Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Mon, 09 May 2016 04:55
Ben and David return to technology acquisitions by examining a classic: eBay's 2002 purchase of PayPal.
Items mentioned in the show:
How the 'PayPal Mafia' redefined success in Silicon Valley - Tech Republic
Instagram Will Be a $3 Billion Business This Year: Analyst
President Obama and Bill Simmons: The GQ Interview
"The Carve Out":
Antifragile: Things That Gain from Disorder -
Yeah, in fact, there's Drake lyrics. I got enemies, got a lot of enemies, got a lot of people trying to keep me from... Yeah, I don't know the rest, but it's great. Who got the truth? Is it you, is it you, is it you? Who got the truth now? Is it you, is it you, is it you? Sit me down, say it straight. Another story on the way, who got the truth? Welcome to episode 11 of Acquired, the show where we talk about technology acquisitions that actually went well. I'm Ben Gilbert. I'm David Rosenthal. And this is our show. Today we are talking about eBay acquiring PayPal. An older acquisition, one that kind of set the tone for a lot of modern technology acquisitions, change the valley forever, birth to PayPal, mafia. Lots of great stuff to come. But first wanted to remind you, if you have not yet and you like the show, would really appreciate a review on iTunes. Yeah, and as always, hit us up on Twitter, acquired ad acquired FM or egg Gilbert or at DJ Rosenthal. We love feedback. We do. We promise we'll listen and we'll try and make it better. We've heard rumors that audio was a little quiet in the past, so working hard to make sure that we release that appropriate listening volume now. We're iterating. We are. We are. We're a little star up ourselves. It's cute. Also, I apologize for the last month of no episode. We got some people saying, finally, a new episode. I had ACL surgery, but I'm a real human now and I'm fully off the oxycodone. So we're back in action. Should know Ben has been a real trooper here. We were recording last time. You were what, like, five days post surgery. Yeah, yeah, I was I was barely post oxycodone. But yeah, stay away from the narcotics kids. That's my advice. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder. So we knew there's a natural fit. We know the host of founders. Well, David Senra. Hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of acuomarita before we did our Sony episodes. This incredible primer. You know, he's actually a good example of why people listen to founders until acquired because all of history's greatest entrepreneurs and investors. They had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence Steve jobs talked about him over and over again. If you do the research, I think this is one of the reasons why people love both of our shows. And there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angle. So I just listened to an episode on Edwin land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin land. And I think I've made eight episodes of them because in my opinion, the greatest such a puner to ever do it. My favorite entrepreneur personally is Steve jobs. And if you go back and listen to like a 20 year old Steve jobs, he's talking about Edwin lands my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes. And the beauty of this is the people may die, but the ideas never do. And so Edwin land had passed away way before the apex of Apple, but Steve was still able to use those ideas. And now he's gone and we can use this idea. And so I think what acquires doing what founder trying to do as well is find the best ideas in history and push them down the generations. Make sure they're not lost history. I love that. Well listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders go check it out. All right. You yeah acquisition. Acquisition history and facts man, I am excited for this episode. There is so much to dive into an unpack here. So I will get through the acquisition history in fact, quickly, but first a quick note. We're going to focus this show on the first act of PayPal. The founding, the acquisition by eBay and then the first period of history thereafter. We may do a future show on the spin out that happened last year where PayPal was spun back out from eBay. And we could also do another show on PayPal as an acquirer. So they themselves had done a few interesting ones, especially recently so much so much interesting stuff with this company, but there's definitely a whole episode for us to do just with this. There's at least one more episode in the tank here. So with that, okay. So December, 1998 Peter teal, Max Levchin and Luke nosic found a company that they call confinity. And they decide to make an applications, a payment and cryptography service for palm pilots. Amazing. Like the PayPal that we used today started to be money back and forth between palm pilots. Quickly, they realized that that's a small market and they in 1999, they decided to switch over and start working on a money transfer service that they've come up with and they call the product PayPal. Also in 1999, guy named Elon Musk might have heard of him. He fresh off of founding and selling zip to starts a company that he calls x.com as an online financial services and email payment company. Domains were cheap back then. Yeah, she's x.com. March of 2000, short while later, they decide to merge. Apparently orchestrated by Michael Meritz at Sequoia, who was an investor in confinity, neither confirmed nor denied, but that's what the internet says. And Elon from x.com initially remains the CEO of the company that quickly changes and Peter teal comes back as CEO of the combined company. In October of 2000, Elon was still the CEO and he makes the call the PayPal product is doing so well that they focus all the efforts of the combined company just on PayPal. And then in 2001, they renamed the company as PayPal. Yeah, there's a classic case of Elon being Elon and doing what he does best and that's focused. Yep, no more pom pilots. And then in February 2002, PayPal goes public and it's actually this is interesting. I remember this is February 2002. This is after the crash