leave it for now. The folks who were part
of those early days at PayPal would a lot of
them would go on to create some really large tech companies,
or they would take existing tech companies and then boost
(31:13):
them considerably. Musk did this. Like Musk gets credit for
creating a lot of tech companies, but in many cases
those were companies that were founded by other people, and
then Musk kind of came in and sort of took
them over. So like with Musk, you've got Tesla and SpaceX,
and these days you have like x, Dot Ai and
lots of others. With tel you've got Pal and Tier,
(31:35):
which is that big data analytics company. You've got LinkedIn, YouTube,
Yelp affirm. All of these came from people who had
previously worked over at PayPal. The group of entrepreneurs who
fostered PayPal into a company that eBay acquired for one
point five billion became known as the PayPal Mafia. It's
a group of business leaders who largely became serial entrepreneurs.
(31:58):
They often invest in one another products and projects. Not always,
but I mean there's a lot of cross pollination going
on between the group, and so they were just seen
as this incredibly influential and powerful group of tech business
owners who went on to create success after success. Several
of them today are billionaires, So that is a heck
(32:21):
of an alumni to belong to. As for PayPal, under
the operation of eBay, it actually largely got to operate
as an independent entity. It was not micromanaged by eBay
for the most part, so there was a lot of
innovation in digital payments, and PayPal as a result, continued
to grow its influence. It began to find its way
(32:43):
into lots of different types of storefronts, not just eBay. Meanwhile,
eBay itself was starting to encounter a few challenges with
PayPal flourishing while eBay was not growing as quickly. One
investor in particular began to push for the two to
part ways more than a decade after they first joined.
So in twenty fourteen, Carl Icon, who is often referred
(33:06):
to as an activist investor, which means he invests a lot,
like he buys a lot of shares of companies, and
that gives him pretty powerful rights as a shareholder to
tell companies what they should do, and he gets kind
of irritated if they don't do it. Anyway, That's what
he was known for. He called on eBay to spin
(33:26):
off PayPal, and he argued that PayPal was doing well,
but it would do even better if it were freed
from the corporate oversight of eBay, that eBay was essentially
holding PayPal back. Now. eBay's board of directors initially dismissed
this suggestion, but then later in twenty fourteen, they kind
of came around to the same conclusion, and in twenty fifteen,
(33:48):
eBay did in fact spin PayPal off and PayPal once
again became a publicly traded company on the stock market.
So it had done that in February two thousand and two,
and then in twenty fifteen it would come back to
the stock market as its own company. PayPal continued to
offer news services, and like I said, lots of storefronts
(34:08):
began to use PayPal as at least a payment option
for customers, if not the only one. Interestingly, in twenty
twenty one, eBay announced it would end support for sellers
to use PayPal accounts in order to handle funds. You
can still use PayPal to buy stuff on eBay, but
the people selling it, they wouldn't collect the funds in
their PayPal accounts. Instead, those funds would have to be
(34:31):
directed to their bank accounts. This would mean that eBay
would be able to institute a processing fee for each
of those transactions, which was I think thirty cents plus
a percentage of however much the transaction was. And that
really is the reason for this, right eBay decided to
(34:52):
get rid of PayPal because PayPal was getting those transaction fees.
This way, eBay could get those transaction fees and PayPal
would not have access to that anymore. You can still
again purchase through PayPal, like if you go on eBay
today and you want to buy something, you can use
PayPal to complete your half of the transaction, but on
the back end of the seller side, it was a
(35:13):
different story. Over the years, PayPal has formed partnerships with
many other financial institutions, which gives it, you know, definitely
the era of legitimacy right Like Initially, there was a
lot of skepticism about digital money companies, Like there was
just a lot of fear that these things would be
(35:34):
a flash in the pan and then ultimately you would
have investors and customers left holding the bag when it
would fail. But PayPal stuck around and it formed partnerships
with companies like credit card companies like Visa and MasterCard,
and major banks like Wells Fargo, as well as with
big tech companies like Google and Apple. So if you
were to use Google Pay or Apple Pay, then PayPal
(35:55):
would be incorporated into those offerings as well. It also
acquired numerous other companies in the fintech space over the
years and back In twenty twenty one, PayPal introduced the
ability to pay for purchases using cryptocurrency, So again, pretty innovative.
