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PayPal’s War

paypal Reid Hoffman success The Alliance: Managing Talent in the Networked Age

 

 

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Lesson: How to use the new State of the Art business weapon: Network Intelligence.

It is said that war is hell and business is war. The stakes may not be as high, yet the battlefield of business is certainly riddled with corpses. Startups that pursued bad strategies, and behemoths stuck in old methods of business both fall victim to wily competitors and shifting market forces. In the annals of war are numerous battles fought and won valiantly. Some are as well known as the battle of Concord and Lexington and others as little known as the post revolutionary French government’s war The Battle of Valmy in 1782. In modern business annals there is the relatively unknown war between the forces of PayPal and those of Billpoint.

In the early years of PayPal, they served almost exclusively EBay’s auction loving customers. EBay, however, had invested in another payment service, Billpoint. Their advantages were numerous. They was well funded and had two powerful allies: EBay itself and Wells Fargo. Everyone viewing the situation felt it was grim indeed for the new startup, PayPal. Billpoint’s relationship with Wells Fargo ensured that they were number one in terms of fraud prevention, something the company held in the highest regards.

 Under dire circumstances, a great general is needed. Reid Hoffman was the executive vice president at PayPal, and he decided to utilize a new kind of weapon. A weapon, available to all, that Billpoint and most other companies had not yet conceived of utilizing. Reid’s weapon was dubbed “Network Intelligence.” Like the American military’s surveillance drones and CIA, “network intelligence” is an organization's capacity to leverage their accumulated network to gain insights from the outside world. Reid understood that in the new more networked world, there are more smart and informed individuals outside a company than within it. So Reid asked all employees—from the top down—to start asking their own personal networks to gather intelligence on Billpoint’s strategy. Very quickly, the PayPal team began having conversation after conversation with company’s currently building on EBay’s platform. PayPal also learned from Billpoint’s own people. But, tellingly, Billpoint was not similarly investigating PayPal.

PayPal discovered two critical facts. First, within Billpoint the dominant belief was that their success was assured, because of their relationship with Wells Fargo. They believed fraud prevention was the most important aspect to a new payment service. Second, the reality was that the big companies using EBay’s platform—like honesty.com and AuctionWatch (now Vendio)—believed that fraud prevention was a side issue. They, and their customers, were much more interested in ease of use.

Once PayPal discovered this, they then began to leverage their company network Intelligence to learn more from these companies succeeding on EBay’s platform. Now that they have this critical knowledge of Billpoint, how could they use the knowledge of these companies and apply it in their own context?

A PayPal junior employee came upon a game-changing discovery. At Honesty.com, they provided an auction counter for all their customers, so every customer who shared their information with honesty.com automatically received this counter for all their auctions. And thus on those sellers' auction pages their customers, too signed up for the auction counter. Honesty.com’s auction counter became an integral part of the EBay auction experience, until everyone had one. PayPal created a “Pay with PayPal” feature on EBay to emulate this experience. Big company sellers began adding the Pay with PayPal feature to their auctions, and, then their customers did so, and then the rest is history.

Billpoint went the way of the Confederacy. Unlike war, of course, PayPal did not institute a win at all costs policy. They did not sabotage their competition, nor did they tell employees to don masks and rummage through Billpoint’s garbage. The information PayPal attained was not public, and it was not secret. It merely needed a leader like Reid Hoffman to leverage the massive firepower of a previously unused weapon: Network Intelligence.

 

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