after the dot com crash. And this was the first consumer internet company to go public in 18 months. And it does pretty well. PayPal has to close on the day of the IPO has about a $1.2 billion market cap. And then very quickly thereafter, only a few months later in July of 2002, eBay announces that they're acquiring PayPal in an all stock deal, depending on how you account for the transaction somewhere between $1.2, $1.5 billion, which was about a 20% premium to the stocks closing price the day before. So interesting and we're going to die far more deeply into this, but pretty quickly the whole team leaves within I believe this the status within four years of the acquisition over half of all PayPal employees have left. And and interested in including all of the founders of both confinity and X dot com. And interestingly, they're they're actually the history of the PayPal, the president of PayPal within eBay has been a little bit of a, I don't want to say a hot seat, but some interesting figures have gone through there, including Scott Thompson. Do you remember him, Ben? This is the guy who left being the president of PayPal to become the CEO of Yahoo. And then it was very quickly revealed that he had completely fabricated his resume. His pre PayPal resume. Yeah, I believe it was that he, I believe I could be wrong on this is that he said he had a computer science degree and it turns out he didn't have a college degree at all. Yeah, it was a whole big controversy and then ended up in Marissimaire afterwards coming to Yahoo. After him, David Marcus, who had actually come to PayPal from the acquisition of Zong, which was a payments company that he had founded was the next president and he is now running Facebook's Facebook messenger. Interesting. So yeah, and then PayPal remains part of eBay for 13 years during which sees meteoric growth. And then in July of 2015, as mentioned, eBay under shareholder pressure from Carl Iken, spins off PayPal into once again a separate standalone publicly traded company. And when they do PayPal is worth at the time when it begins trading about one and a half times the value of eBay. So it is significantly more valuable than all of eBay. And today, PayPal has about a $46 billion market cap as a public company. And the question we're here to address today is, was it a good decision for eBay to pay that call it $1.3 billion to in house PayPal given where they are today. So much to unpack and financially no doubt. Yeah, I mean, should we take this from a shareholder of eBay's perspective where we assume that they end up with one PayPal share and one eBay share. Which is what happens at the spin off. Yeah, yeah, that that feels reasonable. I think we can talk a little bit about the actual impact that it had on eBay's core marketplace business. But it's I think it'll be interesting to look at how did it feed the marketplace business and how did the PayPal business grow and would the PayPal of business have grown. Like we've seen it grow if eBay hadn't acquired it. Yeah, let's do it. Should we start it with acquisition category? Yeah, I think I think there's like a few questions that I sort of want to get to before we categorize. I am there's a few interesting nuggets in here. The biggest one that I think is interesting is eBay transactions generated two thirds of PayPal's payment volume at the time of the transaction. So here's PayPal where they finally have found product market fit because people seem to be using it all the time for this eBay thing and you know, they're not really succeeding in pure peer payments. They're getting embedded on some websites. But that business is largely fed by the fact that eBay sellers are using it on other websites that they operate. eBay's effectively their entire market segment and their distribution to get to new markets. What was the venue was mentioning to me a quote? Was it a Peter Tiel quote that PayPal was essentially an app built on top of eBay? I thought maybe I read that somewhere. Yeah, that's essentially what it was. Yeah, you know, that's a precarious position for a company. eBay was in house building a very similar solution and they were partnering with Wells Fargo. I think it was called Bill Point. And you know, in looking at kind of the way that eBay was facing decisions at this point was, okay, we love electronic payments in our platform. I think at the time of the PayPal acquisition, it was about a third. Let's see 40% of eBay transactions and Meg Whitman, who is the CEO of the time said that she hopes that figure will increase dramatically. And so eBay is highly incentivized to make these really fast electronic transactions occur. They built Bill Point in house. It's an interesting sort of business on its own clearly as PayPal is demonstrating and eBay faces this decision as, okay, one in four auctions on our platform are settled with eBay. They're pretty much entirely dependent on us. That'll work with PayPal. Sorry, so settle with PayPal. They're pretty much entirely dependent on us. We could buy them. We could build this thing in house, which they did call Bill Point. We could cut them off, but that exposes them to risk of regulatory pressure. So there's this interesting dynamic going on there where on the it's like a game of chicken. Not to mention that this product that PayPal that the PayPal team had built is really, really hard. Yeah, and among other things, like the way that they actually got classified as not a bank, but I think a money transfer service. There's a lot of regulatory things that they did that were really hard, but from a product perspective, making people feel safe sending money over the internet when the internet is still this immature thing. And then actually backing it up with the fraud detection. I mean, there's bodies buried all over the place in these PayPal-like services at the time that didn't succeed because they couldn't keep a lid on their fraud detection. Yep, absolutely. And interestingly, which we'll get more into later, the core of PayPal's fraud detection technology became the inspiration for a palantir. Interesting. I mean, I knew it was