บทถอดความฉบับเต็มของ how paypal won the first payments war

know it today. 00:01:49.359 --> 00:01:58.719 And essentially in the 1980s, he invented the blind signatures, which is basically the math underneath what we know as like financial um online. 00:01:59.439 --> 00:02:02.959 And he then founded Digicash in 1989. 00:02:03.120 --> 00:02:07.359 He raised over$10 million and just kind of kickstarted his startup. 00:02:07.519 --> 00:02:08.719 Have you heard of Digicash? 00:02:09.039 --> 00:02:10.639 No, I had to look it up too, as well. 00:02:10.879 --> 00:02:11.840 And it's really interesting. 00:02:11.919 --> 00:02:22.000 They basically had a lot of money, such a great idea, but it seems like it was way too early and the internet wasn't as widespread as it is now, and so access would have been really hard. 00:02:22.240 --> 00:02:24.879 I'll actually get you to read the first quote. 00:02:25.039 --> 00:02:30.479 And this is what David Charm said as part of Forbes magazine in 1999. 00:02:30.960 --> 00:02:31.919 I love this one. 00:02:32.319 --> 00:02:37.759 It was hard to get enough merchants to accept it so that you could get enough consumers to use it, or vice versa. 00:02:38.159 --> 00:02:39.599 The chicken and the egg problem. 00:02:39.840 --> 00:02:40.719 Exactly. 00:02:41.120 --> 00:02:44.639 Which is what often happens with marketplace um dynamics. 00:02:44.960 --> 00:02:57.599 The very interesting thing is that his whole focus wasn't anonymity, and his blind signatures were structured in a way where someone would spend money and the banks and the other side wouldn't know who spent it. 00:02:57.840 --> 00:03:04.800 So his whole focus was why don't we create a structure and a system where no one knows where the money is coming from or who it's going to? 00:03:04.960 --> 00:03:10.319 And at the time, that was just very far-fetched because people wanted to know the data. 00:03:10.400 --> 00:03:13.599 They wanted to know who the money was coming from, and vice versa. 00:03:13.840 --> 00:03:16.240 And I'll actually get you to read quote number two. 00:03:16.719 --> 00:03:20.159 As the web grew, the average level of sophistication of users dropped. 00:03:20.319 --> 00:03:22.639 It was hard to explain the importance of privacy to them. 00:03:22.960 --> 00:03:23.439 Yeah. 00:03:23.759 --> 00:03:24.400 What do you think? 00:03:24.639 --> 00:03:24.960 I love it. 00:03:25.039 --> 00:03:32.800 It's like he's he he understands where he thinks the problem is that they're not private enough or that these transactions are so out in the open, which is a very interesting way to look at it. 00:03:32.879 --> 00:03:35.280 But it obviously is very much what underpins the blockchain today. 00:03:35.680 --> 00:03:36.240 Literally. 00:03:36.479 --> 00:03:38.960 It's so interesting that you mentioned blockchain. 00:03:39.039 --> 00:03:45.919 Because in many ways, he was also the father of blockchain, which yeah, I didn't really realize it all kind of grew from the same um software. 00:03:46.000 --> 00:03:49.039 And he actually had the patent for this initially and then sold it. 00:03:49.439 --> 00:03:49.520 Yeah. 00:03:49.759 --> 00:03:51.120 Oh no, how much did he sell it for? 00:03:51.599 --> 00:03:52.319 I'm actually not sure. 00:03:52.560 --> 00:03:53.759 Probably not enough. 00:03:54.639 --> 00:03:57.919 Well, sadly, by 1998, he became bankrupt. 00:03:58.159 --> 00:04:06.319 Um, it actually went to trial, and we found out that 5,000 people were signed up onto Digicash, but combined they only had$100,000. 00:04:06.560 --> 00:04:07.520 So he didn't do very well. 00:04:07.680 --> 00:04:11.120 Noting he raised, I believe,$10 million in cash. 00:04:11.280 --> 00:04:17.199 Um, I will get you to read quote number three, and this is what a former Digicash employee said. 00:04:17.600 --> 00:04:20.560 People wanted to buy David's patents, but he asked for too much. 00:04:20.720 --> 00:04:21.600 He wanted control. 00:04:21.920 --> 00:04:26.000 The real problem is that privacy isn't what the banks want, it isn't what the stores want. 00:04:26.160 --> 00:04:28.959 They want something easy to use, fast, and very cheap. 00:04:29.839 --> 00:04:30.480 Yeah. 00:04:31.040 --> 00:04:31.199 Yeah. 00:04:31.360 --> 00:04:32.639 So we still do, right? 00:04:33.680 --> 00:04:34.879 Ubiquitous for almost any product. 00:04:35.120 --> 00:04:35.360 Exactly. 00:04:35.600 --> 00:04:36.959 Easy to use, fast and very cheap. 00:04:37.360 --> 00:04:37.600 Yeah. 00:04:37.759 --> 00:04:38.240 Yep. 00:04:38.560 --> 00:04:43.199 And the point about the patent I find was really interesting. 00:04:43.439 --> 00:04:45.279 He really thought it was worth a lot more. 00:04:45.439 --> 00:04:46.800 And he was probably right. 00:04:47.120 --> 00:04:50.879 But from my perspective, he couldn't get the the startup to work. 00:04:51.120 --> 00:04:52.879 And then he was very harsh on the patent. 00:04:52.959 --> 00:04:55.920 So it's almost like, well, what are you going to get out of this? 00:04:56.079 --> 00:04:57.120 So bit of a shame. 00:04:57.439 --> 00:04:57.600 Yeah. 00:04:57.680 --> 00:05:02.319 Well, it relies on somebody else buying what their intellectual property is, but then figuring out how to execute what he could not. 00:05:02.560 --> 00:05:02.800 Exactly. 00:05:03.040 --> 00:05:05.199 Which is a fundamental, like also an error, maybe. 00:05:05.519 --> 00:05:06.079 Literally. 00:05:06.480 --> 00:05:11.040 And obviously we'll find out who executed what like a murder mystery podcast. 00:05:11.519 --> 00:05:13.519 We're going to find out what happened to that patent. 00:05:13.839 --> 00:05:14.319 Exactly. 00:05:14.480 --> 00:05:14.800 Exactly. 00:05:15.120 --> 00:05:15.600 Love it. 00:05:15.920 --> 00:05:19.360 But what he opened was essentially a bit of a can of worms. 00:05:19.519 --> 00:05:23.439 And after he was first, several other startups popped up. 00:05:23.600 --> 00:05:25.839 And I'm going to just kind of riff through some of them. 00:05:26.319 --> 00:05:30.480 The first was

Cybercash, which was essentially a safe way to pay online. 00:05:30.720 --> 00:05:35.279 And they had what's called a cybercoin for shoppers to use instead of credit cards. 00:05:35.439 --> 00:05:39.360 And then there was First Ventral, which built one of the first online payment systems. 00:05:39.519 --> 00:05:44.000 And it was essentially designed so you never had to use your online credit card again and the number. 00:05:44.079 --> 00:05:46.079 But unfortunately, it was really, really clunky. 00:05:46.319 --> 00:05:47.279 It was really hard to use. 00:05:47.360 --> 00:05:48.639 So it didn't really take off. 00:05:49.279 --> 00:05:54.480 And then we had Beans, which was a web currency, which is very fascinating for that time. 00:05:54.720 --> 00:05:59.120 And essentially you earned it through surfing on the web on the web and shopping. 00:05:59.680 --> 00:06:02.959 And you had to spend it on in partner websites. 00:06:03.040 --> 00:06:08.000 So it's a bit like like air, um, airline points and things like that, where it's quite restricted. 00:06:08.639 --> 00:06:09.519 Also didn't take off. 00:06:09.680 --> 00:06:12.800 We had Flues, which was like an online gift currency. 00:06:13.040 --> 00:06:17.600 Um, Whoopi Guldberg was very for it, didn't take off. 00:06:17.759 --> 00:06:25.839 And then we also had Montex, which was a bank card cash on a smart card, and was supposed to replace coins, also did not take off. 00:06:26.319 --> 00:06:30.959 So we had lots of players trying to enter, and it's very interesting. 00:06:31.279 --> 00:06:35.920 The founder, the e-commerce director of Yahoo made a statement. 00:06:36.079 --> 00:06:38.160 I'll get you to read quote number four. 00:06:38.560 --> 00:06:40.399 Do I see a need for a new currency? 00:06:40.560 --> 00:06:41.199 Question mark. 00:06:41.360 --> 00:06:42.639 The answer would have to be no. 00:06:42.800 --> 00:06:43.920 No one's asking for it. 00:06:44.240 --> 00:06:44.800 What do you think? 00:06:45.120 --> 00:06:48.240 Well, no one's asking for lots of things, but it ended up becoming amazing things. 