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

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?

TOPICS: E-Commerce, CXO

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.

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, CXO

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  • Let's hope good grammar is part of that model

    Article quotes:

    "And we are innovating to make name it they way" .. is this pig latin?

    "It is why we believe we are sell well-positioned to lead" So is there a sell bad-positioned?

    Let's hope these were typos. :)

    Frankly, I like PayPal, not so fond of eBay, but the first and the second, don't interfere with each other.
    • exactly reverse

      I have some vague apathy towards eBay, but I have some serious reservations about PayPal and their policies. Several times they have come out as blocking certain crowd funding projects and it's very discouraging that one can't make an effort to give their money to someone and have it blocked by an intermediate company for no explainable reason.

      Kudos though on Donahoe for telling Icahn where he can stuff it, people need to stand up to bullies like that.
    • Did a monkey type this?

      Maybe a little proof reading before posting?
  • It's sad that CEOs have to "school" investors.

    Guys like Ichan aren't interested in running a successful, and sustainable, business. They're all about rates of return and exit strategies. They're not really investing in anything other than themselves. They're just using their capital to leverage profits of their holding companies.
  • Ichan is a leach

    Ill be happy when this crusty old bag disappears from the investing world. All he ever does is buy a small percentage of stock in a company and then attempt to leverage that owned stock by telling CEO's and their boards what to do in an attempt to make a quick buck for himself. He does nothing but harm companies with his rhetoric. A know nothing narcissist, and a modern day Scrooge McDuck.
    Todd Edens
    • Scrooge McDuck!!

      I have a notion Scrooge McDuck would feel slandered, hehe! More like "Leprechaun" character in those B horror movies of that series. "Where's me gold?" then kill his victims!
      • Leprechaun

        Ah the early Jennifer Aniston.... drool ... what were we talking about again?
    • Ichan is a leach, hopefully ...

      Can we hope that he might then suck all the blood out of eBay's chief headless turkey, Johnny Ho ...
      Philip Cohen
      • Wrong, Philip

        you have to understand, if Ichan says do this, then it's a safe bet that it's not in eBay or PayPal's best interest to do this, at all.

        John Donahoe is absolutely right on this.
  • Not that Icahn needs to be lectured....

    ...I sincerely doubt Icahn is interested in eBay's long-term health or sustainable strategy, which is exactly what the eBay CEO is trying to sell him.

    As others have said here, Icahn and his type are a poison to the companies in which they invest. They are more interested in inflating the short term stock values just long enough for them to dump and run. They aren't interested in whether any of their ideas are sustainable in the longer term or are even good for the companies in which they invest.

    Unfortunately, that's the danger of going public - you often wind up ceding a good portion of ownership of your business to people who really have no idea how your industry works and have no intention in learning. They just want the stock to climb in a semi-predictable manner so that they can dump it and take home their gains.
    • Donahue wasn't really talking to Icahn, he was talking to everyone else.

      Icahn has a lot of money, but not enough to really effect a company like eBay, or Apple, BY HIMSELF. Donahue is trying to sell his vision to every other shareholder in the hopes of keeping their proxy away from Icahn. About the only good thing Icahn has done is prod the eBay management into being more transparent and forthcoming about their strategy. Which, as long as they don't tip their hand too far, should be a good thing for everyone involved.
  • Johnny Ho Pumps Hot Air into eBay Share Price

    Johnny Ho Pumps Hot Air into eBay Share Price with Disclosure of Proposal Received from Investor Carl Icahn

    “Proposal from Carl Icahn — The company also announced today that it has received a notice from Carl Icahn indicating that he has nominated two of his employees to its Board of Directors and submitted a non-binding proposal for a spinoff of its PayPal business into a separate company. The notice stated that companies controlled by Mr. Icahn had, earlier this month, acquired shares and derivative securities that give him an economic interest of approximately 0.82% in the company.