Peter Teal, but is that like other people from... Yeah, some of the core engineers that worked on fraud detection at PayPal helped start palantir with Peter Teal. And a lot of that technology came from the fraud detection days at PayPal. Interesting stuff. I mean, if you think about the types of jobs that machine learning is uniquely qualified for, fraud detection is right up at the top. Yeah. Acquisition. Let's move into category. And I think we can discuss a lot of these things and unpack them as we go. Cool. So I'll go first with category. I'm going to say business line here, but it's an accidental business line. I would... Without knowing exactly what the eBay executives were thinking at the time, I could imagine that they thought about this as a feature acquisition almost. You know, we got payments or a critical... Electronic payments are a critical part of our products and our marketplace. We've been trying to do this ourselves. These PayPal guys are doing it way better. We should just buy them and implement them as the feature on the site. And then over time, it turned out that that was actually in and of itself a way bigger and better business than eBay itself. Yeah. It's interesting. I don't think eBay had tried to get into the peer-to-peer payment space. I mean, I think, yeah, it was a very apple thing to do. It was a very... We want to create the best user experience by making sure that we control all the key components of our product. And, you know, I think... Which is crazy to back up for a minute. At the time of the acquisition, you said about 40% of settlements on eBay were being done electronically in total. So that means 60% of eBay transactions were not settled electronically. Yeah. And, you know, I was trying to figure this out. Is that mean they're mailing checks around? I have no idea. That's crazy. Yeah. It's easy to forget. I mean, isn't what, 14 years ago, what the world is like? Yeah, right. I mean, you couldn't just transfer my yield. I was in high school. People were buying beanie babies. And I was selling beanie babies on eBay. I think I made about 550 bucks. I sold a Jerry Garcia bear for 350... Oh, man. I remember that one. Yeah. And, like, an inchworm or something for 100. I think we should take a step back to and just do a little more stage setting here. Which is, you know, it's hard for us to remember. I mean, we're... You know, I would argue fairly young. I like to think of myself as fairly young. But, you know, these were the days. I mean, I was like... David, I haven't gotten a snap from you in a while. I love snap death though. You're just not on my... Oh, yeah. That must be it. But, I was in like... I was like a freshman sophomore in high school at this time. And these were the days, like, you know, right before the bubble burst when I remember my classmates trading internet stocks during breaks between classes in high school my freshman year. I remember one of my buddies buying a whole bunch of Western digital stock, which was a hard drive manufacturer. And, best hard drives are hard. Just, you know, not using a lot of hard drives right now on my computers. I think you nailed it. I mean, I think ultimately it was a control play where there was risk that was going on by PayPal, you know, having a large part of their business dependent on something that didn't control. And they wanted to bring that in-house. It was a... You know, they saw it as an accelerant to their business to make it more reliable that you were going to get paid by transacting on eBay. They were clearly building it themselves. And an opportunity to bring this in-house, you know, it was probably the right one and they took it. Now what it turned into, I think, was a behemoth that they had, you know, was not in the cards at the time. And it'd be super interesting to look at, you know, what was in Meg Whitman's head. And if they really thought that this could be something that they grew independently. Because I think there's been a lot of discussions since then, kind of, you know, hindsight is 2020 that that was the vision the whole time was to grow this new internet business where we can just transfer money anywhere all the time. And, you know, I think it was the original vision for PayPal, but they very quickly realized like, wow, there's a very specific need for when people need to transfer money. And that very specific need is after auctions on eBay. So, you know, today it's going into something tremendously bigger and I don't think it's what they saw. So I think they thought they were acquiring a feature. I think that's likely true. And it's interesting too, you know, one of the sort of aphorisms in the tech world is you can't build a big company, a really big company on the back of somebody else's platform. And this is the example that both proves and breaks the rule, you know, like PayPal became a huge company obviously and did it on the back of the eBay platform. But ended up having to sell to eBay because they were so captive to that platform. You know, what I guess this gets a little bit into the, you know, what would have happened otherwise. But, you know, how could you imagine in those, those fragile early days? I mean, remember this was 13, it was 13 years between the acquisition and the spin-off when all the vast majority of the, of the now value in PayPal was created. Could that have happened if during those early years when it was so much dependent on eBay, it had been a separate company and eBay had had, you know, could have made changes to completely kneecap PayPal. Well, I think we're definitely in the, we've moved on to the what would have happened otherwise segment now. Yes, absolutely. Officially. But it's interesting too to think about this, I'm thinking about this question of, you know, building a big company on the back of somebody else's platform. And I think perhaps you could make an argument that you can do it if you can essentially raid the platform, get all the users from it and then move, migrate them to you to your own platform. So like I'm thinking about, you know, Pinterest grew really fast in the early days for a