Episode 11: PayPal
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Yeah, in fact there's Drake lyrics. "I got enemies, got a lot of enemies." Got a lot of people trying to keep me from... Yeah, I don't know the rest but it's great. Who got the truth? Is it you, is it you, is it you? Who got the truth now?

Welcome to episode 11 of Acquired, the show where we talk about technology acquisitions that actually went well. I'm Ben Gilbert. I'm David Rosenthal. And this is our show. Today, we are talking about eBay acquiring PayPal, an older acquisition. What

one that kind of set the tone for a lot of modern technology acquisitions, changed the Valley forever, birthed the PayPal mafia, lots of great stuff to come. But first wanted to remind you, if you have not yet and you like the show, would really appreciate a review on iTunes. Yeah. And as always, hit us up on Twitter, acquired at acquiredfm.

or at Gilbert or at DJ Rosen. We love feedback. We do. We do. We promise we'll listen and we'll try and make it better. We've heard rumors that audio, audio was a little quiet in the past. So I'm working hard to make sure that we release that, you know, appropriate listening volume. Now we're iterating. We are. We are a little startup ourselves. It's cute.

Also, I apologize for the last month of no episode. We got some people saying, finally, a new episode. I had ACL surgery, but I'm a real human now, and I'm fully off the oxycodone, so we're back in action. Should know Ben has been a real trooper here. We were recording last time. You were, what, like five days post-surgery? Am I remembering that right? Yeah, yeah. I was barely post-oxycodone. Yeah.

But yeah, stay away from the narcotics, kids. That's my advice. Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow. Yes, ServiceNow is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency. 85% of the Fortune 500 runs on them, and they have quickly joined the Microsofts and the NVIDIAs as one of the most important enterprise technology vendors in the world. And

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All right. You, uh, yeah. Acquisition history and facts. Acquisition history and facts, man. I am excited for this episode. There is so much to dive into and unpack here. Um, so I will get through the acquisition history and facts quickly, but, uh, first a quick note, uh, we're going to focus this show on the first act of PayPal. Um, the, the founding, uh, the acquisition by eBay and then, uh,

and then the, the first period of history thereafter. Uh, we may do a future show on the spin out, uh, that happened last year, uh, where PayPal was spun back out from eBay, but, and, uh, and we could also do another show on PayPal as an acquirer. It's true. They, they themselves have done a few interesting ones, especially recently. So much, uh, so much interesting stuff with this company, but there's definitely a whole episode for us to do. Just there's at least one more episode in the tank here. Uh,

So with that, okay. So December 1998, Peter Thiel, Max Levchin, and Luke Nozick found a company that they call Confinity. And they decide to make an applications, a payment and cryptography service for Palm Pilots.

Amazing. Like the PayPal that we use today started to be money back and forth between Palm Pilots. Quickly, they realized that that's a small market. And they in 1999, they decided to switch over and start working on a money transfer service that they've come up with. And they call the product PayPal.

Also in 1999, a guy named Elon Musk, you might've heard of him. Uh, he, uh, fresh off of founding and selling zip to, uh, starts a company that he calls x.com as an online financial services and email payment company. Domains were cheap back then. Yeah. She's x.com. Uh,

March of 2000, a short while later, they decide to merge. Apparently orchestrated by Michael Moritz at Sequoia, who was an investor in Confinity. Neither confirmed nor denied, but that's what the internet says. And Elon from X.com initially remains the CEO of the company. That quickly changes, and Peter Thiel comes back as CEO of the combined company. And

In October of 2000, Elon was still the CEO, and he makes the call, the PayPal product is doing so well that they focus all the efforts of the combined company just on PayPal. And then in 2001, they renamed the company as PayPal. Yeah, there's a classic case of Elon being Elon and doing what he does best, and that's focus. Yep, no more Palm Pilots. Yeah.

And then in February 2002, PayPal goes public. And it's actually, it's interesting to remember, this is February 2002. This is after the crash, after the dot-com crash. And this was the first consumer internet company to go public in 18 months. And it does pretty well. PayPal has, at close on the day of the IPO, has about a $1.2 billion market cap.

And then very quickly thereafter, only a few months later in July of 2002, eBay announces that they're acquiring PayPal in an all-stock deal, depending on how you account for the transaction, somewhere between $1.2, $1.5 billion, which was about a 20% premium to the stock's closing price the day before.

