PayPal

"Around the time that Sky floated, all the talk in the investment community was about the internet. Even though it was years before the advent of social media sites such as Facebook and Instagram, there were already fortunes being made by those who invested in the right companies. Trying to analyse or use instinct or simply guess which the ‘right’ ones were was the key to making money. Walker Wireless was part of the hype. To tap into these opportunities, Heatley, Todd, News Corp and Japan’s Softbank Corporation formed a company that they thought had bright prospects. They called it eVentures New Zealand and Heatley had a 20 per cent stake. Its role was not only to invest in e-commerce and internet-related companies but to create new ones. Its founders were hoping to experience the sort of success with start-up companies that the original shareholders in PayPal and Trade Me later enjoyed. They also wanted to introduce to New Zealand online products that were working overseas."

"For Musk, the Scotiabank internship proved “how lame banks are.” Fear of the unknown had cost them billions, and in his later efforts at X.com and PayPal, he’d return to this experience as evidence that the banks could be beaten. “If they’re this bad at innovation, then any company that enters the financial space should not fear that the banks will crush them—because the banks do not innovate,” Musk concluded."

"“To this day,” remarked a fraud analyst, Jeremy Roybal, “I still bleed PayPal blue.”"

"At one of many late-night product debates that summer, Reid Hoffman raised another critical stumbling block: What if one of these hypothetical PayPal users forgot their PalmPilot and needed to execute a transaction? Levchin proposed a workaround, suggesting the PayPal.com website be set up to send money via a user’s email address. Users had to use the website anyway to download the PayPal software for syncing their handheld devices to their computers. The site could have an email system as a backup to the PalmPilot money-beaming option. When emailing money was first suggested, few recognized it as a eureka moment. Quite the opposite: Levchin intended it to be a throwaway demo—buried in a corner of the main site for the unlucky souls who forgot their PalmPilots. To him, emailing money was a far cry from PayPal’s primary use case. This feature, if it could even be called that, was a concession to Hoffman’s critique, not a core product."

"To minimize such chafe, Levchin wanted engineers who saw the world as he did. For example, when early on Levchin chose C + + as PayPal’s programming language—which even he referred to as a “kind of crappy language”—he expected the founding engineers not to complain. “Anyone that did want to argue about it,” Levchin said, “wouldn’t have fit in. Arguing would have impeded progress.”"

"Sacks relented. But his resistance spoke to what would become a perennial balancing act at PayPal between the website’s security, its usability, and its coffers. “Peter called it ‘the dials,’ ” Sacks remembered. “It’s easy to stop fraud if you’re willing to kill usability. What’s hard is maintaining a sufficient level of usability without letting fraud get out of control. So Max controlled the fraud dial. I controlled the usability dial. And we’d come together to agree on a compromise.”"

"Confinity took strategic steps to leverage and grow its eBay network. The team scraped eBay webpages and built tools specifically designed for auction buyers and sellers. Confinity’s feature set now included a logo resizing tool, as well as a feature that auto-completed the eBay payment page (with PayPal preselected as the payment option). A feature dubbed “auto-link” made PayPal the default payment option for any eBay seller who had transacted with PayPal even once. “That increased the delta by an insane amount,” Yu Pan said, referring to PayPal’s adoption on eBay."

"“When I joined PayPal, it’s like no one tells me how to do things,” He remarked. “They just throw me questions. Question after question. And I just figured out how to answer the question. The whole company was... no nonsense.”"

"In the space of four years, Musk had expanded his fortune from eight figures to nine—and laid the foundation for his future efforts. “PayPal going public is what allowed me to have the capital to start SpaceX, because I could sell stock or borrow against the stock,” Musk said. “Before that, I didn’t really have meaningful cash.”"

"Even before the merger in late 1999, David Sacks had put pen to paper on an early vision for a button product. Over time, that product spec incorporated countless ideas from team members and captured many of the concepts that propelled PayPal to internet ubiquity. In many ways, the document represents the ur-text of modern PayPal. In deference to Musk’s passion for the “X-” branding, the team initially called the button product X-Click, though later renamed it Web Accept. Its closest precursor was a PayPal feature called Money Request, which allowed users to send a personal request for money by email. That email contained a link to a PayPal page. X-Click would take this function and make it omnipresent, “by allowing PayPal users to paste the Money Request link on their own websites, personal home pages, auction listings, or other URLs... The result is a single-click payment system for the entire web.”"

"Frezza and Levchin’s efforts to apply this technique to patterns of fraudulent activity yielded another breakthrough: now, PayPal could match not just numbers to numbers but patterns to patterns. They augmented this with computer-generated rules that triggered an alert if one pattern resembled an earlier fradulent one. If such a fraud pattern registered frequently enough, the team could write a blanket rule in the system to prevent it from recurring again. “A simple layman’s explanation is that we started fighting patterns—more than [fighting] fraudsters,” observed engineer Santosh Janardhan. “Patterns are mathematics. Some of the folks who ended up working on this stuff were basically mathematics folks from Stanford that Max ended up hiring, and they ended up creating models that detected changes and anomalies in patterns, which was a very advanced way of looking at things at that time.”"