00:06:48.319 --> 00:06:50.240 And I just like and yeah, Yahoo. 00:06:50.480 --> 00:06:52.319 Let's just let's take it with a grain of salt. 00:06:52.879 --> 00:06:53.680 Why do you say that? 00:06:53.920 --> 00:06:54.319 Oh, yeah. 00:06:54.560 --> 00:06:59.279 I mean, I still have a Yahoo email address, but Yahoo didn't really do that well with other than some of the acquisitions that they made. 00:06:59.439 --> 00:07:02.879 You know, they had a first mover advantage in the internet for a while, and then I yeah. 00:07:03.120 --> 00:07:05.920 Anyway, John Briggs, rest in peace, maybe. 00:07:06.240 --> 00:07:07.680 No, they didn't capitalize on it. 00:07:07.839 --> 00:07:11.680 But you're right, so many innovations don't come from people asking for it. 00:07:11.920 --> 00:07:13.040 Like, look at Airbnb. 00:07:13.199 --> 00:07:14.399 Nobody really asks for it. 00:07:14.560 --> 00:07:14.720 No. 00:07:14.959 --> 00:07:16.319 Ride sharing, you know. 00:07:16.560 --> 00:07:16.959 Yeah. 00:07:17.360 --> 00:07:18.480 Yeah, exactly. 00:07:19.199 --> 00:07:20.959 And now we come to PayPal. 00:07:21.279 --> 00:07:31.279 So in about 1998, I won't go into the depths of how these people all came together, but we have Max Lefchin, Peter Thiel, Luke Nosek, and a few others. 00:07:31.600 --> 00:07:34.319 They founded what was called Confinity at the time. 00:07:34.480 --> 00:07:37.680 And essentially, it wasn't supposed to be a payments company at all. 00:07:37.839 --> 00:07:40.480 It was more focused on security software. 00:07:40.639 --> 00:07:43.600 And the whole idea was did you have Palm Pilots? 00:07:44.000 --> 00:07:46.319 I had a Palm Prix and never had the Palm Pilot. 00:07:46.399 --> 00:07:49.360 It was a short-lived little weird one that was in between the initial Palm Pilots. 00:07:49.600 --> 00:07:51.839 Well, I actually only found out about this when I was researching. 00:07:52.079 --> 00:07:53.759 I had no clue what a Palm Pilot was. 00:07:54.000 --> 00:07:54.879 Could you explain what it is? 00:07:55.279 --> 00:07:55.839 You're too young. 00:07:56.240 --> 00:08:02.000 Well, yeah, I mean, like you know, uh it was a Blackberry had the you know, what do you call it, the Q-U-R-T-Y keyboard? 00:08:02.240 --> 00:08:08.639 So unlike tradition traditional phones that we have now with the digital keyboard, um, it actually had physical buttons on it. 00:08:08.800 --> 00:08:13.199 And it was about a little bit, I mean, it'd be bigger now than the iPhone it is today, but a little bit squattier. 00:08:13.279 --> 00:08:18.160 But it was like one of those things, like if you were in business, you had you had the palm or you had the Blackberry, whatever. 00:08:18.240 --> 00:08:20.319 Like there was like that was like the the technology back then. 00:08:20.639 --> 00:08:22.319 And was it for messaging or uh yeah. 00:08:22.399 --> 00:08:23.439 I mean, you could almost do anything with it. 00:08:23.519 --> 00:08:24.959 It was like a digital calendar and whatever. 00:08:25.120 --> 00:08:29.279 I mean, think about like a non-phone phone, but uh is a non-phone phone. 00:08:30.160 --> 00:08:32.639 A companion for technology that would fit in your pocket. 00:08:32.799 --> 00:08:32.960 Okay. 00:08:33.200 --> 00:08:35.360 Uh, but it wasn't just for phone technology. 00:08:35.440 --> 00:08:39.360 So I think they want to do payments to payments with them, right? 00:08:39.600 --> 00:08:40.879 Was that where the finance part came in? 00:08:41.120 --> 00:08:41.679 Kind of, yeah. 00:08:41.759 --> 00:08:48.799 They wanted to create like a software for IOUs with comp pilots where you could send IOUs switch to people, which is interesting. 00:08:49.039 --> 00:08:49.519 I love that. 00:08:49.759 --> 00:08:51.279 It was clever, but nobody wanted it. 00:08:51.360 --> 00:08:53.519 And so it didn't really take off at all. 00:08:53.919 --> 00:08:58.240 Peter Thiel had a

hedge fund, and so he was kind of financing this for a while. 00:08:58.399 --> 00:09:04.879 And as part of Confinity, the company, they created PayPal, and that's where the payments part came from. 00:09:05.039 --> 00:09:11.360 It wasn't really supposed to be the biggest feature of the company, it was just like a small part to help the IOU functionality work. 00:09:11.679 --> 00:09:22.480 But what they found was PayPal was what was working and what people were liking, and they just decided that that was a better product market fit um than what they initially started at. 00:09:22.639 --> 00:09:29.360 And I actually thought this was a really interesting point to call out because it's very normal for founders to start in one direction and pivot. 00:09:29.519 --> 00:09:31.600 And I thought this was a really, really good example of that. 00:09:31.919 --> 00:09:32.480 Yeah, absolutely. 00:09:32.559 --> 00:09:37.759 Well, at least they were listening to what the technology is being used for as opposed to being so dogmatic on what they wanted it to be. 00:09:37.919 --> 00:09:38.080 Yeah. 00:09:38.240 --> 00:09:42.799 Uh that's really what the key thing about, obviously, you know, customer validation and talking to customers and looking at the data. 00:09:43.200 --> 00:09:48.159 Have you had a similar experience in your time when where you started wasn't necessarily where you ended? 00:09:48.639 --> 00:09:55.039 Yeah, well, I mean, the very first product that we ever launched was really around um helping banks engage customers around products and whatnot. 00:09:55.120 --> 00:10:01.919 Um, but what I really found was that you know banks don't want the customers to always make the right decision, because if you make a bad decision, it makes the bank more money. 00:10:02.080 --> 00:10:09.279 So when we pivoted, it was really after talking to a lot more customers about they wanted to make better financial decisions, but didn't want to have to learn financial literacy. 00:10:09.440 --> 00:10:17.360 So, how quickly could we get them to an action, which was just like a microsavings from their savings account, to like a loan to pay it off earlier and save themselves interest. 00:10:17.679 --> 00:10:18.879 So that was all consumer-led. 00:10:19.440 --> 00:10:22.559 As it usually should be, consumer-led, because you're building for a consumer. 00:10:23.679 --> 00:10:26.960 And yeah, this is where they they kind of landed. 00:10:27.440 --> 00:10:28.480 It's super interesting. 00:10:28.639 --> 00:10:30.960 So they pivoted to focusing on PayPal. 00:10:31.360 --> 00:10:37.200 We won't go down when they changed the name from Confinity to PayPal, but from here on I'll just refer to them as PayPal. 00:10:37.600 --> 00:10:41.519 And it brings us to the early 2000s, literally the year 2000. 00:10:42.000 --> 00:10:49.200 They started hiring and they hired someone called Eric Jackson, who went on to be like their best marketer or growth um strategist. 00:10:49.440 --> 00:10:56.399 And essentially that they gave Eric a million dollars with one order, and that was to grow the user base really, really quickly. 00:10:56.960 --> 00:10:59.679 And so he had to look at the market segmentation. 00:10:59.919 --> 00:11:10.159 And uh Peter Thiel and the exec said that they should focus on early tech adopters because they thought that they would be the kind of best users who would be more likely to adopt PayPal and payments. 00:11:10.480 --> 00:11:15.519 And Eric did this, but he also noticed a small group of people on eBay. 00:11:15.600 --> 00:11:29.600 He eBay was kind of like up and going, it already gone through its IPO in the late 90s, and he found that um eBay's auction users were potentially a good market segment to investigate, but the PayPal execs warned him off. 00:11:29.679 --> 00:11:30.639 They said, no, don't bother. 00:11:30.799 --> 00:11:34.399 Like auctioning is such a small market, they it's not worth it. 00:11:34.559 --> 00:11:36.639 And I'll get you to actually read quote number five. 00:11:36.799 --> 00:11:40.159 This is what Eric Jackson said in his book, The PayPal Walls, which I read. 00:11:40.320 --> 00:11:41.919 A really, really good book, by the way. 00:11:42.240 --> 00:11:42.879 I recommend. 