So interesting. And we're going to dive far more deeply into this, but, um, pretty quickly the whole team leaves, uh, within, I believe this, the status within four years of the acquisition over half of all PayPal employees, uh, have left. Um,

and, uh, and, and interesting and including all of the founders of both confinity and x.com. Um, and, uh, interestingly there, uh, there actually the history of the PayPal, the president of PayPal within eBay, um, has been a, uh,

little bit of a I don't I don't want to say a hot seat but some interesting figures have gone through there including Scott Thompson do you remember him Ben this is the guy who left being the president of PayPal to become the CEO of Yahoo and then it was very quickly revealed that he had completely fabricated his resume his pre PayPal resume yeah I believe it was that he

I believe I could be wrong on this. It was that he said he had a computer science degree and it turns out he didn't have a college degree at all. Um, yeah, it was a whole big controversy and, uh, then ended up in Marissa Mayer, uh, afterwards coming to Yahoo. Um,

David Marcus, who had actually come to PayPal from the acquisition of Zong, which was a payments company that he had founded, was the next president. And he is now running Facebook Messenger. Interesting. So,

So, uh, yeah. And then, uh, PayPal remains part of eBay for 13 years, um, during which sees meteoric growth. Uh, and then in July of 2015, as mentioned, eBay under shareholder pressure from Carl Iken, um, spins off, uh, PayPal into once again, a separate standalone publicly traded company. And, uh, when they do, um,

PayPal is worth at the time when it begins trading about one and a half times the value of eBay. So it is significantly more valuable than all of eBay. And today, PayPal has about a $46 billion market cap as a public company. And the question we're here to address today is, was it a good decision for eBay to pay that, call it $1.3 billion to in-house PayPal, given where they are today?

So much to unpack. Financially, no doubt. Yeah. I mean, should we take this from a shareholder of eBay's perspective where we assume that they end up with one PayPal share and one eBay share? Which is what happens at the spinoff, yeah. Yeah, yeah. That feels reasonable. I think we can talk a little bit about the actual impact that it had on eBay's core marketplace business, but I think it'll be interesting to look at how did it feed the marketplace business and why

How did the PayPal business grow? And would the PayPal business have grown like we've seen it grow if eBay hadn't acquired it? Yep. Let's do it. Should we start it with acquisition category? Yeah, I think there's like a few questions that I sort of want to get to before we categorize. There's a few interesting nuggets in here. The biggest one that I think is interesting is eBay transactions generated two thirds of PayPal's

payment volume at the time of the transaction. So here's PayPal, where they finally have found product market fit because people seem to be using it all the time for this eBay thing. And, you know, they're not really succeeding in peer-to-peer payments. They're getting embedded on some websites, but that business is largely fed by the fact that eBay sellers are...

using it on other websites that they operate, eBay's effectively their entire market segment and their distribution to get to new markets. And so... What was the... Ben was mentioning to me a quote. Was it a Peter Thiel quote that PayPal was essentially an app built on top of eBay? Yeah.

Maybe I read that somewhere. Yeah. Anyway, that's essentially what it was. Yeah. That's a precarious position for a company. eBay was in-house building a very similar solution, and they were partnering with Wells Fargo. I think it was called Billpoint. And in looking at kind of the...

the way that eBay was facing decisions at this point was, okay, we love electronic payments on our platform. I think at the time of the PayPal acquisition, it was about a third, let's see, 40% of eBay transactions. And Meg Whitman, who was the CEO at the time, said that she hopes that figure will increase dramatically. And so eBay is highly incentivized to make these really fast electronic transactions occur. They've built Billpoint in-house.

It's an interesting sort of business on its own, clearly, as PayPal was demonstrating. And eBay faces this decision as, okay, one in four auctions on our platform are settled with eBay. They're pretty much entirely dependent on us. Settled with PayPal. Sorry, settled with PayPal. They're pretty much entirely dependent on us. We could buy them.

We could build this thing in-house, which they did, called BuildPoint. We could cut them off, but that exposes them to risk of regulatory pressure. So there's this interesting dynamic going on there where it's like a game of chicken. Not to mention that this product that PayPal, that the PayPal team had built, is really, really hard.

Yeah, and among other things, like the way that they actually got classified as not a bank, but I think a money transfer service. There's a lot of regulatory things that they did that were really hard, but from a product perspective, making people feel safe

money over the internet when the internet is still this immature thing and then actually backing it up with the fraud detection. I mean, there's bodies buried all over the place in these PayPal-like services at the time that didn't succeed because they couldn't keep a lid on their fraud detection. Yep, absolutely. And interestingly, which we'll get more into later, you know, the core of PayPal's fraud detection technology became the inspiration for Palantir. Oh, interesting. I mean, I knew it was Peter Thiel, but at

Is that like other people from? Yeah. Some of the core engineers that worked on fraud detection at PayPal helped start Palantir with Peter Thiel. And a lot of that technology came from the fraud detection days at PayPal. Interesting stuff. I mean, if you think about the types of jobs that machine learning is uniquely qualified for, fraud detection is right up at the top. Yeah. Yeah.