"When Confinity had first spotted eBay users’ enthusiasm for its products, designer Ryan Donahue worked with David Sacks to improve the auction payment mechanism. An early incarnation consisted of two steps: First, the user would press the PayPal button; next, they’d enter the dollar value of the transaction and click Pay. It occurred to Donahue to simply fold the second step into the first: if users entered the dollar amount and pressed the button, the next page could pre-populate the total and confirm payment. The change seemed quaint, obvious, even trivial—but it shaved precious seconds from transactions. And in the view of David Sacks, every moment of friction was fat to be cut. Small, time-saving improvements, he believed, led to stickier products—and instant gratification won over impatient users. Those improvements to the payment design produced a corollary insight: What if buttons were the core product? What if these slices of pixels could help PayPal become the web’s default payment system? The team began to brainstorm a “whole suite of embeddable buttons that, if someone was on your website, they could click to pay you,” explained Sacks. Buttons? The idea sounded laughable, but its implications were significant. Strategically, a focus on buttons catapulted the company into a space with few rivals. Sure, copycats could marry money to email. They could lavish bonuses on would-be users. And they could fight for auction territory. But it would be a while before they obsessed over buttons."

"David Sacks instructed Damon Billian to take to the message boards and correct “pricing disinformation,” and asked Reid Hoffman to appeal to his eBay contacts to correct their messaging. Sacks floated other ideas as well. Was it time, Sacks wondered, to send a legal “nastygram” to eBay and a preliminary injunction for anticompetitive pricing? Could Vince Sollitto, head of PR, do anything to “win public opinion without appearing weak?” Could the customer service team create special designations for loyal PayPal users? “Suggestions are welcome from all,” Sacks added. “We’ll need lots of good ideas to beat eBay on variables other than price.”"

"Musk, “PayPal” was a fine name—for a stand-alone payments service. But “X.com” was (or at least, would be) the world’s financial nerve center. “There’s a decision,” Musk argued. “Do you want to go for the grand prize, or do you not want to go for the grand prize?”"

"Musk decreed that PayPal be referred to as “X-PayPal” and that all stand-alone references to PayPal be scrubbed. X would prefix the entire ecosystem—including products like X-PayPal and X-Finance. “If you want to just be a niche payment system, PayPal is better. If you want to, say, Let’s, like, basically take over the world’s financial system, then X is the better name, because PayPal is a feature, not the thing itself,” Musk said. To him, naming the company PayPal “would be like Apple naming itself the Mac.”"

"PayPal proved to its founders that talented outsiders could upend an industry—something they’ve replicated in everything from professional social networking to government contracting to infrastructure. “What we learned from the PayPal experience was... that you could actually go and revolutionize an industry with people who were very smart, working hard, and deploying a technology that people hadn’t seen before,” Hoffman said. “And so, suddenly, which industries you might possibly go at becomes a much broader scope as a function of our experience at PayPal.”"

"On Friday, August 31, 2001, PayPal registered its ten-millionth customer. At PayPal’s 1840 Embarcadero office, the team—already abuzz over the upcoming IPO—celebrated with after-work margaritas, and Thiel sent out an email reflecting on the milestone: As of this week, PayPal has reached its 10,000,000th user. One suspects that too much importance is attached to round numbers. Still, it helps put things into some sort of context: (1) November 18, 1999: 1,000 users. We’re still not sure whether the product is going to take off, or whether the user numbers are just going to fizzle after an initial burst of interest. (2) December 28, 1999: 10,000 users. PayPal is signing up about 500 users/ day, and it’s getting more and more difficult to mail (by hand) all the envelopes with people’s identification numbers. Still, it’s starting to look like the rate of growth is increasing from day to day. (3) February 2, 2000: 100,000 users. It’s definitely looking exponential.... But we have no idea what we’re going to do with these users. We’re starting to get nervous about the sign-up bonuses ($ 20 a person) and we know it can’t go on forever.... Obviously, the spending is growing exponentially too.... A company down the street (X.com) has the same bonuses, and we’re scared that we’re going to get bankrupted in the race. [After the merger, it turns out they were kind of scared too.] (4) April 15, 2000: 1,000,000 users. We’ve just merged PayPal and X.com, and raised $ 100 million as a result of the high growth rates. Now it’s up to us to create a business with the capital, employees, and customer base. Robert Simon, the CEO of dotBank, an early competitor acquired by Yahoo and morphed into PayDirect, suggests that the online payments race will be won by the first company to get to the 5,000,000-user number. Good work everyone."

