eBay CEO Donahoe gives Icahn e-commerce tutorial over PayPal plan

Summary:eBay CEO John Donahoe: Why in an era of big data and e-commerce innovation would you separate eBay, PayPal and their network effects?

eBay CEO John Donahoe elaborated on why PayPal should remain part of the company in a move to argue against a proposal from investor Carl Icahn to spin off its payments business.

In its fourth quarter earnings report, eBay detailed how Icahn was pushing for a PayPal spinoff, acquired 0.82 percent of shares and wants two board directors.

icahn
Carl Icahn: Does this man get e-commerce and network effects between eBay and PayPal?

Donahoe said that PayPal should be part of eBay due to network effects. He also said that eBay isn't closed to spinoffs and noted the company set Skype free a few years ago.

Earlier:  eBay's Q4 strong; Outlook light; Icahn wants PayPal spinoff  |  Icahn takes to Twitter in pushing for Apple shares buyback plan

On an earnings conference call, Donahoe basically gave Icahn an e-commerce tutorial. Here are a few highlights:

Our board and management team evaluate the companies strategic direction on a regular basis. You will be surprised to hear that this is not a new idea. Rest assured that when we see a path that unlocks value, we pursue it. For example, in 2009, we divested Skype because synergies did not exist. This demonstrated our commitment to making rational decisions that are in the best long-term interest of the company and our shareholders.

Based on what we see today, we continue to believe that the company, our customers, and our shareholders are best served by keeping PayPal and eBay together. In short, we believe this is the best way to maximize shareholder value. Our board is unified in its view on this.

Donahoe could have stopped there, but then started an e-commerce lecture that no one in the tech world would dispute. Donahoe said:

Payments is an essential part of commerce. Everyone loves to shop, no one loves to pay. So, we focus on taking the friction out of paying. We strive to make it easy, safe, and secure. And we are innovating to drive engagement and create more value for consumers and merchants. This is what we do. And we have been successful exactly because PayPal and eBay are together. It is why we believe we are well-positioned to lead in the blended world of online and off-line commerce. No other payments competitor has achieved PayPal success, because no other competitor has a commerce platform like eBay.

Today we are seeing more and more commerce and payments competitors trying to replicate the eBay and PayPal model. We are seeing a convergence of commerce and payments businesses, not a separation. PayPal and eBay make sense together for many reasons.

Let me highlight three that we believe are among the most important. First, eBay accelerates PayPal's success. Second, eBay data makes PayPal smarter. And third, eBay funds PayPal's growth.

Donahoe said that eBay and PayPal fuel customer acquisition for both units. "Simply put, eBay and PayPal together create mutually reinforcing network effects. Mobile is the most recent example of this reinforcing network effect. Mobile is the single most important platform shift in the past decade. And PayPal success in mobile payments started on eBay," said Donahoe.

In addition, Donahoe also added the following points:

  • eBay enables PayPal to underwrite both sides of a transaction;
  • In an era of big data, it makes no sense to separate eBay and PayPal and the ability to see both sides of a transaction. "Why in an era of big data would we dramatically reduce the amount of data available to PayPal?" asked Donahoe.
  • eBay represents a third of PayPal's revenue and half of its profits.
  • eBay generates more than 30 percent of PayPal's net new customers at zero acquisition costs.
  • PayPal can be more aggressive because it has eBay's financial heft behind it.

Add it up and Donahoe said that Icahn's proposal is a distraction at a critical time for e-commerce. "At the time when competition is increasing and innovation is accelerating, we cannot afford distracted. So, we believe that an unwavering focus on executing our strategies is the best way we will drive growth and create shareholder value," said Donahoe.

Topics: E-Commerce

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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