Let's move into category and I think we can discuss a lot of these things and unpack them as we go. Cool. So I'll go first with category. I'm going to say business line here, but it's an accidental business line. Without knowing exactly what the eBay executives were thinking at the time,

I could imagine that they thought about this as a feature acquisition almost. Electronic payments are a critical part of our product and our marketplace. We've been trying to do this ourselves. These PayPal guys are doing it way better. We should just buy them and implement them as...

as the feature on the site. And then over time, it turned out that that was actually in and of itself a way bigger and better business than eBay itself. Yeah, it's interesting. I don't think eBay tried to get into the peer-to-peer payment space. I mean, I think, yeah, it was a very Apple thing to do. It was a very, we want to create the best user experience by making sure that we control all the key components of our product. And, you know, I think...

Which is crazy to back up for a minute. At the time of the acquisition, you said about 40% of settlements on eBay were being done electronically. That's correct. In total. So that means 60% of eBay transactions were not settled electronically. Yeah. And I was trying to figure this out. Does that mean they're mailing checks around? I have no idea. That's crazy. Yeah. It's easy to...

forget i mean isn't what 14 years ago what the world was like i mean you couldn't just transfer my i was in high school people were buying beanie babies and i was selling beanie babies on ebay i think i made um about 500 550 bucks i sold a uh jerry garcia bear for 350 oh man i remember that one yeah and like an inchworm or something for 100

Let's just, I think we should take a step back too and just do a little more stage setting here. Um, which is, you know, it's, it's, it's hard for us to remember. I mean, we're, you know, I would argue fairly young. I like to think of myself as fairly young. Uh, but, um, you know, these were the days, I mean, I was like, uh, David, I haven't gotten a snap from you in a while. Uh, I love Snapchat though. Um, you're just not on my, uh, you're not on top of it. No, that must be it. Um,

But I was in like, I was like a freshman, sophomore in high school at this time. And these were the days like, you know, right before the bubble burst when I remember my classmates trading internet stocks during breaks between classes in high school my freshman year. I remember one of my buddies buying a whole bunch of Western Digital stock, which was a hard drive manufacturer. Yeah.

Best hard drives there are. Just, you know, not using a lot of hard drives right now on my computers. I think you nailed it. I mean, I think ultimately it was a control play where there was risk that was going on by PayPal, you know, having a large part of their business dependent on something they didn't control and they wanted to bring that in-house. It was a...

They saw it as an accelerant to their business to make it more reliable that you were going to get paid by transacting on eBay. They were clearly building it themselves, and an opportunity to bring this in-house was probably the right one, and they took it. Now what it turned into, I think, was a behemoth that they had...

was not in the cards at the time. And it'd be super interesting to look at what was in Meg Whitman's head and if they really thought that this could be something that they grew independently. Because I think there's been a lot of discussion since then, kind of like hindsight is 20-20, that that was the vision the whole time was to grow this new internet business where we can just transfer money anywhere all the time. And I think it was the original vision for PayPal, but they very quickly realized like...

wow, there's a very specific need for when people need to transfer money, and that very specific need is after auctions on eBay. So today it's grown into something tremendously bigger, and I don't think it's what they saw. So I think they thought they were acquiring a feature. I think that's likely true. And it's interesting, too. One of the sort of aphorisms in the tech world is you can't build a big company, a really big company, on the back of somebody else's platform. And...

this is the example that both proves and breaks the rule, you know, like PayPal became a huge company obviously, and did it on the back of the eBay platform, but ended up having to sell to eBay because they were so captive, uh, to that platform. You know what, I guess this gets a little bit into the, you know, what would have happened otherwise. But, um,

Could you imagine in those fragile early days? I mean, remember, it was 13 years between the acquisition and the spinoff when the vast majority of the now value in PayPal was created. Could that have happened if during those early years when it was so much dependent on eBay, it had been a separate company and eBay could have made changes to completely kneecap PayPal? Yeah.

I think we've moved on to the what would have happened otherwise segment now. Yes, absolutely. Officially. But it's interesting, too, to think about this. I'm thinking about this question of building a big company on the back of somebody else's platform. And I think perhaps you could make an argument that...

You can do it if you can essentially raid the platform, get all the users from it, and then migrate them to your own platform. So I'm thinking about Pinterest grew really fast in the early days for a bunch of reasons, but one of them being that

I don't know if folks remember, they really figured out viral Facebook user acquisition. I was getting messages all the time, emails from Facebook of, my friend Ben has just joined Pinterest. Do you want to join as well? And Pinterest was successfully able to migrate those users over to their own ecosystem and

And now I'm thinking about PayPal back in those early days when it really was just eBay that was the primary use case. I don't think they were migrating anybody from using PayPal to settle their eBay transactions to then doing, you know, peer to peer money exchange, which is the big business that PayPal has built over time. Yeah. But would they have been able to do that, you know, successfully had they not been part of eBay? I don't know. Yeah.