bunch of reasons. One of them being that, I don't know if folks remember, you know, they really figured out viral Facebook user acquisition. You know, we were, I was getting messages all the time emails from Facebook of, you know, my friend, Ben, is just joined Pinterest. You know, do you want to join as well? And, and, and those user Pinterest was successfully able to migrate those users over to their own ecosystem. And now I'm thinking about PayPal back in those early days when it really was just eBay that was the primary use case. I don't think they were migrating anybody from using PayPal to settle their eBay transactions to then doing, you know, peer to peer money exchange, which is the big business that PayPal has built over time. Yeah. But would they've been able to do that, you know, successfully had they not been part of eBay? I don't know. Yeah, the companies that have done that well have been really sneaky about it and have, have like succeeded and, and flown out of being crushed like just in the nick of time. I mean, you even see like a good example is actually linked in, right? They, they grew on the, the back of stealing your entire address book and emailing everyone. Yeah. And it only cost them like what, $100 million or something a few years later when there was a gigantic class action suit for doing that. And, you know, they're a real and successful company because they, they piggybacked off that existing network. Or think about Airbnb. You know, they're, they're a bunch of articles out there and Airbnb doesn't talk about it that much. But definitely in the early days, you know, they were auto posting the Craigslist and pulling a whole lot of both supply and demand out of Craigslist and onto their platform. Yep. But again, I think the key is you have to, you have to kind of exfiltrate the users and then, and then keep them captive within your own ecosystem. Right. And I, you know, I was young at the time, but I don't necessarily remember ever, like PayPal only existed to me when I was again selling beanie babies and then Boy Scout patches on eBay as my way of transacting on eBay. It never really seemed like the purpose of it was to anything else. Yeah. Yeah. Yeah. Interesting. So, had eBay not acquired PayPal when it did. You know, PayPal was a public company. What would have happened to both companies? You know, so maybe, oh, we've just been talking about PayPal. Perhaps it would have been hard for the, you know, eBay could have made life really hard for them. What about, what about eBay? You were talking earlier about what's the value that PayPal brought to the eBay marketplace? Well, it similarly could PayPal have made life hard for eBay. It could PayPal have done something where could they've started their own marketplace attached to PayPal? Wow. Yeah. That, I mean, that seems like it almost seems far fetched. It's like, it's such a, such a different and large business. Yeah. Yeah. Yeah. I mean, I don't think PayPal had a whole lot of power over eBay. Other than if they went away, maybe people would have been kind of uncomfortable with the electronic platform that eBay was providing because it wasn't as secure yet. But I bet eBay would have figured that out pretty quick. Yeah. I mean, imagine you can, I think this is a slim scenario, but you can imagine a scenario where PayPal finds a different market besides eBay. The money transfer, one that they've grown into today, which, you know, people eventually did become very comfortable with, but were uncomfortable at the time. So they probably would have had to ride out some tough times for a while if they had moved away from eBay. And eBay maybe doesn't figure it out and figure out the fraud detection. And then people are uncomfortable transacting on eBay and they never get everyone onboarded to their own payment platform and people don't like using eBay because they still have to use an analog system. And then someone comes along and builds it all feels far fetched actually the more I talk about it, it's like they would have figured it out. Actually, before that, PayPal just never would have moved away. And that was like, that was the cash cow. That was there. Finally, they had found product market fit in this in being effectively like a vendor or a supplier for, yeah, probably a vendor for eBay. So what would have happened to eBay? I can't imagine a scenario where eBay doesn't win here. I think the only, well, not the only, but one potentially negative picture you could paint for eBay here is, you know, if you think about over the subsequent 13 years between the acquisition and the spin-off, PayPal grows so much that it is, you know, it's called 60, 65% of the entire value of the company, maybe even 70%. And certainly all of the growth engine of the company would eBay have been able to recruit and attract and retain top quality talent if it didn't have this, if it didn't have this really sexy growth business attached to it, you know, would eBay have stagnated a lot earlier? That's a great point. Yeah, I mean, I think that's predicated on the idea that like it was, it could actually that status or that state could actually persist for many years, the state of them being separate businesses and both of them needing each other, that symbiotic relationship. It seems hard, I mean, we're biased by history and what actually happened here, but it does seem hard to imagine these two companies existing separately. Yeah. Until you get to the point where you are now where PayPal is really a large and viable business with eBay only being a minority of it. Yeah, I mean, in my opinion, if it's like, here's what happens, if eBay doesn't acquire PayPal in, you know, July to October of 2002, eBay acquires PayPal for a different price at a different time. Yeah. I don't think that it's interesting to think whether that would be higher or lower. Yeah. Yeah. It could go either way. That's true. All right. Should we move on to tech themes? Yeah. Yeah. I think that's interesting. Yeah. I've got, well, I really want to dive in here. And this is somewhat related to the acquisition, but I think we would just be