I mean, I still have issues of cryptocurrency not really
acting much like a currency, well, specifically Bitcoin. Other cryptocurrencies
(36:19):
are a little more stable. Bitcoin, though, is so volatile
that I don't really see it being used as a
currency in a way that makes anyone feel comfortable. Anyway. Also,
I've heard some younger folks say they don't like PayPal,
they don't trust PayPal. Instead they use Venmo, which, well,
I got some bad news for you if that's your
(36:40):
point of view, because Venmo has been part of PayPal
since twenty thirteen. It didn't start that way. Venmo was
a service created by another company in two thousand and eight,
two thousand and nine, somewhere around there. But in twenty thirteen,
PayPal bought that company, so Venmo is a subsidiary of PayPal.
If you think that Venmo is more trustworthy than PayPal,
(37:03):
you just need to know that they're all the calls
coming from inside the house. Anyway. PayPal has also been
the center of a few different controversies, more than a few.
I mean, any company that has been around for a
while certainly has had a few. But if you're a
financial company, well, for one thing, you got a big
target painted on you, right like, if you are handling
digital payments, hackers are going to want to try and
(37:26):
find a way to get access to that. You know,
it's essentially a digital bank robbery. But apart from the
fact that PayPal is constantly having to invest in security
because of its attractiveness as a target, there are also
other issues. There have been a couple of data breaches.
There was one in twenty seventeen that leaked the personal
identifiable information of more than one and a half million customers.
(37:49):
That's not great. In twenty fifteen, there was a really
nasty case where the US Treasury Department pursued PayPal because
they were accused of processing payments that were for illegal activities,
including things like black market nuclear weapons, which is a
big old yaoza. So, like a lot of cryptocurrency companies
(38:09):
that are under scrutiny for similar situations, PayPal had to
deal with that as well. Today the market cap for
PayPal is more than seventy billion dollars. That's not too shabby,
And as I said, a lot of the people who
were involved in PayPal in the early days, they went
on to create some of the most influential companies in
the tech sector. Even those who were staying with PayPal,
(38:33):
you know, the ones who didn't necessarily become millionaires overnight
when eBay purchased PayPal, the ones who were there when
eBay spun PayPal back off. A lot of them became
millionaires when PayPal became publicly traded. And you know, people
who had been compensated in part through stock options. If
they executed those options, they could have walked away with
(38:53):
quite a bit of money too. So PayPal has certainly
fueled quite a few people's personal wealth as well as
a lot of my purchases of vinyl online. PayPal's kind
of my way to go for that. So yeah, that's
a quick look at the birth and evolution of PayPal.
There's a lot more we could talk about. I mean,
a lot obviously happened between two thousand and two and today,
(39:17):
way too much for just one episode. A lot of
that ends up being kind of the growing pains of
a division underneath a larger company. That's something that I
have experienced personally as well, having been part of how
stuff works, and then that was purchased by Discovery Communications.
That was me getting a first hand experience of what
(39:37):
it's like to be part of a company that was
once really nimble and agile and then incorporated into a
much larger corporation. PayPal kind of saw similar things, although
obviously the details were totally different. But yeah, maybe I'll
do another episode where I'll specifically talk about what happened
at PayPal under the umbrella of eBay, beyond just the
(40:00):
highlights that I touched on in this episode. But that's
it for today's episode of Tech Stuff, A quick look
at the history of PayPal. Just a quick reminder. Like
I said, there's apparently going to be some sort of
cool slash funny thing going on during Monday night football
on ESPN involving PayPal, and I'm certainly curious as to
(40:23):
what that might be. It's not often that I hear
buzz and get a chance to pass it on to
everybody else, but this is one of those cases where
I have heard the buzz, so I wanted to communicate
it to all of y'all. Anyway. In the meantime, I
hope everyone out there is doing well and I'll talk
to you again really soon. Tech Stuff is an iHeartRadio production.
(40:51):
For more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,
or wherever you listen to your favorite shows. You
TechStuff News
Host
Jonathan Strickland
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