PayPal Mafia – The Mafia of Silicon Valley

You must have heard about Punjabi Mafia, American Mafia, Puerto Rican mafia, Albanian Mafia and many more, in short, the term “Mafia” is associated with something illegal and which brings to us no good. What if I say, there was one kind of mafia - legal and brought to us only good? Yes, you read it correct! The “PayPal Mafia” and just because of these gang we have achieved so much in the internet world, automobile, space aviation, etc. the impact is exponentially amazing and this gang also served as a launchpad for many members to become billionaires!

They say “Best teams cannot work together” and this mafia gang proves it right!

SCENE 1: The start of something new!

The story starts in the late ’90s with a device called palm pilots. Palm Pilot is PDA device and is produced by Palm Inc. on March 10, 1997. Considering the late 90’s era, with no smartphone at all, this device was very popular in terms of technology and convenience that it was holding.

In 1998, Peter Theil, graduated from Stanford and Max Levchin, a computer scientist from the University of Illinois, met during a startup lecture at Stanford, where Max pitched this idea of using cryptography service. They worked on this idea and named it the “FIELDLINK”. Later they realized that during that period payment and money transfer was still very traditional and options were limited i.e. paying only via cash or cheque and transfer of money only through mail service. In 1999, they changed the name to CONFINITY which is a fusion of two independent terms – CONfidence and INFINITY. They changed the name to CONFINITY from FIELDLINK because they were working on the technology in digital wallet line and within Confinity the most popular side was the PayPal – A service to transform digital fund preferably with or without the help of “Palm Pilot”. With respect to the marketing strategies they offered $10 to everyone for signing up and $10 for referral

SCENE 2: Porter's analysis - Threat of new entrants!

An entrepreneur with the name of Elon Musk came into play and had the same ideology as that of PayPal if not same. Elon Musk not only wanted a digital payment transfer but his plan was to build an end to end digital bank. Elon Musk was a child prodigy and not only developed app when he was just 11 years but also sold that for $500. By February 1999, Elon sold his first startup “Zip2” to COMPAQ for $307 Million in which his share was $22 Million. With all these funds he quickly started, within a month, founded X.COM with his business partner Greg Curry. The goal of X.COM is to facilitate digital banking, which Elon always wanted to develop. The starting journey of X.COM was very uneven because of the conflict of ideas and the ideology to run the company among the top members. With due time X.COM became a licensed bank with a partnership with Barclays. To capture more users they started giving out $20 to everyone for signing up and $10 for successful referrals. X.COM was having all the features of a normal bank and on top, they were also offering person to person digital payment. The company was proving a success as within the first month it signed up over 200,000 users.

SCENE 3: Keeping the friends close and enemies closer!

eBay, founded in 1995, was having 10 Million users by 1999-2000. The platform was having around 3 Million options per day for users and a perfect target group for a person to person payment. The services provided by X.COM were more than PayPal but the marketing strategy of PayPal was different. PayPal was leveraging the eBay platform for the person to person payment service and had very good penetration. Later X.COM also joined this wagon and pitched X.COM’s logo in the auction site (eBay). During late 1999, the battle became a battle royale when eBay acquired Bill Point – a credit card processing company. The main motive of eBay was to leverage the person to person payment benefit and not by other third party vendors. After this incident, PayPal was running out of money at a rate of $100000 per day but was having the highest user base and at the same time, X.COM was not that popular because it joined the wagon late but was having ample funds to spend.

Since eBay started its own person to person payment service after acquiring Bill Point, X.COM and PayPal merged on March 2000 under the name of X.COM and service name as PayPal. After the merger Peter Theil became the Chief Financial Officer, Elon Musk became the Chairman, Max Levchin became the Chief Technical Officer and Bill Harris (new onboard) became the CEO. During this time eBay’s strategy was taking a toll on X.COM and PayPal merger and at the same time, eBay gave 35% stake of Bill Point’s to Well Fargo in exchange of Well Fargo’s payment credibility and expertise and also back-end payment processing service and customer service support.

Musk was adamant on removing the word “PayPal” and wanted the name as X.COM as he had paid $1 Million for the domain. David Sacks was against this change and later with the board members collective vote they removed Elon Musk as the CEO (Yes! He became the CEO after they removed Bill Harris and made Peter Theil the chairman)after having a board discussion. Elon Musk was still the highest shareholder and was focused on the overall success of the company. In June 2001 the company changed the name from X.COM to PayPal and raised $63 Million when went public in the year 2002 and by this time over one-fourth of transactions happening on eBay was through this platform and at this point, eBay felt the competition and decided to acquire PayPal at a whopping $1.5 Billion! This is the moment which acted as the springboard and made multiple billionaires and many successful and revolutionary companies!

What happened next?

Elon Musk, being the highest shareholder, received $250 Million from the eBay acquisition deal. Using this fund he started multiple revolutionary companies

SpaceX – is the commercial space, the plan is to build a powerful launch vehicle to help humanity move and colonize Mars and also planning to become the world’s leading internet provider

Tesla – in the electric vehicle space, the plan is to make the automobile industry more sustainable and to increase the use of an electric vehicle

Neuralink - developing implantable brain-machine interfaces

The Boring company - constructs safe, fast-to-dig, and low-cost transportation, utility, and freight tunnels

Peter Theil received $55 Million, started an investment management hedge fund called Clarium Capital, angel investor for Facebook

Palantir – A software and services company specializes in big data analytics

Reid Hoffman, co-founder LinkedIn

(The complete list is in the image)

So next time when you will see a new Tesla model is launching, a SpaceX launch video or watching your favourite video on YouTube or reading Marketing Weekly’s article on LinkedIn or reading a restaurant’s review on Yelp, you now know which mafia is behind these life-changing innovations!

Article by: Sarbajit Biswas

Partner at Marketing Weekly and pursuing MBA from SIBM Pune (2021 batch)