00:11:43.360 --> 00:11:49.440 Uh it says, I have been told by one member on the executive team that auction traders would not make good PayPal users. 00:11:49.679 --> 00:11:49.919 Yeah. 00:11:50.159 --> 00:11:50.559 Interesting. 00:11:50.639 --> 00:11:57.759 I wonder if they auction maybe like the I guess the connotation of people like auctioning things off and that sort of mentality that was not sophisticated enough for their technology. 00:11:58.159 --> 00:11:59.120 Exactly, exactly. 00:11:59.200 --> 00:12:01.840 The average person can possibly adopt this. 00:12:02.240 --> 00:12:03.759 Yeah, unwashed masses. 00:12:04.000 --> 00:12:04.559 Exactly. 00:12:04.799 --> 00:12:09.279 So lucky for um the execs, he didn't listen to them. 00:12:09.360 --> 00:12:11.120 And he actually investigated this further. 00:12:11.200 --> 00:12:19.279 So what he did was he went through eBay's chats and they had several forums, and he was kind of reading through the qualms and the queries and issues people were experiencing. 00:12:19.519 --> 00:12:22.799 And he found that these were actually very sophisticated people. 00:12:23.200 --> 00:12:27.360 And the current system that they had in terms of collecting money was quite outdated. 00:12:27.600 --> 00:12:35.440 And so back then, they essentially had to send a check and wait until it was cashed before the product should be sent to you. 00:12:35.840 --> 00:12:44.159 So if you can imagine that transaction would yeah take a week at m at the shortest, and probably several weeks, depending on how far apart you were. 00:12:44.480 --> 00:12:48.399 And it was clear that people were yearning for something more instant and more reliable. 00:12:49.279 --> 00:12:53.679 And so he decided, YOLO,

I'm gonna just test it with this group of people. 00:12:53.919 --> 00:12:57.360 And he he kind of rolled it onto the the platform. 00:12:57.440 --> 00:13:00.320 He got the engineers to create the software. 00:13:00.559 --> 00:13:02.639 I will get you to read quote number six. 00:13:02.799 --> 00:13:04.000 This is from Eric himself. 00:13:04.399 --> 00:13:09.600 I decided to add auction users to the campaign and apologize later if my hunch turned out wrong. 00:13:09.919 --> 00:13:10.480 I love that. 00:13:10.639 --> 00:13:15.840 It's always, yeah, ask for forgiveness later, never ask, or beg for forgiveness later, never ask for permission. 00:13:16.240 --> 00:13:17.440 And and it worked out. 00:13:17.519 --> 00:13:24.320 So the data came back, and auction users signed up roughly at the same rate as other tech users in the other cohorts. 00:13:24.480 --> 00:13:29.440 And so he found the market and it actually started to compound really quickly. 00:13:29.519 --> 00:13:32.720 So because it's an auction site, and in many ways it's a closed loop. 00:13:32.799 --> 00:13:40.080 So a lot of sellers are looking at what other sellers are doing, and when one buyer buys using PayPal, they're more likely to want to use PayPal again. 00:13:40.399 --> 00:13:44.639 And so it just kind of through network effects just started growing really quickly. 00:13:45.600 --> 00:13:50.559 And people started putting the PayPal logo as part of their eBay listing site. 00:13:50.879 --> 00:14:00.320 I will get you to read quote number seven, and this is David Sachs, one of the execs, um, from the book The Founders, which I read too, I recommend. 00:14:00.720 --> 00:14:02.480 It was one of those holy shit moments. 00:14:02.720 --> 00:14:04.080 Luke started spazzing. 00:14:04.480 --> 00:14:05.519 Started to take off. 00:14:05.919 --> 00:14:06.320 Exactly. 00:14:06.480 --> 00:14:08.000 Who's Luke, though, in that one? 00:14:09.519 --> 00:14:09.759 Ah. 00:14:10.159 --> 00:14:10.720 Yeah, yeah, yeah. 00:14:12.000 --> 00:14:14.159 Spazzing, what a great word for that time period. 00:14:14.559 --> 00:14:15.840 Did you use the word spazzing? 00:14:16.000 --> 00:14:19.679 I mean you'd call someone a spazz if they were a little flaky, but I don't know about spazzing. 00:14:19.759 --> 00:14:20.240 That's a great idea. 00:14:20.480 --> 00:14:23.120 In the positive, yeah, well, yeah, maybe. 00:14:23.440 --> 00:14:23.679 Okay. 00:14:23.840 --> 00:14:25.200 I clearly missed that boat. 00:14:25.519 --> 00:14:31.679 So it's very interesting because PayPal initially they wanted to transform how we looked at global payments. 00:14:31.840 --> 00:14:39.039 And so their long-term vision was targeting Western Union and instead changing how people wired money back home. 00:14:39.200 --> 00:14:47.519 And so for them, it took a bit of adjustment to realize that their biggest growth was coming from eBay, which is seen as like not that like not that exciting. 00:14:47.759 --> 00:14:48.000 Yeah. 00:14:48.399 --> 00:14:55.679 But it was a really good uh testing case to ensure that a the the tech worked, there was a market for it, and that it was growing. 00:14:55.759 --> 00:14:57.600 And they grew quite quickly. 00:14:57.840 --> 00:15:07.039 And it got to a point where the team at PayPal started using eBay themselves, and they started buying things off eBay and testing it using PayPal to make sure it worked. 00:15:07.200 --> 00:15:12.080 And that's actually how the product got so good because they were users themselves. 00:15:12.240 --> 00:15:19.919 It meant that the engineering team were able to fix things really quickly and modify things, and they had such a big focus on user experience as well. 00:15:20.399 --> 00:15:25.840 I'll um and there's a really great quote where they said we had to become users for it to work well. 00:15:26.080 --> 00:15:27.360 Have you heard of the term dog food? 00:15:27.759 --> 00:15:29.440 Yeah, eating your own dog food, absolutely. 00:15:29.679 --> 00:15:33.279 Yeah, this was to me, this was like wow, like this is such a good example of that. 00:15:33.600 --> 00:15:33.919 Oh, yeah. 00:15:34.000 --> 00:15:43.120 Well, and I think the exact opposite you see a lot of times in in legacy technology, like, is the is the person who designs this life insurance policy ever actually gone through the process to sign up for it? 00:15:43.360 --> 00:15:46.399 They couldn't possibly have done it because it's such a bad user experience. 00:15:46.559 --> 00:15:46.720 Yeah. 00:15:46.879 --> 00:15:50.720 So from a technology and founder standpoint, to be using your own product, it's key. 00:15:51.039 --> 00:15:51.919 It is very key. 00:15:52.080 --> 00:15:56.159 Um, and this is actually what distinguished them from the other initial players in the game. 00:15:56.320 --> 00:15:59.200 They did not focus on the user experience at all. 00:15:59.840 --> 00:16:00.240 Interesting. 00:16:00.720 --> 00:16:03.759 So they ended up kind of pouring fuel to the fire. 00:16:03.919 --> 00:16:08.080 So if you remember, they raised quite a bit of cash and they were looking to spend it. 00:16:08.159 --> 00:16:14.879 And so one of their customer acquisition strategies was when you signed up for PayPal, you got$10. 00:16:15.200 --> 00:16:19.120 And if you got someone else to sign up, they'll they would get$10 too, which is very normal now. 00:16:19.200 --> 00:16:22.559 But back then they were kind of the key pioneers in this space. 00:16:22.879 --> 00:16:31.200 And it really so um Flues and Digicash actually were the first to use this kind of marketing tactic, but they were the first to do it two-sided. 00:16:31.279 --> 00:16:35.279 So both the buyer and seller would get$10, which really skyrocketed their growth. 00:16:35.600 --> 00:16:36.720 Yeah, I can imagine. 00:16:36.960 --> 00:16:47.279 And yeah, which for me was a really good example of what a customer acquisition cost is, because it's easy to think, oh, it's ten dollars, but really that