Yeah. The companies that have done that well have been really sneaky about it and have, have like succeeded and flown out of being crushed, like just in the nick of time. I mean, you even see like a good example is actually LinkedIn, right? They, they grew on the back of stealing your entire address book and emailing everyone. And it only cost them like what, a hundred million dollars or something a few years later when there was a gigantic class action suit for doing that. And you know, it, they,

they're a real and successful company because they, they piggybacked off that existing network. Or, or think about Airbnb. Um, you know, there, there are a bunch of articles out there and Airbnb doesn't talk about it that much, but definitely in the early days, you know, they were auto posting to Craigslist and pulling a whole lot of both supply and demand out of, out of Craigslist and onto their platform. Yep. Um,

But again, I think the key is you have to kind of exfiltrate the users and then keep them captive within your own ecosystem. Right. And I was young at the time, but I don't necessarily remember ever. PayPal only existed to me when I was, again, selling Beanie Babies and then Boy Scout patches on eBay as my way of transacting on eBay. It never really seemed like the purpose of it was to... Anything else. Yeah. Yeah. Yeah.

Interesting. So had eBay not acquired PayPal when it did, PayPal was a public company. What would have happened to both companies? So maybe we've just been talking about PayPal. Perhaps it would have been hard for them. eBay could have made life really hard for them. What about eBay? Okay.

You were talking earlier about what's the value that PayPal brought to the eBay marketplace? Well, similarly, could PayPal have made life hard for eBay? It could PayPal have done something where... Could they have started their own marketplace attached to PayPal? Oh, wow. Yeah. I mean, that seems like... It almost seems far-fetched. It's such a different and large business. Yeah.

Yeah, I mean, I don't think PayPal had a whole lot of power over eBay. Other than if they went away, maybe people would have been kind of uncomfortable with the electronic platform that eBay was providing because it wasn't as secure yet. But I bet eBay would have figured that out pretty quick. Yeah, I mean, imagine you can... I think this is a slim scenario, but you can imagine a scenario where...

PayPal finds a different market besides eBay. The money transfer one that they've grown into today, which people eventually did become very comfortable with but were uncomfortable at the time. So they probably would have had to ride out some tough times for a while if they had moved away from eBay. And eBay...

maybe doesn't figure it out and figure out the fraud detection and then people are uncomfortable transacting on ebay and they never get everyone onboarded to their own payment platform and people don't like using ebay because they still have to use an analog system and then someone comes along and builds it all feels far-fetched actually the more i talk about it it's like they would have figured it out actually before that paypal just never would have moved away i mean that was like

That was the cash cow. Finally, they had found product market fit in being effectively like a vendor or a supplier for... Yeah, probably a vendor for eBay. So what would have happened to eBay? I can't imagine a scenario where eBay doesn't win here. I think the only... Well, not the only, but one potentially negative picture you could paint for eBay here is if you think about...

over the subsequent 13 years between the acquisition and the spinoff, PayPal grows so much that it is, you know, call it 60, 65% of the entire value of the company, maybe even 70%. Um, and,

and certainly all of the growth engine of the company, would eBay have been able to recruit and attract and retain top quality talent if it didn't have this really sexy growth business attached to it? Would eBay have stagnated a lot earlier? That's a great point. Yeah. I mean, I think that's predicated on the idea that it could actually...

that status or that state could actually persist for many years. The state of them being separate businesses and both of them needing each other. That symbiotic relationship. It seems hard. I mean, we're biased by history and what actually happened here, but it does seem hard to imagine these two companies existing separately. Yeah. Yeah.

Until you get to the point where you are now where PayPal is really a large and viable business with eBay only being a minority of it. Yeah, I mean, in my opinion, it's like, here's what happens. If eBay doesn't acquire PayPal in July to October of 2002, eBay acquires PayPal for a different price at a different time. I don't think that it's an inevitability. It's interesting to think whether that would be higher or lower. Yeah, yeah. Could go either way.

That's true.

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to your customers. If you click the link in the show notes here or go to vanta.com/acquired, you can get a free trial. And if you decide you love it, you will also get $1,000 off when you become a paying customer. Make sure you go to vanta.com/acquired. All right. Should we move on to tech themes? Yeah. Yeah. I think that's interesting. Yeah. I've got, well, I really want to dive in here and this is, um,

somewhat related to the acquisition, but I think we would just be remiss if we didn't really talk about, I mean, for me, this is the PayPal mafia. You know, I mean, I think you could make a very valid argument. It might even be hard to argue against a thesis that this single event, this acquisition of PayPal by eBay was the catalyst to create

that we now know of as Silicon Valley and the technology startup ecosystem. We'll unpack this, but just the chain of events set in motion by this acquisition is really incredible. When you think about the people that were at PayPal...

And there's, there's a great, um, there's a great article on, uh, the tech Republic willing to it in the show notes, um, about, uh, it's titled, uh, I believe how the PayPal mafia redefined success in Silicon Valley. And, um,

And many of the founders of PayPal talk about how they were all these incredibly young, ambitious people and they'd just been through this super difficult but exhilarating experience at PayPal where they had to figure out a whole bunch of stuff that had never been done before.