remiss if we didn't really talk about, I mean, for me, this is the PayPal Mafia. You know, I mean, I think you could make a very valid argument. It might even be hard to argue against a thesis that this single event, this acquisition of PayPal by eBay was the catalyst to create everything that we now know of as Silicon Valley. And the technology startup ecosystem will unpack this, but just the the chain of events set in motion by this acquisition is really incredible. When you think about the people that were at PayPal and there's there's a great there's a great article on the tech Republic, we'll link to it in the show notes about it's titled believe how the PayPal Mafia redefine success in Silicon Valley. And many of the many of the founders of PayPal talk about how you know, they were all these incredibly young ambitious people and they've they've just been through this in super difficult but exhilarating experience at PayPal where they had to figure out a whole bunch of stuff that had never been done before, like we were saying it was really hard. And then they made a bunch of money and then they showed up at eBay and it was like complete culture clash and they hated it there and they all left quickly, but they were all still really young and ambitious and wanted to prove themselves. And so you just go down the list of companies so I'm going to talk about just talk about two sets of companies here. The first are companies founded by PayPal alums linked in Yammer, Yelp, YouTube, Palantir, SpaceX, Tesla and then Reddit was not founded by YouTube alums but was the CEO of Reddit for a while, you shine long was a YouTube alum or a PayPal alum. And then and then so that's companies actually founded by this group of people and then companies other companies in Silicon Valley and related environments where PayPal, Mafia alumni were very early investors or advisors or instrumental in starting the company Facebook, Uber, Airbnb, Square, Pinterest, Stripe and it's good on and on and on. So you're talking practically, practically every company, every major company that Silicon Valley has produced since that acquisition can trace its history either directly or indirectly to to the PayPal Mafia. Yeah, I mean, I made a joke to do before this show I was reading up and I was like, huh, we could get a guest for this but all the people that were there are so insanely rich that why would they ever bother to go on a podcast. The funny thing is like it's not from it's not from the money they made from PayPal. No, I mean people got rich like people got 100 million are rich but or at least like high tens. Well, don't forget there been a lot of delusion that PayPal, I mean they'd raised I believe $180 million I think that includes the capital they'd raised in the IPO. They'd been a merger of companies. There are lots of founders. I mean, there's no way that individually any of those people became hugely filthy rich after that acquisition. Yeah, it was it was more about what a whole bunch of really smart people recognized and did after that and opportunities that they saw because of the way that they grew PayPal. I mean, PayPal actually this is this is a good segue into what I was thinking about. PayPal sort of invented a lot of the paradigms that we see in startups today. Absolutely. The first one they were the first business to do the whole if you invite a friend you get free money thing and it's fun. It's like sort of free money now like oh cool if I invite a friend to Uber I get $15 in my Uber account. PayPal literally gave you a dollar $1.5 they literally gave you money it was like if you they would email their friends and like congratulations you have free dollars. They invented viral acquisition. Yeah, so yeah, I mean we were talking I was just talking about the company founding and investing part. Let's talk now about the actual strat at you know tactics that are just now common place. You know they basically invented growth hacking so viral user acquisition embeds. You could embed PayPal was one of the first if not the first app that you could embed in other web apps and you know think and then think about you know a direct company outcome progeny of PayPal was YouTube. And how did YouTube succeed you know it was embeds so funny I have a good story here I built a website for my buddy nils nils if you're out there listening. Good name you where we were selling t shirts and I was a super early web developer and I didn't know a lot of the best ways to do an online store front and the way that we built out this t shirt website was by generating a unique page. And I just literally embedded the little PayPal form on every single t shirt page that was a sub directory on our site and it worked I mean just completely worked and I didn't have a storefront like we weren't using that for inventory management. And so many t shirts but at the end of the day like we had a working website by a bunch of PayPal button embeds and that's how a lot of little storefronts worked for a long time. After that as they were growing their business off PayPal for a long time I think that's what a lot of people did we accept paypal or yeah sorry off eBay. I have one other thing too. I'll take this one the interesting thing about payments are something that we see in advertising today a parallel to make between the two we've been talking a lot over the past 10 episodes about the rise of Facebook and Google as ad platforms and stealing a lot of the advertising spend away from non social ads and so display ads and understanding that brand advertising in particular and online advertising the whole as a winner take all. Where you really need scale before you can rival the big guys now because there's such excellent targeting that you have to be able to choose any bucket that could be incredibly narrow you know tap dancing 24 year olds in Washington name Ben and not name Ben but that that that that could find those people right right and have a deep enough well and so so those are businesses that have a relatively high fixed cost and require massive scale to make the business actually work. Payments are