ten or twenty dollars is very initial and that compounds over time. 00:16:47.360 --> 00:16:51.279 So the actual CAC customer acquisition costs really declines over time. 00:16:51.600 --> 00:16:52.320 Yeah, absolutely. 00:16:52.480 --> 00:16:58.559 And I'm sure there probably has some like power referrals, like you know, it wasn't like everyone referred one, it was like some people were referring hundreds. 00:16:58.960 --> 00:16:59.840 Exactly, exactly. 00:16:59.919 --> 00:17:07.519 And there were anecdotes that um for a long time they had a lot of college students just referring their friends and just cashing in and buying things off eBay. 00:17:07.839 --> 00:17:08.400 Gosh, that's funny. 00:17:09.359 --> 00:17:11.279 Yeah, I would have been in grad school, so I wouldn't have been one of those. 00:17:11.359 --> 00:17:13.680 But yeah, I can imagine them getting around the dorm rooms. 00:17:13.759 --> 00:17:15.839 Aaron Powell When did you come across PayPal? 00:17:16.240 --> 00:17:21.200 Oh, I was trying to I I literally tried to research my entire PayPal history and only goes back to 2022. 00:17:21.440 --> 00:17:22.559 They don't want to keep that much data. 00:17:22.720 --> 00:17:24.640 But I was like, gosh, when was the first thing I would have bought? 00:17:24.799 --> 00:17:27.200 But probably just something on a like a local auction, probably books. 00:17:27.680 --> 00:17:28.799 I'm a huge book nerd. 00:17:29.039 --> 00:17:30.400 So probably a book, I'd say. 00:17:30.480 --> 00:17:31.440 Aaron Powell And eBay? 00:17:31.599 --> 00:17:33.359 When did you first encounter eBay? 00:17:33.680 --> 00:17:37.200 Uh well, probably would have been like like using PayPal to buy a book on eBay. 00:17:37.279 --> 00:17:42.400 I would have encountered them probably both, like synonymously, because I I never like even like PayPal now is ubiquitous. 00:17:42.480 --> 00:17:44.079 It's every checkout, you can use it. 00:17:44.319 --> 00:18:00.240 But I think within eBay, like I can't remember ever wanting to like send someone a check, somebody I don't know, for someone I'm gonna purchase, giving them a physical check in the mail to then mail it, to then have them hold the thing for 10 days till it caches because there is a float in there where they got to make sure the money comes to them, and then mailing me a book. 00:18:00.400 --> 00:18:03.839 So I'm guessing I would have seen both eBay and PayPal synonymously at the same time. 00:18:04.559 --> 00:18:05.200 Interesting. 00:18:05.839 --> 00:18:10.160 It's great to have these dinosaurs tell me tell me what it was like back in the day. 00:18:10.559 --> 00:18:10.960 Exactly. 00:18:11.119 --> 00:18:11.839 Exactly. 00:18:12.160 --> 00:18:17.200 And this is where Elon Musk and X.com enters the picture. 00:18:17.759 --> 00:18:21.680 So we won't go into Elon, like his history is whatever. 00:18:21.920 --> 00:18:26.079 But essentially he had exited his first company and made quite a lot of money. 00:18:26.319 --> 00:18:32.880 And he was obsessed with the um with x.com because it was one of the very few domains that single letter domain. 00:18:33.200 --> 00:18:34.079 Exactly, exactly. 00:18:34.240 --> 00:18:42.160 And there is a legend that he spent um ten million dollars on it, supposedly one to ten million, that's what the rumour is. 00:18:42.480 --> 00:18:43.759 And so he was very obsessed with it. 00:18:44.480 --> 00:18:49.440 So he founded the company x.com under that name, and it was supposed to be a financial services company. 00:18:49.759 --> 00:19:04.640 And the idea was they were going to just fully transform the entire financial services ecosystem because in his early 20s, he actually interned in a bank in Canada, I believe, and he just saw how outdated the banking system was and really saw a lot of opportunity in tech. 00:19:05.039 --> 00:19:06.079 So, in many ways, he's right. 00:19:06.160 --> 00:19:10.480 In typical Elon fashion, he was a visionary and he saw where things needed to go. 00:19:11.440 --> 00:19:12.799 And it's quite funny. 00:19:12.880 --> 00:19:18.559 So X.com and PayPal were actually in the same building and they were right next to each other. 00:19:18.799 --> 00:19:22.079 So x.com was in suit A and PayPal was in suit B. 00:19:22.160 --> 00:19:24.799 And apparently the walls were very thin and they could hear each other. 00:19:25.039 --> 00:19:30.640 And because they were kind of in the same ecosystem but going at very different paths that were very friendly. 00:19:30.960 --> 00:19:40.000 Um and come to find out that over time they eventually ended up converging on the same idea because where x.com was going just didn't really work out. 00:19:40.160 --> 00:19:43.920 It was overly complicated, and they saw that PayPal was doing really well and starting to grow. 00:19:44.000 --> 00:19:49.519 And so eventually Elon pivoted their model and started building something very identical to PayPal. 00:19:49.839 --> 00:19:53.839 And as you can imagine, the PayPal staff were not very happy with this. 00:19:54.079 --> 00:20:00.400 Um, and for a long time, Elon actually thought what PayPal were doing was very, very dumb until he realized it was not. 00:20:00.559 --> 00:20:05.200 I will get you to read quote number eight, and this is what Elon said in the book The Founders. 00:20:05.599 --> 00:20:07.119 I'm like, that's a dumb idea. 00:20:07.200 --> 00:20:08.000 They're doomed. 00:20:08.240 --> 00:20:08.559 Yeah. 00:20:09.200 --> 00:20:09.920 Yeah, yeah, yeah. 00:20:10.319 --> 00:20:11.119 Doomed, yeah. 00:20:12.640 --> 00:20:17.440 Uh but yeah, he then had the realization that what they were doing was really, really good. 00:20:17.920 --> 00:20:26.640 Um and he developed the infrastructure really quickly because once again, because they were right because they were right next to each other and the employees were talking all the time. 00:20:26.799 --> 00:20:39.759 The engineers just kind of like sussed out what was going on and built it

really quickly to the demise of PayPal, and they launched offering$20 for new users, which doubled what PayPal was was offering. 00:20:41.359 --> 00:20:42.799 That's a race to zero then. 00:20:43.680 --> 00:20:44.880 You hit the nail on the head. 00:20:45.200 --> 00:20:45.440 Exactly. 00:20:45.680 --> 00:20:46.799 That is exactly what happened. 00:20:46.880 --> 00:20:49.839 So they became neighbors overnight, essentially. 00:20:50.079 --> 00:20:55.599 Um, and apparently a real depth of paranoia set in where they were kind of like, oh, what the hell? 00:20:55.759 --> 00:20:56.720 Like, what's going on? 00:20:56.880 --> 00:20:57.839 We we can't be here. 00:20:57.920 --> 00:21:08.400 Eventually PayPal moved, officers, but they really uh set down a path of just competing and like you said, spending a lot of money to um acquire new customers. 00:21:09.039 --> 00:21:16.240 Uh and then at one point, so apparently Musk kept a live window screen of all the new users that were added. 00:21:16.880 --> 00:21:19.680 And one day a new user popped up called Peter Thiel. 00:21:19.759 --> 00:21:26.000 So Peter Thiel is one of the founders of PayPal, and he essentially picked up the phone and called Peter to say what the hell was going on. 00:21:26.079 --> 00:21:27.839 Like this is too far. 00:21:28.240 --> 00:21:28.559 Nice. 00:21:28.799 --> 00:21:31.279 Because obviously Peter was trying to suss out what um X. 00:21:33.119 --> 00:21:33.599 Exactly. 00:21:33.839 --> 00:21:36.559 And I will get you to read quote number nine. 00:21:36.720 --> 00:21:38.640 This is what Elon Moss said. 00:21:39.039 --> 00:21:39.279 Okay. 00:21:39.440 --> 00:21:43.599 He says its principal achievement was trading investors' money for email addresses. 00:21:43.920 --> 00:21:44.400 That is true. 00:21:44.559 --> 00:21:48.720 So essentially what happened eventually was they they combined. 00:21:48.960 --> 00:21:55.279 So because they wasted a lot of money finding each other and acquiring customers, it got to the point where they were kind of acquired. 00:21:55.519 --> 00:21:59.759 And initially, as you can imagine, Elon wanted a ninety ten percent. 00:22:00.640 --> 00:22:04.319 And eventually it became a 50-50 split, roughly. 00:22:04.559 --> 00:22:16.960 Um, but as part of the agreement, a lot of x.com's kind of seniors took on the managerial roles, and PayPal um senior execs weren't so high up, but they kind of like figured figured something out. 00:22:17.279 --> 00:22:22.160 And the sh the real interesting thing is both companies had very different cultures from what I read. 00:22:22.400 --> 00:22:33.039 Apparently, PayPal was more like broy and a bit more dynamic, and x.com was quite cutthroat and um yeah, more of like an engineering, quite more beige background. 