Like we were saying, it was really hard. Um, and then they made a bunch of money and then they showed up at eBay and it was like complete culture clash and they hated it there and they all left quickly, but they were all still really young and ambitious and wanted to prove themselves. And so like you just go down the list of companies. So,

I'm going to talk about just... I'm going to talk about two sets of companies here. The first are companies founded by PayPal alums. LinkedIn, Yammer, Yelp, YouTube, Palantir, SpaceX, Tesla, and then...

Reddit was not founded by YouTube alums, but was the CEO of Reddit for a while. Yishan Wong was a PayPal alum. So that's companies actually founded by this group of people. And then other companies in Silicon Valley and related environs where PayPal mafia alumni were very early investors or advisors or instrumental in starting the company. Facebook.

uber airbnb square pinterest stripe and it just goes on and on and on yeah i mean you're talking practically practically every company uh every major company that silicon valley has produced since that acquisition can trace its history either directly or indirectly to to the paypal mafia yeah i mean i made a joke to david before this show i was reading up and i was like huh we

We could get a guest for this, but all the people that were there are so insanely rich that why would they ever bother to go on a podcast? And I think the funny thing is like, it's not from...

it's not from the money they made from paypal no i mean people got rich like people got 100 millionaire rich but or at least like high tens well but don't forget there's been a lot of dilution at paypal i mean they'd raised i believe 180 million dollars i think that includes the capital they'd raised in the ipo there'd been a merger of companies there are lots of founders i mean

There's no way that individually any of those people became hugely filthy rich after that acquisition. Yeah, it was more about what a whole bunch of really smart people...

recognized and did after that and opportunities that they saw because of the way that they grew PayPal. I mean, PayPal, actually, this is a good segue into what I was thinking about. PayPal sort of invented a lot of the paradigms that we see in startups today. Absolutely. I mean, the first one, they were the first business to do the whole, if you invite a friend, you get free money thing. And it's like sort of free money now. Like, oh, cool. If I invite a friend to Uber, I get $15 in my Uber account. Like PayPal literally gave you a dollar. Yeah.

$1, $5. They literally gave you money. It was like if you... They would email their friends and they're like, congratulations, you have free dollars. They invented viral acquisition. Yeah. So yeah, I mean, I was just talking about the company founding and investing part. Let's talk now about the actual tactics that are just now commonplace. They basically invented growth hacking. So viral user acquisition embeds. You could embed... PayPal was one of the first...

if not the first app that you could embed in other web apps. And, you know, think, and then think about, you know, a direct company outcome progeny of PayPal was YouTube. And how did YouTube succeed? You know, it was embeds. So funny. I have a good story here. I built a website, um, for my buddy Nils Nils, if you're out there listening, um,

name you, where we were selling t-shirts and I was a super early web developer and I didn't know a lot of the best ways to do an online storefront. And the way that we built out this t-shirt website was by generating a unique PayPal button for every SKU. And I just literally embedded the little PayPal form on every single t-shirt page that was a subdirectory on our site. And

It worked. I mean, it just completely worked. I didn't have a storefront. Like we weren't using that for inventory management. It's fine because we didn't sell that many t-shirts. But at the end of the day, like we had a working website by a bunch of PayPal button embeds. And that's how a lot of little storefronts worked for a long time.

I think, you know, they obviously succeeded primarily because they were such a huge part of PayPal. But like even after that, as they were growing their business off PayPal for a long time, I think that's what a lot of people did. We accept PayPal. Or yeah, sorry, off eBay. They're so one in the same to me now. I know. It is hard to untangle them in your mind. I have one other thing too. Me too, but go ahead. All right. I'll take this one. The...

Interesting thing about payments are something that we see in advertising today, a parallel I'm going to make between the two. We've been talking a lot over the past 10 episodes about the rise of Facebook and Google as ad platforms and stealing a lot of the advertising spend away from advertising.

non-social ads, so display ads, and understanding that brand advertising in particular and online advertising as a whole is a winner-take-all type market where you really need scale before you can rival the big guys now because there's such excellent targeting

that you have to be able to choose any bucket that could be incredibly narrow, you know, tap dancing, you know, 24 year olds in Washington named Ben and not named Ben, but that, that, uh, but Facebook could find those people. Right, right. And have a deep enough well. And so, so those are businesses that have a relatively high fixed cost and require massive scale to make the business actually work.