sort of the same thing I mean PayPal really needed massive volume before they could have wide adoption and they have an incredible flywheel where every person that has a PayPal account can be a sender or a receiver of money and becomes comfortable using the platform. So the first time they get someone to send or receive money once they make everyone else's experience more valuable so it's a scale platform where you know it has completely razor thin margins right on on payments and really large fixed costs especially in those days where they were building data centers and they need huge volumes to make it work and that's something that they saw with eBay and they they did really well. And that that belief which may have been completely crazy and as we were talking about perhaps wouldn't have worked had PayPal remained an independent company but that belief that you can get to that scale to make that vision or reality you'd be insane you'd have to be completely insane. And you think about the startups again that we were just rattling off a bunch of names in sort of the generations that followed PayPal the ones that became really really big are ones that made that same bet you know and one you know Uber right like imagine before Uber if you had painted a picture of a world where they're going to be enough drivers in cars that are members of your platform. And enough users consumers of transportation on your platform in any given geographical area not just San Francisco but like you know the middle and nowhere in you know some non a man you know and a country not in the US that you could push a button and that driver would be right around the block and show up you know a minute later. You would have gotten laughed out of the room yeah yeah and it's the same thing I mean you can imagine pre users pitching PayPal and it's like well it's the way for anybody to send anybody money and someone says what do you mean like well when everyone has PayPal like everyone is super comfortable. It's a recursive argument yeah and you know it's the same recursive argument that lots of people like completely fail at right you hear this at every like first time startup event right like someone who goes and the only world they imagine is the one where their service is pervasive and they talk about like why doesn't it just exist you know you you could hear I don't know somebody ever pitched Uber but like you could hear someone pitching Uber you know at 10 years ago at a startup weekend and say well yeah it's like why doesn't it exist where anybody can just pick you up at any given time because you just see every single person has this in their car and can give each other a ride. You're like how on earth are you going to get there and the magic of PayPal is they figured out a good there. Well I think this is this is a great say again to the other thing I wanted to talk about here about the PayPal Mafia that I think might again you can make an argument might be the most impactful thing that they've contributed to the startup ecosystem. Even over and above all the other things we've talked about there's a really really great video on YouTube of course of Jim gets who's a partner at Sequoia great great venture capitalist talking speaking at the business school at Stanford which has a fond place in my heart and he's he's talking about what makes great companies that Sequoia would invest in and he talks about the PayPal Mafia and he says you know one thing to him that really sets PayPal alumni apart from other people in the ecosystem is they learned at PayPal this ability that willing both willingness and ability to iterate really quickly with a product to put a product out there that is very far from finished and iterate like mad on it based on true market feedback and he says you know you're not beessing themselves about like what the actual signals from the market are and that's how you can create a recursive you know a platform a recursive thesis like that you know is you can't start with like the end state you got to start with a very very small idea and then work on a bit by bit by bit based on market feedback. And God that market feedback thing is is so hard where every line of code that you write or every little piece of product thinking that you do that then gets solidified in any form be it physical or design or code it's like a burden you carry yeah from that point forward where the more you've created the heavier it is and the less you feel agile to move away from it and so yeah. I just have tremendous respect for people companies like this that can write something and put it out there and understand market signals quickly and within days say that's actually not the thing and like rep have it out and put a new piece in and say that's not the thing either and then like just keep repositioning because I think that you know we just get emotionally attached to what we make and people really emotionally attached to their vision and if you if you can just keep responding it's a really incredible and really valuable skill and I think that's the the skill is holding both of those things to borrow a phrase from my wife she loves this phrase holding both of those things in your head at the same time one is absolute dedication and commitment to a vision of the future that you see you know your recursive these vision about the future and to be a lot of other lack of bias or or or you know predetermined thought on on how you're going to get there and be willing to take you know the random walk that that you need to take of product and product market fit discovery to get there yeah that's a challenge it is time to grade it yeah I think we can grade it so this is a really interesting one to grade because you know one of the themes that I think has been pretty pervasive throughout the show that we've done is that the best acquisitions that we've given the highest grades to have been ones where you know the choir follows the mantra of you know leave the team alone it's all about the people let them do their thing you know don't mess with the magic you know we heard that with Pixar where was