00:22:33.119 --> 00:22:35.920 So it took a while for both companies to properly merge. 00:22:36.000 --> 00:22:38.880 And it also didn't help that they operated on different systems. 00:22:39.039 --> 00:22:45.759 So PayPal operated on Windows and X operated on Linux, and so they weren't very compatible. 00:22:46.000 --> 00:22:50.000 And the idea with the merge was that PayPal was going to be like the top of the funnel. 00:22:50.160 --> 00:22:55.680 So PayPal was free at the time to use, so they didn't take any cut from any of the transactions or anything. 00:22:55.839 --> 00:22:57.519 They were very much focused on growth. 00:22:57.680 --> 00:23:00.400 But X was still very much in the financial services. 00:23:00.559 --> 00:23:08.799 So the thought was PayPal would be at top of the funnel, people would come for free, and then they'll kind of upsell them into X's um business accounts and other financial products. 00:23:08.960 --> 00:23:10.960 And that's how they were eventually going to monetize. 00:23:11.279 --> 00:23:12.480 It's very standard in banking. 00:23:12.559 --> 00:23:13.920 That's why free checking exists. 00:23:14.240 --> 00:23:14.400 Yeah. 00:23:14.559 --> 00:23:15.200 Did you know that? 00:23:15.359 --> 00:23:15.839 Oh, yeah. 00:23:16.079 --> 00:23:20.400 But one of my first jobs is working for a bank consulting company where it was free checking and a free gift. 00:23:20.720 --> 00:23:21.359 Interesting. 00:23:21.599 --> 00:23:22.000 Absolutely. 00:23:22.160 --> 00:23:26.720 That's that's if you hold their transaction account, you get first right of refusal for every other product and services. 00:23:26.799 --> 00:23:29.200 So PayPal would be in that same exact way. 00:23:29.359 --> 00:23:31.920 Let's get them transactioning online for free. 00:23:32.079 --> 00:23:40.720 And then you can look at what they're buying, what cash money is flowing in and out, and then you'd be like, oh, well, if they live in this zip code, which you might know, you could offer them, you know, mortgage loan, whatever. 00:23:40.960 --> 00:23:41.759 Very, very traditional. 00:23:42.160 --> 00:23:43.279 Very traditional model in banking. 00:23:43.680 --> 00:23:44.400 And it works very well. 00:23:44.720 --> 00:23:45.039 Oh, yeah. 00:23:45.200 --> 00:23:45.599 Absolutely. 00:23:45.759 --> 00:23:45.920 Yep. 00:23:46.160 --> 00:23:49.759 It makes sense because you're more likely to just save the same bank out of habit after a while. 00:23:49.839 --> 00:23:52.960 It's easier for the checking, you typically don't make any interest on that. 00:23:53.039 --> 00:23:54.960 So that money is then given to out as loans. 00:23:55.039 --> 00:23:56.720 So the spread margin is you know let's say 4%. 00:23:56.960 --> 00:23:58.240 So they're making free money on that. 00:23:58.319 --> 00:23:59.680 So the checking is a loss leader. 00:23:59.759 --> 00:24:02.319 They're losing a little bit of money on that with statements and everything. 00:24:02.559 --> 00:24:06.720 But um, yeah, most people will have like I think it's like 4.2 products per services per bank. 00:24:06.960 --> 00:24:09.279 So checking would be one and then 3.2 more. 00:24:09.519 --> 00:24:09.680 Wow. 00:24:10.000 -->

00:24:12.160 Credit card, auto loan, mortgage. 00:24:12.880 --> 00:24:13.119 That makes sense. 00:24:13.440 --> 00:24:15.359 That's where the real revenue comes from, is the loan book. 00:24:15.680 --> 00:24:16.000 Wow. 00:24:16.240 --> 00:24:16.480 Yep. 00:24:17.279 --> 00:24:19.119 So Elon was not wrong in that regard. 00:24:19.440 --> 00:24:19.759 He's not. 00:24:19.839 --> 00:24:21.200 And obviously that's still the case today. 00:24:21.440 --> 00:24:24.079 Well, he wants X to be every everything again later. 00:24:24.160 --> 00:24:26.640 So yeah, it'll be interesting to see if they go back into finance or not. 00:24:26.960 --> 00:24:28.160 Exactly, exactly. 00:24:28.400 --> 00:24:33.920 Um So there was actually a lot of infighting within the company. 00:24:34.160 --> 00:24:40.960 As you can imagine, they had a lot of big top dogs who had very different directions, and there are a lot of coups that happened. 00:24:41.440 --> 00:24:45.200 Um I will get you to read quote number 10. 00:24:45.599 --> 00:24:45.839 Okay. 00:24:46.000 --> 00:24:47.279 This is Max Levchin. 00:24:48.000 --> 00:24:51.680 I do not recommend, I do not recommend a 50-50 merger to anyone. 00:24:52.000 --> 00:24:57.440 So in retrospect, I'm saying he's probably saying I do not recommend a 50-50 merger to anyone, which is what they had, right? 00:24:57.599 --> 00:24:57.680 Yeah. 00:24:58.000 --> 00:24:58.799 Cool out, yeah. 00:24:59.519 --> 00:25:00.319 Who's gonna break the tie? 00:25:00.559 --> 00:25:00.799 Exactly. 00:25:01.119 --> 00:25:01.839 But there is nobody. 00:25:02.160 --> 00:25:03.359 Do you agree with that statement? 00:25:03.680 --> 00:25:04.960 Uh I mean, you have two founders. 00:25:05.039 --> 00:25:06.640 I'd say 50-50 is fine there. 00:25:06.720 --> 00:25:13.200 But I think in their regards, like you said, you know, they had what they you said, you know, at least two founders on the PayPal side, let's say three or four on either side. 00:25:13.359 --> 00:25:16.240 That's all of a sudden six founders with equal voting rights and stuff, too. 00:25:16.319 --> 00:25:17.759 Like that's too many cooks in the kitchen. 00:25:18.079 --> 00:25:19.759 Way too many, way too many. 00:25:20.079 --> 00:25:29.680 Um Yeah, so after they merged, they actually raised$100 million because they realized that they would need a lot more money to acquire more customers. 00:25:29.839 --> 00:25:41.279 And it was easier for them to raise money in this new merged company because they had Elon and they also had Peter Thiel, Max Lefchin, they really had a lot of the top dogs as part of their cohort. 00:25:42.480 --> 00:25:55.519 And this merge actually triggered a new host of competitors into the market, and it was a big signal in the Silicon Valley that this was an up-and-coming sector and that there was a lot of money being pumped into the space. 00:25:55.759 --> 00:26:00.799 So Yahoo, our friends, um, really wanted badly as well. 00:26:00.880 --> 00:26:06.160 So the CEO team Kugel tried to actually buy Confinity and X separately before they merged. 00:26:06.400 --> 00:26:11.119 And both PayPal and X rejected Yahoo's um bids. 00:26:11.519 --> 00:26:15.039 And so after they merged, they actually tried buying them again. 00:26:15.279 --> 00:26:16.240 It didn't work. 00:26:16.480 --> 00:26:22.480 So Yahoo went and tried to buy eBay because they thought, well, if we can't buy you, we'll buy eBay. 00:26:22.640 --> 00:26:27.279 Um and also that did not work again as well. 00:26:28.799 --> 00:26:31.599 I love that it's a callback to that quote saying nobody needs this product. 00:26:31.680 --> 00:26:31.920 I love it. 00:26:32.000 --> 00:26:34.559 And now they're trying any anything they can do to buy into the market. 00:26:34.799 --> 00:26:35.119 Love it. 00:26:35.599 --> 00:26:36.559 Exactly, exactly. 00:26:36.720 --> 00:26:37.440 He was wrong. 00:26:37.839 --> 00:26:46.559 Um, so they ended up buying a smaller competitor, which was basically a clone of PayPal called Dot Bank, and then they relaunched it as Yahoo Pay Direct. 00:26:46.960 --> 00:26:56.079 Unfortunately for Dot for Yahoo, the founders of Dot Bank just stopped innovating after they're required and just kind of like, and so Yahoo Pay Direct didn't really go anywhere. 00:26:56.319 --> 00:26:58.720 And then the banks also also came into the picture. 00:26:58.799 --> 00:27:04.640 So Chicago Bank One launched their e-money mail, and that also didn't kind of go very well. 00:27:04.799 --> 00:27:07.200 They started with a$1 center fee. 00:27:07.279 --> 00:27:10.240 People were like, wait, yeah, PayPal is free, no thanks. 00:27:10.400 --> 00:27:15.119 And then there were other startups like G Money, um, PayPlace, and Payme. 