    “eBay welcomes the opportunity to listen to the perspective of all of its shareholders, including Mr. Icahn. His Board nominations will be passed on to the Board's Corporate Governance and Nominating Committee, which will consider them in the ordinary course of business. We would note that eBay has a world-class board of directors with directors who have significant experience in technology and financial services.

    “Regarding Mr. Icahn's separation proposal, eBay's Board of Directors routinely assesses the company's strategic direction and has explored in depth a spinoff or separation of PayPal. eBay's Board of Directors has concluded that the company and its shareholders are best served by the current strategic direction of the company and does not believe that breaking up the company is the best way to maximize shareholder value. As part of eBay Inc., PayPal is able to leverage the company's technology capabilities, commerce platforms and relationships with retailers, brands and large merchants worldwide. Payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at global scale, creating value for consumers, merchants and shareholders.”

    What a total non story! Still, the Ho had to figure out some way to some hot air into the moribund eBay stock. Separately corporatize “PreyPal”? Why not? Because effectively, as the Ho well knows, without eBay, “PreyPal” is finished, and without “PreyPal”, eBay is finished …

    The ugly reality of eBay's clunky, unscrupulous "PreyPal" operation ... bit(DOT)ly/UVXx53

    And then there is the massive, demonstrable, eBay-facilitated criminal activity on the eBay auctions marketplace …

    The ugly reality of eBay eBay's crooked auctions marketplace ... bit(DOT)ly/11F2eas
    The ugly reality of eBay Motors (UK sample): Auction Fraud Galore ... bit(DOT)ly/I2gTEU

    The fact remains that if, in August 2007, before Johnny Ho started his active demolition work and when both eBay and Amazon stock was ~$40/share, had major “long” eBay shareholders instead put their funds into Amazon stock, they all would now be ~8x wealthier! Clearly, the Icahn investment/proposal does not alter the reality that the truly “smart money” on Wall Street knows that eBay is a “dog” and that Johnny Ho is a very poor dog handler—otherwise, like Amazon, eBay too would be valued at $400/share …

    And, that the “Headless Ho” could school anyone about anything, particularly technology, is simply too funny …

    "Even though people think I'm an expert at technological innovation, my own instinct for technology was frozen in place in 1982." - John Donahoe (26 Sep 2007) ...
    [On the first part, who could possibly think that? On the second, a few of the only true words that Johnny Ho has ever spoken ...]

    eBay / PayPal / Donahoe: Dead Men Walking ...
    Philip Cohen
  • Carl Icahn needs to butt out

    I'm getting pretty sick of reading about this guy in the media.

    He needs to stop investing in other companies and build his own damn company. Then he can run it as he sees fit IMO.

    Outsiders meddling in a companies operations is just as bad as the government doing the same thing....it hurts rather than helps IMO.

    ~Best wishes keeping what you earned.
  • Carl Icahn thinks it a great idea because

    once done he can quickly cash out, leave PayPal to flounder after that.
  • Icahn is there only because eBay made an earlier decision to go public

    The money they got from selling the stock naturally came with the strings attached.
  • Stay away from Ebay and Paypal

    At one time Ebay used to be a place to get good deals from people selling on their spare time; and Paypal used to be a secure way to purchase or sell goods while making sure your money would be given/received while insuring you get the proper goods. Now Paypal is owned by Ebay; and they both are horrendous in both service and choice. Ebay is populated with professional sellers who want to do nothing but shortchange you, and Paypal doesn't protect either the buyer or seller, as the representatives are the cheapest they can buy and can't even understand transactions. Worse Paypal security personnel must have a quota system as they will freeze accounts, or remove money from people's bank accounts for no reason. I've seen it from both sides, working for sellers and buying stuff myself. Paypal does not count itself as a financial institution and thus says it does not have to follow any banking or financial laws. They can do anything with your money. Ebay is not count itself a s a real store, being only a "Commerce Portal" and will always end a dispute in the way it makes the most money. STAY AWAY FROM PAYPAL and EBAY.