always the reverse it was like Pixar coming in and and and leaving the Disney people you know are getting letting the Disney get back to feeling the creative magic you know with Instagram bungee that at freeze was talking about this is a total opposite like eBay comes in and really mucks around and everybody leaves and I wonder if that's just characteristic of the time period I mean other other acquisitions that we've like ripped apart have that characteristic to from that time period where the it's all about integration it's all about great we like your product now it's time to you know beat move to the beat of our drum and I think it's really only recently that companies have figured out that leave it alone the the quote unquote Facebook style acquisition there's another great quote from from David sacks in the tech republic article where he's talking about the the first meeting that happened after the acquisition that you know integration meeting and eBay team you know gets all the key people from paypal together in a room they book a three hour meeting and they show up with like 137 page PowerPoint deck and the paypal guys are like a we've never had a three hour meeting in our lives be what is PowerPoint and at the end of it David sacks says man we're going to have to if we stay here we're going to have to create a whole new department just to do PowerPoint just so that we can communicate with these guys oh man talk about a product that they needed and a team that was just completely incompatible with our culture and so what's what's interesting about grading this one is like breaks all the rules and yet creates huge huge amount of value for eBay eBay shareholders for the entire you know Silicon Valley startup ecosystem as a whole you know I think taking all of this into account it's almost like you know I think I'm going to net out at like a B plus for eBay on the acquisition you know like pretty great I mean created a huge billions and billions of dollars worth shareholder value but you know had they handled it differently could they have created realized much more value yes but also if they've done that we all would be so much poorer for it you know because of the the Exodus that happened because of the paypal mafia we have so much else in the ecosystem yeah I mean while I look at this way like when we're talking about so I see you I appreciate those things I hear you I feel very appreciated right now yeah okay let's look at this from the lens of eBay as a company right like was this good for eBay as a company to make this acquisition normally I would try and frame this in terms of like well let's look at you know Apple acquiring authentic and being able to do touch ID sensors in this way that is additive to their existing product in a way that is a of a much greater value than anything authentic could do on their own right like something where it's it's integrating into the product and creating you know synergies between the two products such that they can take their core product and make it you know multiple of the acquisition better in this case like I don't know that it added tremendously to eBay's marketplace and actually there's a point that Keith Robloff points out where they had visibility into eBay's growth and they predicted that eBay's growth was going to plateau and that they actually needed needed to make the sale because they were like we don't have a different growth strategy yet and people are going to be concerned I were a public company people are going to be concerned about us if our was solely dependent on eBay and and their growth is plateauing what we've seen you know eBay eBay is a indeed a major you know major company they from 2004 they were doing three point two billion dollars in net revenue today they're doing 17.9 like they've grown they're they're they're doing great but they aren't a mega behemoth and I don't think that their growth can be attributed to PayPal however we're looking at this through the lens of a person who owned PayPal or a eBay stock at the time of the acquisition like was it good for eBay as a corporation to do this holy crap absolutely absolutely eblig eBay grew like a weed and I grew to be larger than their existing business so you know as a company it was a killer bet because effectively they acquired a product that gave them an entire second business line when they're their initial business line wasn't going to be the thing this is an A plus like this is yeah it's just it's like you know if you were to if if our projection let's assume it's correct that eBay executives at the time weren't thinking about this as a business line were thinking about it as a you know feature technology acquisition then yeah maybe my my you know B plus rating would hold but in terms of like you know this is the actual financial outcome right massive home run not to mention all the antelope benefits to the whole ecosystem as we've been talking about yeah yeah the eBay acquisition was generally good for the world right is generally good for the United States in terms of GDP for what's good for general motors is good for America and that the truth. Perhaps I hope so yeah yeah I mean I I'm trying to think of other examples where yeah it's it's almost like like how we rated the Pixar well no because I actually did feed back into the the Disney business to reinvigorate that make it great again what other examples can you think of of a company that was flying high at the time made an acquisition and then it turned out that company's core product was like you know not going to be the thing for that company and then they acquired like a mega giant yeah to be mega giant that they yeah and they certainly propelled it there I don't think eBay would or I don't think paypal would have done this on their own I think that at some point like we talked about they were going to get acquired yeah it's interesting I mean gosh maybe Instagram I mean Jerry still out on that yeah although to check in on our previous numbers on that they I think it's yet another analyst report I don't think we have hard numbers on this but it's predicted to