"That criteria led to a culling of possible expansion targets—as when Sacks rejected one employee’s proposition that Pizza Hut or Amazon were ripe for the taking. For Sacks, offline retailers were “a revolutionary (rather than evolutionary) step from where [PayPal was] today, and it’s also not clear that PayPal adds much over existing options.” He also considered expansion to Amazon and similar sites a nonstarter: The team understood all too well the frustration and friction of burrowing into eBay’s payment process. Established sites, he wrote, “are loathe to outsource their checkout line to PayPal.”"

"“PayPal was a company of extremely aggressive people with a real bias for action,”"

"In sharing eBay’s “declaration of war,” Sacks observed that these encroachments arrived at a precarious time. “Unfortunately because of the forced upgrade scheduled to begin on Monday,” he explained, “we are at our most vulnerable point. It is critical that we respond swiftly and creatively in the next week to give ourselves the maximum chance of success (survival?) over the next month.” Worryingly, this would be the first time in the Billpoint-PayPal saga in which Billpoint had undercut PayPal on price. “... this will be a critical test,” Sacks wrote in his email to the group, which he dubbed “the Ebay [sic] Response Team.” He included the company’s top performers across a range of functions: its entire executive team, the producers of auction products, its head of PR, the stewards of its Visa/ Mastercard relationships, its general counsel, data experts, and others he felt could help."

"In its communications during this period, the company let users into its thinking—on the theory that candor would help quiet discontent. We promised users that we would work to develop a policy that met several criteria: (1) it was generally fair and reasonable; (2) it was announced with two weeks’ notice before it was implemented; (3) it did not force anyone to upgrade (though it could remove costly functionality, such as the ability to accept credit card payments, from Personal Accounts); and (4) it met PayPal’s need to align the costs of credit card processing (and other expenses, such as customer service and fraud protection) with high-volume users who generate the bulk of our costs."

"Kight knew of PayPal’s ambitions to go public, but Thiel had concerns about the IPO. “[ Thiel] just kept saying, ‘I don’t want to run a public company. I [have] no desire to be a public CEO. I’d rather do other things. I don’t want to go public,’ ” Kight recalled. “He convinced me. I didn’t think it was any more complicated than that.”"

"the timing of PayPal’s IPO wasn’t solely a triumph of Girardian logic. Thiel admitted that rivalry, conflict, and emotion also played a powerful role. “The competitive thing in me was just, you know, if the bankers thought we weren’t ready, then it was more important than ever. It was sort of like a Wall Street versus Silicon Valley thing,” he said of his will to prevail, “and there was a part of my thinking where, emotionally, I felt like the Wall Street banks were especially negative because we were encroaching on their turf.”"

"As eBay expanded abroad, PayPal saw an opening for itself—auction sellers abroad needed payment services, too. “If you were a collector,” noted Bora Chung, “you would not just look at the US. You would look at the UK, you would look at Germany, for collectors’ items.” The company began to see users sending money to foreign IP addresses. “David [Sacks] had sort of suspected and... was looking at the data and was like, ‘People are hacking our system, because they just need to send money to Canada, or to the UK, or in English-speaking languages. We’ve just got to figure out how to make this happen,’ ” Giacomo DiGrigoli recalled."

"For Musk, Thiel, and other PayPal executives, urgency was the default posture on all things—including and especially its international expansion campaign. Braunstein had only just arrived in London when Musk dropped in for a speaking engagement. They agreed to meet at the small London office. “Within an hour, [Elon’s] grilling me about the regulatory environment,” Braunstein remembered. “And I said, ‘Elon, I’ve literally been here for a week!’"

"David Sacks outlined his thinking about breaking into new payments markets. “As a practical matter, PayPal can only pursue a very limited number of markets, because payment products need to be specifically tailored to the needs of different kinds of customers,” he wrote. Sacks estimated that it took the company three months of pre-launch preparation and an aggressive post-launch sales and marketing effort to conquer a new market. Thus, whenever possible, PayPal would explore markets that “( 1) are relatively proximate to our existing territory in terms of functionality and (2) have a strong need for our service because they are under-served by existing options.”"

"Here goes: Your life will be shaped by the things you create, and the people you make them with. We tend to sweat the former. We don’t worry enough about the latter. The story of PayPal isn’t just about people banding together to shape a product—it’s about how banding together shaped the people themselves. The founders and earliest employees of the company pushed and prodded and demanded better of one other. I hope you find people like that, too, and that you make things with them. That sounds simple—but it’s awfully hard. I’ve been fortunate: I have a sequence of those people in my life, many of whom have been named in the previous pages."

"The bottom line: PayPal would choose its conquests selectively. “World domination,” Sacks concluded, “will not be achieved by indiscriminately parachuting into hostile lands.”"

"At twenty-plus-years old, PayPal has arguably become the worldwide payment system that its founders imagined. And yet, for some, even this scale of success is insufficient. “PayPal should be the world’s most valuable financial institution by far,” Musk argued. Years after they had left all of it behind, Musk proposed to Reid Hoffman that PayPal’s founding team should reacquire the company and grow it into the world’s financial nerve center."

