PayPal was founded by Peter Thiel, David Sacks, and Max Levchin. Peter Thiel was born in Frankfurt, Germany. Max Levchin was born in Kiev, Ukraine. David Sacks was born in Cape Town, South Africa. Peter Thiel and Norman Book had earlier founded the libertarian newspaper, The Stanford Review. Thiel and Sacks had earlier written The Diversity Myth, which criticized political correctness and multiculturalism at Stanford University.
PayPay was originally designed for people with Palm Pilot PDAs, to help them transfer money to each other. The Web interface was added as a secondary feature, but it became the primary feature. PayPal initially used the ACH (Automated Clearing House), which is what banks use with checks. It is slow, but the cost per transaction is very low.
The author, Eric Jackson, was in charge of marketing at PayPal. He had the idea of growing PayPal’s user base offering the eBay user the option to use PayPal to handle payments. PayPal became the most popular payment service at eBay. Paypal made it easy for eBay sellers to include a link to PayPal in the HTML of their storefront.
The Customer Is Always Right
PayPal often had to back out of changes they made to increase their profitability, because the changes proved to be unpopular with the users. Changes often had to be backed out of in a matter of days. PayPal also paid a lot of attention to message boards.
One of the main problems PayPal had was protecting themselves from transaction fraud. PayPal developed a method to verify that their online customers had bank accounts. I’ve been through this, myself. PayPal deposits a small amount of money in your bank account. Then you go online and tell them how much it was.
Merger with X.com
For me, the most interesting part of PayPal’s merger with X.com was the fact that the X.com programmers used Microsoft Windows NT software, while the PayPal people used UNIX and Oracle software. Some managers at PayPal saw this as being an arcane theological dispute, which I thought disrespected the importance of technology. Thank god, the UNIX and Oracle team won!
Acquisition by eBay
Soon after PayPal went public, it was acquired by eBay.
Many of the early PayPal people have gone on to found other important companies:
- Peter Thiel was an early investor in Facebook.
- David Sacks produced and financed the movie Thank You For Smoking.
- Max Levchin was the main initial investor for Yelp, which was founded by PayPal engineers Russel Simmons, and Jeremy Stoppelman.
- Elon Musk, co-founder of X.com, later co-founded Tesla Motors and founded SpaceX.
- Reid Hoffman, Chief Operating Officer at PayPal, went on to found LinkedIn.
- PayPal programmers Steve Chen, Jawed Karim, Chad Hurley later founded YouTube.