do three billion dollars in revenue this year I just I think you know on a billion dollar acquisition a couple years later yeah that was a great buy yeah not without its challenges though I mean you know no it's interesting that we could do an episode at some point on Snapchat on the failed acquisition of Snapchat we should do that that would be a fun one yeah and we could compare and contrast Instagram and Snapchat you could we could but until then you want to do the carve out oh yeah carve out let's do it you want to go first I do I do so uh since we know you guys like listening to podcasts I felt like I should pick a podcast and this week was an incredible episode of the Bill Simmons podcast to follow up my my recommendation to to read the ringer he had Chris Saka on oh nice and oh was it's good it was so great yeah because it bills just like killer journalist I mean like he has a written interview with Obama I think it was in GQ that's just awesome like like Bill can talk about sports you can talk about politics you can talk about technology and him interviewing Chris Saka is just spectacular I think I was a few minutes in and I was just completely completely roped in it then talk about everything from like Chris's meetings with Kobe Bryant where Kobe is investing in startups and like Chris put him through the ringer like no no pun intended like Chris really like it was like okay cool like celebrity athlete who wants to get into investing and like there's so much interesting stuff revealed like I didn't I have to go do more research on this but like Kobe actually doesn't sleep like Kobe they reveal is like a dude that I'm sure you maybe sleeps like a few hours or something but like the way that it describe it is like the dude you know he says his day life and then all night he was staying up reading and and trying to like learn and go through the exercises that of everything that Chris gave him so is this Kobe segment they talk about the founding of Uber and like the jam sessions when they're sitting around and how all that fell into place talk about early days at Twitter about bets that Chris made about when Chris was dirt poor and then started day trading and made four million dollars the day trading stocks and then lost it all and then went into massive debt and then the whole it's just like it's an awesome episode so I'll link it in the show notes but the the Bill Simmons podcast featuring Chris Saka is excellent excellent I'm going to have to give that all listen yeah so my carve out for the week caveat that I'm only about a third of the way through it but is a book came out a couple years ago that had been on my reading list and I finally got around to thanks to the magic of audio books book called anti fragile by Nassim Talib I just finished the blacks one oh nice so this is my first Nassim Talib book and I want to I want to I want to read the rest of them after this it is excellent what do you think the blacks one is good like a lot of books like that I felt like the first half covered it yeah but like really interesting I highly recommend it also well what's interesting not having read the blacks one yet but a couple things about anti fragile one Nassim is like he's like a baller he's hilarious I mean he's incredibly smart but he writes like he's also got like a giant ego and writes like this is a guy who just like does not give a crap about anything and he goes through quite a bit in blacks one too yeah but what's interesting is he actually so so the whole thesis of anti fragile is that there's this you know it reminded me a lot of zero to one and a fittingly for this episode a Peter Tiel idea about you know the idea of secrets that there are these things about the world that are like fundamental laws that govern it that just like people don't understand or realize and so Nassim talks about this concept of anti fragility that like we know about things that are fragile and for Lenny people thought the opposite of fragile was robust things that you know are durable and not don't break when exposed to stress but it turns out that's that's just like a neutral thing like the opposite of fragile is something that gets stronger when exposed to stress and so like an example would be the human body to a certain extent you know you exercise and you get stronger example another example would be would be also within within biology you know the concept of vaccines where being exposed to a small amount of of a toxin or a poison or a virus will then make you stronger against against the virus anyway and if you start looking at the world this way there are all these examples of this and and and and then yet another example bringing back to Nassim's ego he says actually information is anti fragile if you think about it and he's like what's the best way to to get your message heard by as many people as possible you should tell everybody it's a secret and and then you should try and make it as controversial as possible and you should try and get as many people as possible to hate on you because then people are going to hear about it and it's going to be really interesting and people are going to want to read about it and that's how you get disseminated and if you want to make sure your information does not get disseminated you want to be like really agreeable and and tell everybody it's really important and then nobody will will read you and so interesting said it's probably a very uncommon thing because we as humans I think it's a defense mechanism and it's something that we used to stay alive but we don't like it when people don't like us and we don't like it when you know people want to lash out against us so we're very disincentivized to make enemies and and think about even like your car about well the the PayPal guys and your car about all these people you know Chris Saka, Kobe Bryant, Phil Simmons, all the PayPal Edo Mafia they were not only did they not care when people didn't like them they embraced alright everyone thanks for listening if you get a chance we'd love love love if you could rate us on iTunes and have a great day we'll see you next time