"In a 2002 talk at Stanford, a questioner asked Thiel what advice he had for PayPal. “The larger market is off eBay,” he said, “and they should develop a lot of product features and functionalities that enable point-to-point payments in a non-eBay context.”"

"With the quiet period hovering over much of early 2002, PayPal could say little to defend itself publicly, so Hoffman and the executive team came up with another way of muzzling eBay. If they’re in negotiations to buy us, Hoffman remembered thinking, if they say anything to the public market, it’s breaking fiduciary responsibility. PayPal, the executive team and its board decided, would enter another round of acquisition negotiations with eBay—to silence it."

"Though the founders engaged in little explicit talk about “company culture” at the time, PayPal’s culture definitively shaped the approach of a generation of Silicon Valley talent. Today, the outsiders who built PayPal are among the most influential insiders in the world of technology and engineering, their utterances decoded, dissected, and debated. They are both leading and investing in companies, and they receive hundreds of pitches per week from up-and-comers full of ideas, ambition, and energy."

"“The ‘mafia’ [label] just kind of turned me off... That’s not what PayPal was. Honestly, it was a big group of friends who thought they could do whatever they wanted, and just worked really hard, and were really smart, and willing to take risks and to lose. It’s not like it was some grand plan,” observed Kim-Elisha Proctor."

"Lauri Schultheis recalled specifically hiring for inexperience. “When we were looking to hire people for fraud, we were actually trying to find people that didn’t have experience with fraud, because we didn’t want them to have preconceived notions about what they would be doing at PayPal... We wanted them to be able to pivot and think outside the box and look at things from a different perspective, instead of saying, ‘Well, you know, at such-and-such bank, this is how we did it, and that’s how we should do it here.’"

"“Those that bring the big ideas into hard, unpredictable reality are the practitioners, the high-leverage ones, and I admire them almost without reservation,” Max Levchin wrote on a personal blog, years after PayPal. “One key ingredient of being this kind of a person is an almost irrational lack of fear of failure and irrational optimism, but there is a more tactical side there too: they manage to not get caught up in all the little details... while being remarkably aware of the really important ones.”"

"Sacks observed that PayPal’s culture of tension was also a culture of truth. “It was ‘truth-seeking’... there was a lot of friction. We all respected each other and that’s why it worked. There was a lot of yelling, and we just cared about getting to the right answer,” he said."

"Board member Tim Hurd explained qualifications for PayPal employees more simply: “Were you an intellectual rock star? Number one. Could you do what we needed you to do really well? And would you work really hard to do it? Nothing else mattered.”"

"David Gausebeck—a team member who didn’t often raise his voice—left feeling that PayPal’s culture was not predominantly one of conflict, but rather one characterized by high standards. Later, as the CTO and founder of Matterport, a 3D media platform, he drew on his mental model of the high-functioning team at PayPal. “You build certain expectations. Like when I’m working on a team, I expect all of them to be really good. That’s my experience,” he said."

"The company’s success stemmed from other sources. One was a relentless focus on the product itself—not just on the technology that underpinned it. “We were really very focused on building the best product we possibly could... We were incredibly obsessive about how do we evoke something that is really going to have the best possible customer experience,” Musk said of his work on both Zip2 and PayPal. “That was a far more effective selling tool than having a giant sales force or marketing gimmicks or twelve-step processes or whatever.”"

"Today, several of PayPal’s founders are likely closer to prime ministers than they are to the Tom Pytels of the world. “If you get to a certain level of comfort, it’s hard to put it all on the line again and to appreciate the person who is putting it all on the line again,” Malloy said. “Do you really understand that person that’s sleeping on the floor?”"

"Thiel points to this pressure as the defining characteristic of his PayPal experience. “If you’re at a fantastically successful company like Microsoft or Google,” he explained, “you will infer that starting a new business is easier than it is. You’ll learn a lot of wrong things. If you’re at the company that failed, you tend to learn the lesson that it’s impossible. At PayPal we were sort of intermediate. We weren’t as successful as some of the great successes of Silicon Valley, but I think people sort of calibrated it and learned the best lesson—that it’s hard, but doable.”"

"Even its tussles with eBay, alumni observed, evinced a fighting spirit. The team would have to build, release, iterate, and repeat as eBay challenged PayPal’s use on the auction giant’s home turf. “The thing that brought us really close together was battling eBay,” Skye Lee noted, “because nothing brings a company together like having a mortal enemy.”"

"Max Levchin, my co-founder at PayPal, says that startups should make their early staff as personally similar as possible. Startups have limited resources and small teams. They must work quickly and efficiently in order to survive, and that’s easier to do when everyone shares an understanding of the world."

"At PayPal, our initial user base was 24 people, all of whom worked at PayPal. Acquiring customers through banner advertising proved too expensive. However, by directly paying people to sign up and then paying them more to refer friends, we achieved extraordinary growth. This strategy cost us $20 per customer, but it also led to 7% daily growth, which meant that our user base nearly doubled every 10 days. After four or five months, we had hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost."