Payments are sort of the same thing. I mean, PayPal really needed massive volume before they could have wide adoption. And they have an incredible flywheel where every person that has a PayPal account can be a sender or a receiver of money and becomes comfortable using the platform. So the first time they get someone to send or receive money once, they make everyone else's experience more valuable. So it's a scale platform where it has razor thin margins on payment.

and really large fixed costs, especially in those days where they were building data centers and they'd need huge volumes to make it work. And that's something that they saw with eBay and they, um, they did really well. And that, um, that belief, um,

which may have been completely crazy. And, and as we were talking about, perhaps wouldn't have worked had PayPal remained an independent company, but that belief that you can get to that scale to make that vision a reality, like be insane, you'd have to be completely insane. Um, and, and you think about, um,

The startups, again, that we were just rattling off a bunch of names in sort of the generations that followed PayPal, the ones that became really, really big are ones that made that same bet and won. Uber, right? Imagine before Uber if you had painted a picture of a world where there are going to be enough drivers in cars that are members of your platform and enough people

users, consumers of transportation on your platform in any given geographical area, not just San Francisco, but like, you know, the middle of nowhere and, you know, some non-American, you know, a country not in the U.S. that you could push a button and that driver would be right around the block and show up, you know, a minute later, you would have gotten laughed out of the room. Yeah. Yeah.

Yeah. And it's the same thing. I mean, you could imagine pre-users pitching PayPal and it's like, well, it's the way for anybody to send anybody money. And someone says, what do you mean? And you're like, well, when everyone has PayPal, like everyone should be super comfortable. It's a recursive argument. Yeah.

And, you know, it's the same recursive argument that lots of people like completely fail at, right? You hear this at every like first time startup event, right? Like someone who goes and the only world they imagine is the one where their service is pervasive. And they talk about like, why doesn't it just exist now?

You know, you could hear, I don't know if somebody ever pitched Uber, but like you could hear someone pitching Uber, you know, 10 years ago at a startup weekend. And I say, well, yeah, it's like, why doesn't it exist where anybody can just pick you up at any given time? Because you just see every single person has this in their car and can give each other a ride. And you're like,

how on earth are you going to get there? And the magic of PayPal is they figured out how to get there. Well, and I think this is a great seg into the other thing I wanted to talk about here about the PayPal mafia that I think might...

Again, you can make an argument might be the most impactful thing that they've contributed to the startup ecosystem. Um, even over and above all the other things we've talked about, there's a really, really great video on YouTube, of course, um, of Jim gets, who's a partner at Sequoia.

great, great, uh, venture capitalists, um, talking, uh, uh, speaking at, at the business school at Stanford, um, which has a fond place in my heart. Um, and he's, he's talking about what makes great companies that Sequoia would invest in. And, uh, he talks about the PayPal mafia and he says, you know, the one thing to him that really sets PayPal alumni apart from other people in the ecosystem is

is they learned at PayPal this ability, both willingness and ability to iterate really quickly with a product, to put a product out there that is...

very far from finished and iterate like mad on it based on true market feedback. And he says, you know, not BSing themselves about like what the actual signals from the market are. And that's how you can create a recursive, you know, platform, a recursive thesis like that, you know, is you can't start with like the

the end state, you got to start with a very, very small idea and then work on a bit by bit by bit based on market feedback. Yeah. And God, that market feedback thing is, is so hard where every line of code that you write or every little piece of product thinking that you do that then gets solidified in any form, be it physical or design or code, um,

It's like a burden you carry from that point forward where the more you've created...

the heavier it is and the less you feel agile to move away from it. And so I just have tremendous respect for people at companies like this that can write something and put it out there and understand market signals quickly and within days say, that's actually not the thing. And rip half of it out and put a new piece in and say, that's not the thing either. And then just keep repositioning because I think that

you know, we just get emotionally attached to what we make and people would get really emotionally attached to their vision. And if you, if you can just keep responding, it's a, it's a really incredible and really valuable skill. And I think that's the, the skill is, is holding both of those things to borrow a phrase from my wife. She loves this phrase, holding both of those things in your head at the same time. One is absolute dedication and commitment to a vision of the future that you see, you know, your recursive, these vision about the future. And two is,

an utter lack of bias or, or, um, uh, or, or, you know, predetermined thought on, on how you're going to get there and be willing to take, you know, the random walk, uh, that, uh, that you need to take of, of product and product market fit discovery to get there. Yeah. That's a challenge. It is time to grade it. Yeah. I think we can grade it. Um,

So this is a really interesting one to grade because one of the themes that I think has been pretty pervasive throughout the show that we've done is that the best acquisitions that we've given the highest grades to have been ones where the acquirer follows the mantra of leave the team alone. It's all about the people. Yeah.

Let them do their thing. You know, don't mess with the magic. You know, we heard that with Pixar, where it was the reverse. It was like Pixar coming in and saying,

and leaving the Disney people alone, you know, are you getting a, letting the Disney get back to feeling the creative magic, you know, with Instagram, um, with Bungie that Ed freeze was talking about. This is a total opposite. Like eBay comes in and really mucks around and everybody leaves. And I wonder if that's just characteristic of the time period. I mean, other, other acquisitions that we've like ripped apart, uh,

I have that characteristic too from that time period where it's all about integration. It's all about, great, we like your product. Now it's time to move to the beat of our drum. And I think it's really only recently that companies have figured out that leave it alone thing. Yeah, the quote unquote Facebook style acquisition. There's another great quote from David Sachs in the Tech Republic article.

where he's talking about the first meeting that happened after the acquisition, the integration meeting. And eBay team gets all the key people from PayPal together in a room and they book a three-hour meeting and they show up with like 137-page PowerPoint deck.

