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Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps

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

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Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps

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  1. Wonsoo Chang Petur Gislason Patrick Léger Joe Stamps

  2. Overview • Market for online payment • PayPal business model • Network effect • Lock-in • Challenges • Managing network effect & lock-in: Keys to PayPal’s future success

  3. Market for Online Payment • Trust & Internet commerce • Credit cards and the Internet • Use of credit cards with multiple vendors • Problems with payment to individuals • Certified checks • Personal checks

  4. Introduction to PayPal • PayPal enables individuals and businesses to pay each other • Registration process • Financial information & email identifier • How it works… • Sender logs in • Enters amount and email identifier • Recipient logs in and directs fund

  5. Advantages of PayPal • Credit card information in one place • Enables financial transactions for users not equipped with credit card systems • Success in auction market • Supports international accounts • Fraud protection up to $100,000

  6. PayPal Revenue Stream • Differentiation between personal & business/premier accounts: • Personal accounts are free and have less than $100 of incoming funds per month • Business/premier accounts are charged 2.2% of incoming funds + 30 cents per transaction • Float interest

  7. Business/Premier Accounts • Accounts have enhanced services: • 24/7 customer service • Referral bonus • Use of PayPal as payment option on commercial site • Enhanced auction tools

  8. PayPal & Network Effect • Value of PayPal network increases as membership levels rise • User base has grown to over 5 million users in 14 months (increasing at 20,000 per day!) • 600,000 fee-paying accounts

  9. Why It Worked… • Easy transition & use of existing infrastructure • Viral marketing & referral reward • Popularity with auction market • Dichotomy between business and personal users creates demand • New recipients must register to receive funds

  10. PayPal & Lock-in • Low entry barriers • Registration process • Entrenchment from free service • Solid value proposition • First-mover advantage • Lock-in of merchants

  11. Challenges • Must develop better offline/online strategy • Traditional credit card companies can easily enter market & leverage existing customer base • BillPoint (Visa, Wells-Fargo, eBay) • How will PayPal attract mainstream Internet users?

  12. Managing Lock-in & Net Effect • Key to PayPal’s future success will be how it manages its lock-in & network effect • Find new markets & complementary applications: • PDAs & mobile commerce, B2B • Market to more mainstream users by partnering with more “trusted” name • Bundle products (checking, brokerage, credit service, bill payment, etc.)

  13. Managing Lock-in & Net Effect • Respect privacy of customer base: only cross-market when value proposition is clear • Do not compete on price • Leverage large customer base and lead the market in the quality of product offerings

  14. Questions & Discussion

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