"Most people don’t want equity at all. At PayPal, we once hired a consultant who promised to help us negotiate lucrative business development deals. The only thing he ever successfully negotiated was a $5,000 daily cash salary; he refused to accept stock options as payment. Stories of startup chefs becoming millionaires notwithstanding, people often find equity unattractive. It’s not liquid like cash. It’s tied to one specific company. And if that company doesn’t succeed, it’s worthless."

"This kind of man-machine symbiosis enabled PayPal to stay in business, which in turn enabled hundreds of thousands of small businesses to accept the payments they needed to thrive on the internet. None of it would have been possible without the man-machine solution—even though most people would never see it or even hear about"

"The first team that I built has become known in Silicon Valley as the “PayPal Mafia” because so many of my former colleagues have gone on to help each other start and invest in successful tech companies. We sold PayPal to eBay for $1.5 billion in 2002. Since then, Elon Musk has founded SpaceX and co-founded Tesla Motors; Reid Hoffman co-founded LinkedIn; Steve Chen, Chad Hurley, and Jawed Karim together founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp; David Sacks co-founded Yammer; and I co-founded Palantir. Today all seven of those companies are worth more than $1 billion each. PayPal’s office amenities never got much press, but the team has done extraordinarily well, both together and individually: the culture was strong enough to transcend the original company."

"The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing."

"Here goes: Your life will be shaped by the things you create, and the people you make them with. We tend to sweat the former. We don’t worry enough about the latter. The story of PayPal isn’t just about people banding together to shape a product—it’s about how banding together shaped the people themselves. The founders and earliest employees of the company pushed and prodded and demanded better of one other. I hope you find people like that, too, and that you make things with them. That sounds simple—but it’s awfully hard. I’ve been fortunate: I have a sequence of those people in my life, many of whom have been named in the previous pages."

"Sacks observed that PayPal’s culture of tension was also a culture of truth. “It was ‘truth-seeking’… there was a lot of friction. We all respected each other and that’s why it worked. There was a lot of yelling, and we just cared about getting to the right answer,” he said."

"David Gausebeck—a team member who didn’t often raise his voice—left feeling that PayPal’s culture was not predominantly one of conflict, but rather one characterized by high standards. Later, as the CTO and founder of Matterport, a 3D media platform, he drew on his mental model of the high-functioning team at PayPal. “You build certain expectations. Like when I’m working on a team, I expect all of them to be really good. That’s my experience,” he said."

"Even its tussles with eBay, alumni observed, evinced a fighting spirit. The team would have to build, release, iterate, and repeat as eBay challenged PayPal’s use on the auction giant’s home turf. “The thing that brought us really close together was battling eBay,” Skye Lee noted, “because nothing brings a company together like having a mortal enemy.”"

"The company’s success stemmed from other sources. One was a relentless focus on the product itself—not just on the technology that underpinned it. “We were really very focused on building the best product we possibly could… We were incredibly obsessive about how do we evoke something that is really going to have the best possible customer experience,” Musk said of his work on both Zip2 and PayPal. “That was a far more…"

"“The ‘mafia’ [label] just kind of turned me off… That’s not what PayPal was. Honestly, it was a big group of friends who thought they could do whatever they wanted, and just worked really hard, and were really smart, and willing to take risks and to lose. It’s not like it was some grand plan,” observed Kim-Elisha Proctor."

"Board member Tim Hurd explained qualifications for PayPal employees more simply: “Were you an intellectual rock star? Number one. Could you do what we needed you to do really well? And would you…"

"Thiel points to this pressure as the defining characteristic of his PayPal experience. “If you’re at a fantastically successful company like Microsoft or Google,” he explained, “you will infer that starting a new business is easier than it is. You’ll learn a lot of wrong things. If you’re at the company that failed, you tend to learn the lesson that it’s impossible. At PayPal we were sort of intermediate. We weren’t as successful as some of the great successes of Silicon Valley, but I think people sort of calibrated it and learned the best lesson—that it’s hard, but doable.”"

"Today, several of PayPal’s founders are likely closer to prime ministers than they are to the Tom Pytels of the world. “If you get to a certain level of comfort, it’s hard to put it all on the line again and to appreciate the person who is putting it all on the line again,” Malloy…"

"PayPal proved to its founders that talented outsiders could upend an industry—something they’ve replicated in everything from professional social networking to government contracting to infrastructure. “What we learned from the PayPal experience was… that you could actually go and revolutionize an industry with people who were very smart, working hard, and deploying a technology that people hadn’t seen before,” Hoffman said. “And so, suddenly, which industries you might possibly go at becomes a much broader scope as a function of our experience at PayPal.”"