And the PayPal guys are like, A, we've never had a three-hour meeting in our lives. B, what is PowerPoint? And at the end of it, David Sachs says, man, if we stay here, we're going to have to create a whole new department just to do PowerPoint just so that we can communicate with these guys. Oh, man.

Talk about a product that they needed and a team that was just completely incompatible with their culture. And so what's, what's interesting about grading this one is like breaks all the rules and yet creates huge, huge amount of value for eBay, eBay shareholders for the entire, you know, Silicon Valley startup ecosystem as a whole. Um, you know, I, I think taking all of this into account, um,

It's almost like, you know, I think I'm going to net out at like a,

B-plus for eBay on the acquisition. Pretty great. I mean, created billions and billions of dollars worth of shareholder value. But had they handled it differently, could they have realized much more value? Yes. But also, if they'd done that, we all would be so much poorer for it. Because of the exodus that happened, because of the PayPal mafia, we have so much else in the ecosystem. Yeah. I mean...

Well, I look at it this way. Like when we're talking about, so I see you, I appreciate those things. I hear you. I feel very appreciated right now. Yeah. Okay. Let's look at this from the lens of eBay as a company, right? Like was this good for eBay as a company to make this acquisition? Normally I would try and frame this in terms of like,

Well, let's look at, you know, Apple acquiring Authentic and being able to do Touch ID sensors in this way that is additive to their existing product in a way that is of a much greater value than anything Authentic could do on their own, right? Like something where it's integrating into the product and creating, you know, synergies between the two products such that they can take their core product and make it

you know, a multiple of the acquisition better. In this case, like, I don't know that it added tremendously to eBay's marketplace. And actually, there's a point that Keith Rabois points out where they had visibility into eBay's growth, and they predicted that eBay's growth was going to plateau, and that they actually needed to make the sale because they were like, we don't have a different growth strategy yet.

And people are going to be concerned. We're a public company. People are going to be concerned about us if our... We're solely dependent on eBay. And their growth is plateauing. What we've seen, eBay is indeed a major company. From 2004, they were doing $3.2 billion in net revenue. Today, they're doing $17.9 billion. They've grown. They're doing great. But...

They aren't a mega behemoth, and I don't think that their growth can be attributed to PayPal. However, we're looking at this through the lens of a person who owned...

PayPal or eBay stock at the time of the acquisition. Like, was it good for eBay as a corporation to do this? Holy crap. Absolutely. Absolutely. eBay grew like a weed and grew to be larger than their existing business. So, you know, as a company, it was a killer bet because effectively they acquired a product that gave them an entire second business line when their initial business line wasn't going to be the thing. This is an A plus. Like this is... Yeah. It's interesting. It's like, you know, if you were to...

if, if our projection, let's assume it's correct that, um, eBay executives at the time weren't thinking about this as a business line. We're thinking about it as a, you know, feature technology acquisition. Um, then yeah, maybe my, my, you know, B plus rating would hold. Um, but in terms of like, you know, this is the actual financial outcome, right? Massive home run. Um,

Not to mention all the ancillary benefits to the whole ecosystem as we've been talking about. Yeah, yeah. The eBay acquisition was generally good for the world, right? It's generally good for the United States in terms of GDP. What's good for General Motors is good for America. Ain't that the truth? Cruise acquisition coming in future episodes, perhaps. I hope so. Yeah, yeah. I mean, I...

I'm trying to think of other examples where, yeah, it's almost like how we rated the Pixar. Well, no, because that actually did feed back into the Disney business to reinvigorate that and make it great again. What other examples can you think of of a company that was flying high at the time, made an acquisition, and then it turned out that company's core product was not going to be the thing for that company, and then they acquired a mega-giant?

Yeah. Or to be mega giant. That they, yeah. And they certainly propelled it there. I don't think eBay would, or I don't think PayPal would have done this on their own. I think that at some point, like we talked about, they were going to get acquired. Yeah.

It's interesting. I mean, gosh, maybe Instagram. I mean, Jerry's still out on that. Yeah. Although to check in on our previous numbers on that, they, I think yet another analyst report. I don't think we have hard numbers on this, but it's, it's predicted to do a $3 billion in revenue this year. I just, I just saw a thing, you know, on a billion dollar acquisition a couple of years later, not too shabby. That was a great buy.