00:27:15.759 --> 00:27:22.319 And PayPal kind of like noticed this players going on, but they quickly kind of like took off and fell off. 00:27:22.400 --> 00:27:25.200 So they kind of they realized that they were in a good spot. 00:27:25.279 --> 00:27:28.079 And also, unlike the others, they had a lot of revenue. 00:27:28.240 --> 00:27:35.039 But the key thing they were worried about was well, if banks come into this space, they kind of already have the infrastructure and potentially the user base. 00:27:35.200 --> 00:27:43.200 So it was a very interesting position because if you had to bet your bet, place your bet, you would think that a traditional bank might do better than a small startup. 00:27:43.359 --> 00:27:44.559 But yeah, what are your thoughts? 00:27:44.880 --> 00:27:48.640 Well, I think I mean the key, we probably went back to earlier about the grabbing the email address. 00:27:48.799 --> 00:27:54.240 I think that the technology, you know, these founders particularly understood that that's you your unique uh email address. 00:27:54.319 --> 00:27:56.240 Like I said, I still have a Yahoo account even now. 00:27:56.319 --> 00:27:59.519 I have obviously a Google one, but I still have it. 00:27:59.680 --> 00:28:03.359 I probably got that set up in

what, 1990 something? 00:28:03.599 --> 00:28:05.279 It's like this unique thing that stays with you. 00:28:05.359 --> 00:28:08.880 And if you can tie that to payments, it decentralizes the bank. 00:28:09.039 --> 00:28:10.640 So to a bank, you are just a number. 00:28:10.720 --> 00:28:14.319 You're an account number, a routing number, maybe a Swift code if it's international. 00:28:14.480 --> 00:28:17.920 Um I think the technologist really understood is that there's that layer on top. 00:28:18.000 --> 00:28:19.440 I don't think a bank would have thought that way. 00:28:19.599 --> 00:28:19.680 Yeah. 00:28:19.920 --> 00:28:20.319 To be honest. 00:28:20.559 --> 00:28:21.119 They would have thought. 00:28:21.359 --> 00:28:24.799 And there's just, I mean, again, banks were very profitable and very fat and happy. 00:28:24.880 --> 00:28:26.160 I don't think they had a reason to innovate. 00:28:26.240 --> 00:28:27.839 And a lot of them still don't have a reason to innovate. 00:28:28.079 --> 00:28:28.400 That's true. 00:28:28.640 --> 00:28:28.799 Yeah. 00:28:28.880 --> 00:28:29.119 Interesting. 00:28:29.440 --> 00:28:30.559 I never thought about it that way. 00:28:30.880 --> 00:28:31.599 Very interesting. 00:28:32.559 --> 00:28:36.079 So I kind of touched on earlier that there were a lot of coups going on. 00:28:36.319 --> 00:28:39.279 And the first coup, so initially Bill Harris was a CEO. 00:28:39.440 --> 00:28:40.160 He was overthrown. 00:28:40.240 --> 00:28:44.160 There was a vote when he was away, and he was voted out of being CEO. 00:28:44.319 --> 00:28:46.400 And then Elon was made CEO. 00:28:46.640 --> 00:28:51.599 Then Elon was obsessed with X, and he had actually named the whole company X. 00:28:51.759 --> 00:28:54.000 So the company wasn't named PayPal when they merged. 00:28:54.160 --> 00:28:56.960 It was named X and under X.com. 00:28:57.519 --> 00:29:08.079 But the actual service PayPal was very well known at the time, and so they kept it as PayPal in eBay, and they'll have PayPal by X.com or PayPal.exe.com. 00:29:08.240 --> 00:29:10.000 And he just really didn't want it. 00:29:10.160 --> 00:29:13.039 In his mind, he wanted it all to eventually be X.com. 00:29:13.279 --> 00:29:13.759 That makes sense. 00:29:14.000 --> 00:29:21.920 But they did a lot of tests and users just didn't really like X, especially because it had a lot of negative connotation with like the prostitution industry and things like that. 00:29:22.079 --> 00:29:22.319 Interesting. 00:29:22.480 --> 00:29:27.359 And they were just worried about um the marketing and the public perception, the PR side of things. 00:29:27.759 --> 00:29:28.240 Interesting. 00:29:28.480 --> 00:29:36.000 And so um Elon in September 2000 was on his delayed honeymoon in Sydney, which is where we are right now. 00:29:36.160 --> 00:29:40.319 And while he was on his honeymoon, he was ousted as CEO. 00:29:40.400 --> 00:29:49.759 So they took a no vote of confidence, mostly on the fact that he was stuck to

X and wasn't really able to see the broader picture across that and other issues. 00:29:49.839 --> 00:29:52.240 Um he came back and he was no longer CEO. 00:29:52.640 --> 00:29:53.039 Interesting. 00:29:53.200 --> 00:29:54.720 Never go on honeymoon, I guess. 00:29:55.279 --> 00:29:56.319 Do not get married. 00:29:56.559 --> 00:29:57.440 Exactly, exactly. 00:29:57.519 --> 00:29:58.480 Otherwise, you'll lose your job. 00:29:58.640 --> 00:29:59.359 You will lose your job. 00:29:59.599 --> 00:29:59.839 Yeah. 00:30:00.000 --> 00:30:04.079 So instead he became the chairman and Peter Thiel became the CEO. 00:30:04.240 --> 00:30:08.240 Initially it was supposed to be short-term, but he ended up staying as a CEO for a really long time. 00:30:08.480 --> 00:30:10.799 And by all accounts, he did a really, really good job. 00:30:10.880 --> 00:30:15.680 And in many respects, uh Elon later would come to say that yes, it worked out. 00:30:15.759 --> 00:30:18.720 Um he wouldn't say for the best, but he worked out because he crashed out. 00:30:20.000 --> 00:30:22.559 And which now brings us to the eBay wars. 00:30:22.640 --> 00:30:31.839 So between 2000 to 2002, as you can imagine, eBay wasn't too happy that PayPal was kind of growing and really becoming a huge part in eBay. 00:30:32.559 --> 00:30:35.680 And PayPal's market share grew substantially. 00:30:35.839 --> 00:30:42.559 So they started off with you know one to two percent of all auction listings in let's say in early January. 00:30:42.640 --> 00:30:45.920 And by February, it rose to six percent by February 2000. 00:30:46.319 --> 00:30:54.720 By April, it became 20% of all listings, and by July, it became 35% of all listings. 00:30:54.960 --> 00:30:57.599 You said one to six to up to 30 in like six months. 00:30:58.000 --> 00:30:58.880 Correct, correct. 00:30:59.200 --> 00:31:02.480 And all that's that's that's a percentage of total listings which we're also growing at the same time. 00:31:02.799 --> 00:31:06.160 Exactly, exactly, which is in the product market fit, folks. 00:31:07.200 --> 00:31:07.920 Correct. 00:31:08.160 --> 00:31:20.240 And so to kind of approach this issue, eBay then acquired Billpoint, which is a competitor in the space, so they acquired billpoint, and the idea was to initi to then eventually make it eBay payments or something like that. 00:31:20.559 --> 00:31:24.160 Unfortunately, billpoint wasn't very good from a user perspective. 00:31:24.240 --> 00:31:28.559 So users would try it and they just didn't like it, they preferred the preferred uh PayPal. 00:31:29.119 --> 00:31:35.200 The issue with Billpoint is unlike PayPal, they weren't as obsessive about that user experience that we talked about. 00:31:35.759 --> 00:31:40.880 And so because eBay owned the marketplace, they would do things like a day or a week of free listing. 00:31:40.960 --> 00:31:44.799 So at the time you had to pay a fee to list on eBay on the marketplace. 00:31:45.039 --> 00:31:47.359 So if you used billpoint, you could list for free. 00:31:47.680 --> 00:31:53.839 And so they had the suite of tools to kind of encourage uh consumers to use billpoint instead of PayPal. 00:31:54.160 --> 00:31:58.319 And whenever they would have this kind of like campaign, it would skyrocket. 00:31:58.640 --> 00:32:10.240 So in one month, um, billpoint skyrocketed from 6% to 14% of all um auction listens, but then it would go back down and they would switch back to PayPal, which is really interesting. 00:32:10.480 --> 00:32:11.279 Yep, for sure. 00:32:11.359 --> 00:32:14.079 I mean, that's obviously yeah, users voting with their wallet, if you call it. 00:32:14.160 --> 00:32:15.440 Yeah, exactly. 00:32:15.680 --> 00:32:26.640 So it really started a a fight and a bit of a war between PayPal and eBay because it's funny, PayPal relied on eBay, but then eBay was also acting as their competitor. 