"Lauri Schultheis recalled specifically hiring for inexperience. “When we were looking to hire people for fraud, we were actually trying to find people that didn’t have experience with fraud, because we didn’t want them to have preconceived notions about what they would be doing at PayPal… We wanted them to be able to pivot and think outside the box and look at things from a different perspective, instead of…"

"Though the founders engaged in little explicit talk about “company culture” at the time, PayPal’s culture definitively shaped the approach of a generation of Silicon Valley talent. Today, the outsiders who built PayPal are among the most influential insiders in the world of technology and engineering, their utterances decoded, dissected, and debated. They are both leading and investing in companies, and they receive hundreds of pitches per week from up-and-comers full of ideas, ambition, and energy."

"At twenty-plus-years old, PayPal has arguably become the worldwide payment system that its founders imagined. And yet, for some, even this scale of success is insufficient. “PayPal should be the world’s most valuable financial institution by far,” Musk argued. Years after they had left all of it behind, Musk proposed to Reid Hoffman that PayPal’s founding team should reacquire the company and grow it into the world’s financial nerve center."

"Few on the PayPal team saw that risk dissipating without a deal between the two companies, though. “Reid had a pithy means of describing the challenge: ‘Just because someone shoots five bullets at you and misses… does not preclude the sixth one from killing you,’ ” Keith Rabois wrote on Quora years later."

"With the quiet period hovering over much of early 2002, PayPal could say little to defend itself publicly, so Hoffman and the executive team came up with another way of muzzling eBay. If they’re in negotiations to buy us, Hoffman remembered thinking, if they say anything to the public market, it’s breaking fiduciary responsibility. PayPal, the executive team and its board decided, would enter another round of acquisition negotiations with eBay—to silence it."

"In a 2002 talk at Stanford, a questioner asked Thiel what advice he had for PayPal. “The larger market is off eBay,” he said, “and they should develop a lot of product features and functionalities that enable point-to-point payments in a non-eBay context.”"

"In the space of four years, Musk had expanded his fortune from eight figures to nine—and laid the foundation for his future efforts. “PayPal going public is what allowed me to have the capital to start SpaceX, because I could sell stock or borrow against the stock,” Musk said. “Before that, I didn’t really have meaningful cash.”"

"the timing of PayPal’s IPO wasn’t solely a triumph of Girardian logic. Thiel admitted that rivalry, conflict, and emotion also played a powerful role. “The competitive thing in me was just, you know, if the bankers thought we weren’t ready, then it was more important than ever. It was sort of like a Wall Street versus Silicon Valley thing,” he said of his will to prevail, “and there was a part of my thinking where, emotionally, I felt like the Wall Street banks were especially negative because we were encroaching on their turf.”"

"David Sacks outlined his thinking about breaking into new payments markets. “As a practical matter, PayPal can only pursue a very limited number of markets, because payment products need to be specifically tailored to the needs of different kinds of customers,” he wrote. Sacks estimated that it took the company three months of pre-launch preparation and an aggressive post-launch sales and marketing effort to conquer a new market. Thus, whenever possible, PayPal would explore markets that “(1) are relatively proximate to our existing territory in terms of functionality and (2) have a strong need for our service because they are under-served by existing options.”"

"The bottom line: PayPal would choose its conquests selectively. “World domination,” Sacks concluded, “will not be achieved by indiscriminately parachuting into hostile lands.”"

"“PayPal was a company of extremely aggressive people with a real bias for action,”"

"Kight knew of PayPal’s ambitions to go public, but Thiel had concerns about the IPO. “[Thiel] just kept saying, ‘I don’t want to run a public company. I [have] no desire to be a public CEO. I’d rather do other things. I don’t want to go public,’ ” Kight recalled. “He convinced me. I didn’t think it was any more complicated than that.”"

"“Those that bring the big ideas into hard, unpredictable reality are the practitioners, the high-leverage ones, and I admire them almost without reservation,” Max Levchin wrote on a personal blog, years after PayPal. “One key ingredient of being this kind of a person is an almost irrational lack of fear of failure and irrational optimism, but there is a more tactical side there too: they manage to not get caught up in all the little details… while being remarkably aware of the really important ones.”"

"For Musk, Thiel, and other PayPal executives, urgency was the default posture on all things—including and especially its international expansion campaign. Braunstein had only just arrived in London when Musk dropped in for a speaking engagement. They agreed to meet at the small London office. “Within an hour, [Elon’s] grilling me about the regulatory environment,” Braunstein remembered. “And I said, ‘Elon, I’ve literally been here for a week!’ ”"