Not without its challenges though. I mean, you know, uh, it's interesting that, uh, we could do an episode at some point on Snapchat on the failed acquisition of Snapchat. Yeah, we should do that. That would be, that'd be a fun one. Yeah. And we could compare and contrast Instagram and Snapchat. We could, we could, but until then, do you want to do the carve out? Oh yeah. Carve out. Let's do it. Um, you want to go first? I do. I do. So, uh,

Since we know you guys like listening to podcasts, I felt like I should pick a podcast. And this week was an incredible episode of the Bill Simmons podcast. To follow up my recommendation to read The Ringer, he had Chris Saka on. Oh, nice. And...

Oh, it was good. Worlds colliding. It was so great. Yeah, because Bill's just like killer journalist. I mean, like, he has a written interview with Obama. I think it was in GQ. That's just awesome. Like, Bill can talk about sports. He can talk about politics. He can talk about technology. And...

Him interviewing Chris Saka is just spectacular. I think I was a few minutes in and I was just completely, completely roped in. They talk about everything from like Chris's meetings with Kobe Bryant where Kobe's investing in startups and like Chris put him through the ringer. Like no, no pun intended. Like Chris really like, it was like, okay, cool. Like celebrity athlete who wants to get into investing. And like, there's so much interesting stuff revealed. Like I didn't, I have to go do more research on this, but like Kobe actually doesn't sleep.

like Kobe they reveal is like a dude that I'm sure he maybe sleeps like a few hours or something but like the way they describe it is like

the dude, you know, his day life and then all night he was staying up reading and trying to like learn and go through the exercises of everything that Chris gave him. So there's this Kobe segment. They talk about the founding of Uber and like the jam sessions when they're sitting around and how all that fell into place. Talk about early days at Twitter, about bets that Chris made, about when Chris was dirt poor and then started day trading and made $4 million day trading stocks and then lost it all and then went into massive debt. And then the whole, it's just like,

It's an awesome episode. So I'll link it in the show notes, but, um, the, the bill Simmons podcast featuring Chris Saka is excellent. Excellent. I'm going to have to give that a listen. Yeah. Um,

So my carve out for the week, uh, caveat that I'm only about a third of the way through it, but, um, is a book that came out a couple of years ago that had been on my reading list. Um, and I finally got around to, uh, thanks to the magic of audio books, um, uh, book called anti-fragile by Nassim Tlaib. Um, I just finished the black Swan. Oh, nice. Uh, so this is my first Nassim Tlaib book and, uh, I won't,

I want to read the rest of them after this. It is excellent. What did you think of The Black Swan? It was good. Like a lot of books like that, I felt like the first half covered it. Yeah. But really interesting. I highly recommend it also. Well, what's interesting, not having read The Black Swan yet, but a couple things about Anti-Fragile. One, Nassim is like a baller. He's hilarious. He's incredibly smart, but he writes like...

He's also got like a giant ego and Ray's like, this is a guy who just like does not give a crap about anything. His ego shows through quite a bit in black Swan too. Yeah. Uh, but what's interesting is he actually, so, so the whole thesis of anti-fragile is that, um,

there's this you know it reminded me a lot of zero to one and a fittingly for this episode of peter teal idea about you know the idea of secrets um that there are these things about the world that are like fundamental laws that govern it that just like people don't

understand or realize. And so Nassim talks about this concept of anti-fragility that like we know about things that are fragile and for millennia people thought the opposite of fragile was robust. Things that, you know, are durable and not fragile

don't break when exposed to stress, but it turns out that's, that's just like a neutral thing. Like the opposite of fragile is something that gets stronger when exposed to stress. Um, and, uh, and so like an example would be the human body to a certain extent, you know, you exercise, uh, and you get stronger. Um, example, another example would be, um, uh,

would be also within, within biology, you know, the concept of vaccines where being exposed to a small amount of, uh, of a toxin or a poison or a virus, uh, will then make you stronger against, uh, against the virus. Um, anyway, and if you start looking at the world this way, there are all these examples of this. Um, and, uh, and, and, and then yet another example, bringing back to, uh,

uh, Nassim's ego. He says, actually information is anti-fragile. If you think about it and he's like, what's the best way to, um, to get your message heard by as many people as possible, you should tell everybody it's a secret and, and then you should try and make it as controversial as possible. And you should try and get as many people as possible to hate on you because then

Then people are going to hear about it and it's going to be really interesting and people are going to want to read about it. And that's how you get disseminated. And if you want to make sure your information does not get disseminated, you want to be like really agreeable and, uh, and tell everybody it's really important. And then nobody will read you. Huh? And it's so interesting because it's probably a very uncommon thing because, uh,

We as humans, I think it's a defense mechanism and it's something that we use to stay alive, but we don't like it when people don't like us. And we don't like it when people want to lash out against us. So we're very disincentivized to make enemies. And think about even your carve-out, well, the PayPal guys and your carve-out, all these people, Chris Saka, Kobe Bryant, Bill Simmons, all the PayPal mafia, Facebook,

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