00:32:26.960 --> 00:32:32.960 And eBay did things like they eventually built a checkout because the checkout system apparently wasn't really a thing back then. 00:32:33.119 --> 00:32:37.119 And so they built a checkout where when you went to Pay, the only option was Bill Point. 00:32:37.200 --> 00:32:46.160 You couldn't pay with PayPal because at the time to pay with PayPal, you were taking to PayPal's website outside eBay to then for it to be processed, and then you were brought back to eBay. 00:32:46.480 --> 00:32:54.880 So they tried everything to keep people on the eBay website and using um Billpoint, but it just did not happen. 00:32:55.599 --> 00:32:57.519 And a very fascinating thing happened. 00:32:57.599 --> 00:33:02.400 So Sokoa Capital, a really big fund in the US, um, very prestigious as well. 00:33:02.559 --> 00:33:08.720 They had invested in PayPal, but they then invested in Bill Point Series A round as well. 00:33:08.880 --> 00:33:13.759 And if as you can imagine, PayPal founders were not very happy with that. 00:33:14.000 --> 00:33:21.359 They called Moritz Mike Moritz, who led the so it wasn't just the same firm, it was the same partner who invested in both. 00:33:21.519 --> 00:33:22.720 And so they were just pissed off. 00:33:22.960 --> 00:33:23.359 Ouch. 00:33:23.519 --> 00:33:25.759 Yeah, and they called Mike being like, what the hell what's going on? 00:33:25.839 --> 00:33:34.240 And Mike was like, I'm sorry, like it's like and from an investor point of view, you can see why, like they're kind of hedging their bets as like, well, which one's gonna win? 00:33:34.559 --> 00:33:35.759 Yeah, it'll be a big category. 00:33:35.839 --> 00:33:37.039 We just don't know who's gonna win it. 00:33:37.359 --> 00:33:37.839 Exactly. 00:33:38.079 --> 00:33:46.799 But they were not happy at all, and so they made Sokoa a silent capital on the board, um, a silent putter on the board, um, and just kind of yeah, interesting. 00:33:47.119 --> 00:33:47.839 Continued. 00:33:48.160 --> 00:33:50.640 Yeah, well, he's gonna he's getting all the investor updates. 00:33:50.720 --> 00:33:52.000 I

can't imagine he's being impartial. 00:33:54.000 --> 00:33:54.799 Not at all. 00:33:55.039 --> 00:34:02.000 But I think a lot of founders like the automatic thing is to see you invest as your team player, but that's not always the case. 00:34:02.400 --> 00:34:03.039 Yeah, no. 00:34:03.359 --> 00:34:05.279 Well, like you said, the the market's too big. 00:34:05.440 --> 00:34:06.079 He needs to win it. 00:34:06.160 --> 00:34:07.519 Sequoia needs to return all that. 00:34:07.680 --> 00:34:08.800 I mean, that's that's a big fund. 00:34:09.199 --> 00:34:11.440 Have you ever seen that happen in your experience or with other people? 00:34:11.599 --> 00:34:15.440 Yeah, I see the opposite typically, where if they invest in one, they won't look at others in a category. 00:34:15.519 --> 00:34:19.119 You know, if they think they're a direct competitor, but you gotta, you know, how do you find the competition? 00:34:19.280 --> 00:34:20.559 But this is such early days. 00:34:20.719 --> 00:34:25.760 I mean, literally it's a can the competition is for to be, you know, the checkout tied to your email address. 00:34:25.840 --> 00:34:27.519 There can be only one almost. 00:34:28.079 --> 00:34:28.719 Agreed, agreed. 00:34:29.519 --> 00:34:34.960 And from Sequoia's perspective, you would think Bill Point will win in the long run because they're by eBay. 00:34:35.440 --> 00:34:36.320 With an eBay, yeah. 00:34:36.480 --> 00:34:36.960 Yeah, exactly. 00:34:37.119 --> 00:34:39.519 And it's a series A, it's a small bet. 00:34:39.840 --> 00:34:44.719 Um and they've already had the sunk fallacy or the sunk cost into PayPal, I guess, at that point. 00:34:44.800 --> 00:34:45.519 So oh well. 00:34:45.679 --> 00:34:47.599 I'm not gonna I'm not gonna fault the the investor. 00:34:47.920 --> 00:34:49.039 Sequoia is pretty successful. 00:34:50.000 --> 00:34:50.800 Exactly, exactly. 00:34:50.880 --> 00:34:51.440 It's worked up. 00:34:51.760 --> 00:34:55.599 Here's what this Nebraskan guy who lives in Brisbane, Australia thinks about Sequoia Capital. 00:34:55.760 --> 00:34:56.960 Nobody wants to hear those thoughts. 00:34:57.039 --> 00:34:58.800 Sorry, I'll save it for LinkedIn. 00:35:00.000 --> 00:35:01.360 Okay, okay. 00:35:01.840 --> 00:35:06.400 Um to add fuel to the fire for uh PayPal. 00:35:07.360 --> 00:35:12.880 Bill Point also um entered into a partnership with Wells Fargo, the bank. 00:35:13.119 --> 00:35:19.760 And so the idea was they had the marketplace, they had Bill Point, the payment processing system, and then they had a traditional bank who would help fill in the gaps. 00:35:20.159 --> 00:35:23.119 And so from eBay's perspective, they thought, well, we've got the holy treatment. 00:35:24.000 --> 00:35:25.519 It's yeah, we're gonna take off. 00:35:25.679 --> 00:35:28.480 But unfortunately, this didn't make a difference. 00:35:28.719 --> 00:35:38.719 And um eBay's portion of auctions stayed at around 9% throughout the mid-2000s, so they didn't really acquire greater market share of auction than that. 00:35:38.880 --> 00:35:40.000 Because they didn't lose it, yeah. 00:35:40.719 --> 00:35:40.960 No. 00:35:41.519 --> 00:35:41.920 Interesting. 00:35:42.400 --> 00:35:45.199 The other really big issue, as you would know, is fraud. 00:35:45.519 --> 00:35:55.920 Fraud was a really big thing because uh fintech in many ways was still very new, and so because it was very new, not a lot of work had been done into securing it and mitigating frauding risk. 00:35:56.400 --> 00:36:09.199 And at one point, between um 2001 and 2002, it was reported that PayPal was losing$10 million a month to criminals, mostly overseas outside the United States. 00:36:10.000 --> 00:36:20.800 And so this was a really, really big problem for them because not only were they burning cash in terms of acquiring new customers, they were burning cash through fraud, and they also weren't making a lot of revenue. 00:36:21.039 --> 00:36:24.719 And so I love it. 00:36:24.960 --> 00:36:27.760 Yeah, but we were yeah, sorry, but the VCs were happy. 00:36:28.559 --> 00:36:29.440 They were growing, they were growing. 00:36:29.760 --> 00:36:31.199 Exactly, growing, there you go, exactly. 00:36:31.519 --> 00:36:32.239 Insane growth. 00:36:32.639 --> 00:36:40.480 Um, and so an engineer in um PayPal called David Gosbeck actually came up with CAPTCHA, as we know it today. 00:36:40.559 --> 00:36:48.000 And the whole idea was they would make users read a disc uh distorted letters that only humans can decode and not computers. 00:36:48.719 --> 00:36:50.880 And I'll actually get you to read quote number 12. 00:36:51.440 --> 00:36:55.119 What are the problems that are easy for a human to solve and hard for a computer to solve? 00:36:55.360 --> 00:36:58.480 Recognizing letters seems the archetypal example of that. 00:36:58.719 --> 00:36:59.360 Yeah, it is. 00:36:59.519 --> 00:37:02.800 And now I well, and I guess now we're onto which bunny is upside down. 00:37:03.280 --> 00:37:05.039 Um but yeah, no, that that's smart. 00:37:05.199 --> 00:37:06.559 I had no clue that's where that came from. 00:37:06.960 --> 00:37:07.920 That is where it came from. 00:37:08.079 --> 00:37:08.320 Yeah. 00:37:08.480 --> 00:37:10.239 And so we now know it as CAPTCHA. 00:37:10.559 --> 00:37:13.760 And from what I found, they were kind of like the pioneers in the space. 00:37:14.079 --> 00:37:14.400 Yeah. 00:37:14.960 --> 00:37:15.519 Interesting. 00:37:15.920 --> 00:37:17.280 Very interesting. 00:37:17.599 --> 00:37:22.400 Um and the incorporation of CAPTCHA cut forgulin signups by half. 00:37:22.639 --> 00:37:27.679 So it was very, very effective in kind of helping them in managing fraud and criminal activity. 00:37:29.679 --> 00:37:35.599 And they also incorporated what's called as the random microdeposit check that's now very widely. 00:37:36.320 --> 00:37:37.119 Yeah, still used today. 00:37:37.440 --> 00:37:37.519 Yeah. 00:37:37.760 --> 00:37:38.880 Do you want to explain what that is?