"On Friday, August 31, 2001, PayPal registered its ten-millionth customer. At PayPal’s 1840 Embarcadero office, the team—already abuzz over the upcoming IPO—celebrated with after-work margaritas, and Thiel sent out an email reflecting on the milestone: As of this week, PayPal has reached its 10,000,000th user. One suspects that too much importance is attached to round numbers. Still, it helps put things into some sort of context: (1) November 18, 1999: 1,000 users. We’re still not sure whether the product is going to take off, or whether the user numbers are just going to fizzle after an initial burst of interest. (2) December 28, 1999: 10,000 users. PayPal is signing up about 500 users/day, and it’s getting more and more difficult to mail (by hand) all the envelopes with people’s identification numbers. Still, it’s starting to look like the rate of growth is increasing from day to day. (3) February 2, 2000: 100,000 users. It’s definitely looking exponential.… But we have no idea what we’re going to do with these users. We’re starting to get nervous about the sign-up bonuses ($20 a person) and we know it can’t go on forever.… Obviously, the spending is growing exponentially too.… A company down the street (X.com) has the same bonuses, and we’re scared that we’re going to get bankrupted in the race. [After the merger, it turns out they were kind of scared too.] (4) April 15, 2000: 1,000,000 users. We’ve just merged PayPal and X.com, and raised $100 million as a result of the high growth rates. Now it’s up to us to create a business with the capital, employees, and customer base. Robert Simon, the CEO of dotBank, an early competitor acquired by Yahoo and morphed into PayDirect, suggests that the online payments race will be won by the first company to get to the 5,000,000-user number. Good work everyone."

"As eBay expanded abroad, PayPal saw an opening for itself—auction sellers abroad needed payment services, too. “If you were a collector,” noted Bora Chung, “you would not just look at the US. You would look at the UK, you would look at Germany, for collectors’ items.” The company began to see users sending money to foreign IP addresses. “David [Sacks] had sort of suspected and… was looking at the data and was like, ‘People are hacking our system, because they just need to send money to Canada, or to the UK, or in English-speaking languages. We’ve just got to figure out how to make this happen,’ ” Giacomo DiGrigoli recalled."

"Sacks relented. But his resistance spoke to what would become a perennial balancing act at PayPal between the website’s security, its usability, and its coffers. “Peter called it ‘the dials,’ ” Sacks remembered. “It’s easy to stop fraud if you’re willing to kill usability. What’s hard is maintaining a sufficient level of usability without letting fraud get out of control. So Max controlled the fraud dial. I controlled the usability dial. And we’d come together to agree on a compromise.”"

"In sharing eBay’s “declaration of war,” Sacks observed that these encroachments arrived at a precarious time. “Unfortunately because of the forced upgrade scheduled to begin on Monday,” he explained, “we are at our most vulnerable point. It is critical that we respond swiftly and creatively in the next week to give ourselves the maximum chance of success (survival?) over the next month.” Worryingly, this would be the first time in the Billpoint-PayPal saga in which Billpoint had undercut PayPal on price. “… this will be a critical test,” Sacks wrote in his email to the group, which he dubbed “the Ebay [sic] Response Team.” He included the company’s top performers across a range of functions: its entire executive team, the producers of auction products, its head of PR, the stewards of its Visa/Mastercard relationships, its general counsel, data experts, and others he felt could help."

"Frezza and Levchin’s efforts to apply this technique to patterns of fraudulent activity yielded another breakthrough: now, PayPal could match not just numbers to numbers but patterns to patterns. They augmented this with computer-generated rules that triggered an alert if one pattern resembled an earlier fradulent one. If such a fraud pattern registered frequently enough, the team could write a blanket rule in the system to prevent it from recurring again. “A simple layman’s explanation is that we started fighting patterns—more than [fighting] fraudsters,” observed engineer Santosh Janardhan. “Patterns are mathematics. Some of the folks who ended up working on this stuff were basically mathematics folks from Stanford that Max ended up hiring, and they ended up creating models that detected changes and anomalies in patterns, which was a very advanced way of looking at things at that time.”"

"David Sacks instructed Damon Billian to take to the message boards and correct “pricing disinformation,” and asked Reid Hoffman to appeal to his eBay contacts to correct their messaging. Sacks floated other ideas as well. Was it time, Sacks wondered, to send a legal “nastygram” to eBay and a preliminary injunction for anticompetitive pricing? Could Vince Sollitto, head of PR, do anything to “win public opinion without appearing weak?” Could the customer service team create special designations for loyal PayPal users? “Suggestions are welcome from all,” Sacks added. “We’ll need lots of good ideas to beat eBay on variables other than price.”"

"Musk, “PayPal” was a fine name—for a stand-alone payments service. But “X.com” was (or at least, would be) the world’s financial nerve center. “There’s a decision,” Musk argued. “Do you want to go for the grand prize, or do you not want to go for the grand prize?”"

"Even before the merger in late 1999, David Sacks had put pen to paper on an early vision for a button product. Over time, that product spec incorporated countless ideas from team members and captured many of the concepts that propelled PayPal to internet ubiquity. In many ways, the document represents the ur-text of modern PayPal. In deference to Musk’s passion for the “X-” branding, the team initially called the button product X-Click, though later renamed it Web Accept. Its closest precursor was a PayPal feature called Money Request, which allowed users to send a personal request for money by email. That email contained a link to a PayPal page. X-Click would take this function and make it omnipresent, “by allowing PayPal users to paste the Money Request link on their own websites, personal home pages, auction listings, or other URLs… The result is a single-click payment system for the entire web.”"