00:37:39.039 --> 00:37:39.599 Trevor Burrus, Yeah, absolutely. 00:37:39.679 --> 00:37:46.239 Like if you're signing up for a new service and you're linking your bank account, an easy way for that service to make sure that the bank account is yours and valid. 00:37:46.400 --> 00:37:52.320 They'll do two random microdeposits, like 24 cents and seven cents, and then they'll just ask you to confirm them later. 00:37:52.400 --> 00:37:57.519 And then you, you know, the odds of guessing that, you know, one in a hundred times one in a hundred right there, first of all. 00:37:57.679 --> 00:38:02.400 Um but yeah, it's an easy way for them to do that, and then the money just pops back out, they just pull it back out. 00:38:02.639 --> 00:38:09.199 So it's a it's an absolutely brilliant piece of uh and around for for verifying the person is who they say they are and that the bank account's real. 00:38:09.440 --> 00:38:09.840 Very daily. 00:38:10.400 --> 00:38:11.039 It's still used today. 00:38:11.119 --> 00:38:11.199 Yeah. 00:38:11.360 --> 00:38:12.320 It's still used today. 00:38:12.559 --> 00:38:25.199 And if we just take a step back, it's just so fascinating that David Trum came up with the idea and innovated it, and PayPal then fixed the problem he couldn't, which was the um chicken and egg marketplace issue. 00:38:25.440 --> 00:38:28.719 But he didn't get far enough to see the fraud part and things like that. 00:38:28.880 --> 00:38:32.719 And in many ways, PayPal could have died at this point because they were losing a lot of money. 00:38:32.800 --> 00:38:32.880 Yep. 00:38:33.039 --> 00:38:34.320 Um, fraud was a big thing. 00:38:34.400 --> 00:38:38.239 They were just lucky that David was really smart and innovated in this space. 00:38:38.719 --> 00:38:40.000 Yeah, that's awesome. 00:38:40.800 --> 00:38:41.199 Interesting. 00:38:41.360 --> 00:38:42.480 I learned something new today. 00:38:42.639 --> 00:38:43.280 It was awesome. 00:38:43.519 --> 00:38:46.159 I mean, I I I literally just did one of those deposits like a month ago. 00:38:46.639 --> 00:38:46.800 Really? 00:38:47.039 --> 00:38:47.760 I never even thought about it. 00:38:47.840 --> 00:38:49.199 Like, oh, I wonder who did this. 00:38:49.679 --> 00:38:57.599 So by late 2000, um, PayPal had months of cash left and there was actually no funding in the market. 00:38:57.679 --> 00:38:59.519 So things were kind of drying up. 00:38:59.760 --> 00:39:01.280 Oh, yeah, dot com crash, right? 00:39:01.599 --> 00:39:02.880 Exactly, exactly. 00:39:03.039 --> 00:39:08.639 So the executive team, to the demise of Musk, actually decided to kill X Finance. 00:39:08.880 --> 00:39:12.960 So X.com, that side of the business, was not really making any money at all. 00:39:13.679 --> 00:39:22.159 And unfortunately for Elon, yeah, they just decided we're just gonna go all in on PayPal and we're not gonna worry about the whole other like financial system and upselling. 00:39:22.400 --> 00:39:27.519 They just decided that

there was just more potential in in that respect, which was ballsy. 00:39:27.840 --> 00:39:28.960 Um, but yeah, they did. 00:39:29.199 --> 00:39:31.360 Looking back, it was obviously the best decision. 00:39:31.599 --> 00:39:31.920 Yeah, yeah. 00:39:32.400 --> 00:39:41.840 And after they did that, um, in the first three quarters, PayPal racked up$92 million in operating losses and just six million dollars in revenue. 00:39:42.000 --> 00:39:44.719 So that's how bad their balance sheet was looking. 00:39:45.360 --> 00:39:50.880 And they had four million customers, and yeah, they were essentially hemorrhaging money-wise. 00:39:51.760 --> 00:39:57.280 They were looking to do an IPO, and they tried a million times, it just looked like it wasn't going to happen. 00:39:57.519 --> 00:40:03.119 The idea was that they were going to be the first internet company to go public after 9-11 happened. 00:40:03.519 --> 00:40:15.039 Um and unfortunately, as they were then pushing and about to go to IPO, a payments casoncy company filed a patent infringement suit against them, which was sending to court. 00:40:15.119 --> 00:40:18.719 Eventually, PayPal were able to kind of beat that um down. 00:40:19.360 --> 00:40:22.400 But other suits were brought to them as well to court. 00:40:22.559 --> 00:40:30.880 Um eventually, though, they were able to make it work and they went public in February 2002 and uh raised a lot of money. 00:40:30.960 --> 00:40:32.800 It was like well over a billion dollars. 00:40:33.039 --> 00:40:42.000 And the funny thing is, um eventually, about a year or so later, eBay bought PayPal for$1.5 billion as we know now. 00:40:42.480 --> 00:40:48.880 Um and yes, it's kind of funny that they fought each other for so long and then they eventually just uh partnered up together. 00:40:49.199 --> 00:40:53.519 Yeah, well, you said they tried to acquire somebody else and that didn't work, so I guess what are you gonna do? 00:40:54.400 --> 00:41:01.119 Well, at that point, I mean, like I think I think I either heard about this in a podcast or something about payments, but they'd become so dependent on each other. 00:41:01.280 --> 00:41:10.239 So like you know, I mean it was it's probably a better outcome for both of them than to be independent because who knows what other sort of like um change in technology might have been around the corner. 00:41:10.719 --> 00:41:11.519 Exactly, exactly. 00:41:11.760 --> 00:41:17.760 PayPal was trying to evolve in different business models and things like that, but eBay was always the biggest revenue stream. 00:41:18.559 --> 00:41:19.199 Interesting. 00:41:19.760 --> 00:41:27.519 Very so I will get you to read quote number 13, and this is what David Trom said in a phone interview in 1999. 00:41:27.920 --> 00:41:30.000 He says, I can't really comment on that. 00:41:30.159 --> 00:41:32.639 You can look at our website and draw your own conclusions. 00:41:32.960 --> 00:41:39.920 So he made that comment in response to being asked how his bankruptcy happened in 1999. 00:41:40.400 --> 00:41:48.800 So taking things back a little bit, um, I there's just there was a lot of discourse about what really happened with the Digicash, why did they go bankrupt? 00:41:49.119 --> 00:42:01.599 Um and as we've kind of touched on a lot, even though they were first to market, as we see time and time again, often it's the fast followers who do it and execute things better that win. 00:42:01.840 --> 00:42:08.800 So in many ways, Chom invented it, PayPal designed it and perfected it, and also then grew it. 00:42:08.960 --> 00:42:13.920 And so I find that it's really rare to find that happening in the one company really quickly. 00:42:14.000 --> 00:42:21.760 It's more that you have the inventor, one comes, does it look does a little better, executes it better, maybe grows, but then another follower comes and like builds on that. 00:42:21.920 --> 00:42:25.440 But I thought it was really impressive that PayPal kind of like just took it and ran. 00:42:26.159 --> 00:42:26.719 What do you think? 00:42:27.199 --> 00:42:28.159 Yeah, yeah, absolutely. 00:42:28.320 --> 00:42:36.079 Well, I mean, like you said, they were you know looking for different things, but then found that users were using it for you know this reason why. 00:42:36.239 --> 00:42:43.119 And then they, you know, if you get curious about that, that's kind of where a good founder would like lead down that path to understand that, and that's where the opportunity is, obviously, for them. 00:42:43.519 --> 00:42:43.920 For sure. 00:42:44.159 --> 00:42:46.400 I'll get you to read quote number 14. 00:42:46.639 --> 00:42:52.239 So Peter Thiel, one of the founders of PayPal, said this in his own book, Zero to One. 00:42:52.719 --> 00:42:57.360 You've probably heard about the first mover advantage, but moving first is a tactic, not a goal. 00:42:57.599 --> 00:42:59.360 It's much better to be the last mover. 00:42:59.519 --> 00:43:05.760 That is, to make the last great development in a specific market and enjoy years or even decades of monopoly profits. 00:43:06.639 --> 00:43:08.639 I'd love decades of monopoly profits. 00:43:08.719 --> 00:43:09.760 That sounds great. 00:43:10.559 --> 00:43:10.880 Yeah. 00:43:11.199 --> 00:43:11.679 Yeah, yeah. 00:43:11.840 --> 00:43:12.960 You're even monopoly money. 00:43:13.039 --> 00:43:14.639 I take that at this point here, too. 00:43:14.800 --> 00:43:15.360 That's fantastic. 00:43:15.440 --> 00:43:16.639 Yeah, it's a good, good observation. 00:43:16.719 --> 00:43:20.480 I read that book, but that one didn't stand out to me as much as some of the other observations in zero to one. 00:43:20.880 --> 00:43:21.199 Yeah. 00:43:21.440 --> 00:43:26.639 Yeah, I thought he really hit the nail on the head there in terms of really narrating it. 00:43:26.960 --> 00:43:29.360 Um, but very, very fascinating deep dive. 00:43:29.440 --> 00:43:30.480 I learned a lot. 00:43:30.719 --> 00:43:34.239 I think there's a lot of lessons there for founders in terms of how we approach this. 00:43:34.480 --> 00:43:40.800 I think right now we're seeing a similar race happening in various industries and sectors, so it'll be really fascinating to see where things lie. 00:43:41.280 --> 00:43:41.440 Yeah. 00:43:41.519 --> 00:43:42.559 I mean, look at AI right now. 00:43:42.880 --> 00:43:48.480 It's still like, you know, first mover kind of like are some of the monoliths, but I mean, you do not know what's coming around the corner. 00:43:49.119 --> 00:43:49.199 No. 00:43:49.519 --> 00:43:54.159 Uh there are still people raising, you know, hundreds of millions of dollars for new LLMs we don't even know about yet. 00:43:54.639 --> 00:43:55.199 Exactly. 00:43:55.360 --> 00:43:55.920 Exactly. 00:43:56.159 --> 00:43:59.039 So maybe in like 10 years we'll be back in this couch analyzing. 00:44:02.159 --> 00:44:03.599 Who even hears about OpenAI? 00:44:03.679 --> 00:44:04.000 What is that? 00:44:04.239 --> 00:44:04.639 Yeah, yeah. 00:44:04.880 --> 00:44:05.119 Exactly. 00:44:05.599 --> 00:44:06.239 Where things will look like. 00:44:06.400 --> 00:44:07.119 Well, Mark, thank you. 00:44:07.199 --> 00:44:07.679 It's been really funny. 00:44:08.000 --> 00:44:08.400 Thanks for having me. 00:44:08.480 --> 00:44:08.880 That's wonderful. 00:44:08.960 --> 00:44:09.280 I love it. 00:44:09.360 --> 00:44:10.239 I learned something new. 00:44:10.559 --> 00:44:11.519 I'm glad.