"“When I joined PayPal, it’s like no one tells me how to do things,” He remarked. “They just throw me questions. Question after question. And I just figured out how to answer the question. The whole company was… no nonsense.”"

"Musk decreed that PayPal be referred to as “X-PayPal” and that all stand-alone references to PayPal be scrubbed. X would prefix the entire ecosystem—including products like X-PayPal and X-Finance. “If you want to just be a niche payment system, PayPal is better. If you want to, say, Let’s, like, basically take over the world’s financial system, then X is the better name, because PayPal is a feature, not the thing itself,” Musk said. To him, naming the company PayPal “would be like Apple naming itself the Mac.”"

"That criteria led to a culling of possible expansion targets—as when Sacks rejected one employee’s proposition that Pizza Hut or Amazon were ripe for the taking. For Sacks, offline retailers were “a revolutionary (rather than evolutionary) step from where [PayPal was] today, and it’s also not clear that PayPal adds much over existing options.” He also considered expansion to Amazon and similar sites a nonstarter: The team understood all too well the frustration and friction of burrowing into eBay’s payment process. Established sites, he wrote, “are loathe to outsource their checkout line to PayPal.”"

"In its communications during this period, the company let users into its thinking—on the theory that candor would help quiet discontent. We promised users that we would work to develop a policy that met several criteria: (1) it was generally fair and reasonable; (2) it was announced with two weeks’ notice before it was implemented; (3) it did not force anyone to upgrade (though it could remove costly functionality, such as the ability to accept credit card payments, from Personal Accounts); and (4) it met PayPal’s need to align the costs of credit card processing (and other expenses, such as customer service and fraud protection) with high-volume users who generate the bulk of our costs."

"Confinity took strategic steps to leverage and grow its eBay network. The team scraped eBay webpages and built tools specifically designed for auction buyers and sellers. Confinity’s feature set now included a logo resizing tool, as well as a feature that auto-completed the eBay payment page (with PayPal preselected as the payment option). A feature dubbed “auto-link” made PayPal the default payment option for any eBay seller who had transacted with PayPal even once. “That increased the delta by an insane amount,” Yu Pan said, referring to PayPal’s adoption on eBay."

"When Confinity had first spotted eBay users’ enthusiasm for its products, designer Ryan Donahue worked with David Sacks to improve the auction payment mechanism. An early incarnation consisted of two steps: First, the user would press the PayPal button; next, they’d enter the dollar value of the transaction and click Pay. It occurred to Donahue to simply fold the second step into the first: if users entered the dollar amount and pressed the button, the next page could pre-populate the total and confirm payment. The change seemed quaint, obvious, even trivial—but it shaved precious seconds from transactions. And in the view of David Sacks, every moment of friction was fat to be cut. Small, time-saving improvements, he believed, led to stickier products—and instant gratification won over impatient users. Those improvements to the payment design produced a corollary insight: What if buttons were the core product? What if these slices of pixels could help PayPal become the web’s default payment system? The team began to brainstorm a “whole suite of embeddable buttons that, if someone was on your website, they could click to pay you,” explained Sacks. Buttons? The idea sounded laughable, but its implications were significant. Strategically, a focus on buttons catapulted the company into a space with few rivals. Sure, copycats could marry money to email. They could lavish bonuses on would-be users. And they could fight for auction territory. But it would be a while before they obsessed over buttons."

"At one of many late-night product debates that summer, Reid Hoffman raised another critical stumbling block: What if one of these hypothetical PayPal users forgot their PalmPilot and needed to execute a transaction? Levchin proposed a workaround, suggesting the PayPal.com website be set up to send money via a user’s email address. Users had to use the website anyway to download the PayPal software for syncing their handheld devices to their computers. The site could have an email system as a backup to the PalmPilot money-beaming option. When emailing money was first suggested, few recognized it as a eureka moment. Quite the opposite: Levchin intended it to be a throwaway demo—buried in a corner of the main site for the unlucky souls who forgot their PalmPilots. To him, emailing money was a far cry from PayPal’s primary use case. This feature, if it could even be called that, was a concession to Hoffman’s critique, not a core product."

"To minimize such chafe, Levchin wanted engineers who saw the world as he did. For example, when early on Levchin chose C++ as PayPal’s programming language—which even he referred to as a “kind of crappy language”—he expected the founding engineers not to complain. “Anyone that did want to argue about it,” Levchin said, “wouldn’t have fit in. Arguing would have impeded progress.”"

"“To this day,” remarked a fraud analyst, Jeremy Roybal, “I still bleed PayPal blue.”"

"For Musk, the Scotiabank internship proved “how lame banks are.” Fear of the unknown had cost them billions, and in his later efforts at X.com and PayPal, he’d return to this experience as evidence that the banks could be beaten. “If they’re this bad at innovation, then any company that enters the financial space should not fear that the banks will crush them—because the banks do not innovate,” Musk concluded."