posted on February 13, 2002 09:07:42 AM
Napster never tried to make money. Paypal is making money and lots of it.
They converted free accounts to paying accounts. Napster tried to fight making licencing deals; Paypal has licencing in a couple states and is applying for one in others.
posted on February 13, 2002 09:57:36 AM
The two companies are very poor comparisons...
Paypal has a very sound revenue model. Take a good look at their numbers in their prospectus and the point cannot be argued. Even with the enormous start up costs it has incurred its first 2+ years operating, the gap that keeps it from profitability is rapidly narrowing. In a few short quarters, the company could experience sound revenue growth and could be profitable. All it has to do is keep on doing the business it's currently doing. Napster was a fad and had no foreseen revenue stream in it's operation. They were basically handing out free cyber-cassette players that everyone thought was cool and were using others intellectual property to fuel their growth. not at all similar...
There are many that speculate and post that Paypal, in aggregate, is operating as an illegal bank or otherwise. This however, has not been completely substatiated. Most of the hickups that Paypal has experienced relate to the need for licenses in individual States. These are procedural issues and these licenses are not expected to be unduly withheld. They just need to be filed for and received. There are also some issues that need to be addressed in New York and Louisiana that are a bit more serious and Paypal is going to have to address these concerns on a individual basis. Again, it is not known what the impact of these individual States concers will be.
It's way premature to count Paypal as a winner or a loser. Those of us that write on these boards should approach their comments as speculation, rather than fact. With some of the posts that have been seen to date, you'd think we have some people "in the know" on this board, and I think it is quite doubtful that this is the case.
posted on February 13, 2002 11:35:55 AM
Paypal has lost money since its inception. Napster did try to make money through ads and other services.
The comparison is dead on.
Paypal's revenue model is not sound. Their rates are artifically low due to being unregulated and unlicensed and losing millions of dollars.
If they had to abide by the regulations their rates would not be competitive to banks and CC issuers.
Facilitating the giving away of free music offers little difference than facilitating the transfering funds, and holding deposits and paying interests all outside the bounds, of the law.
Paypal's costs will sky rocket as they come under the scruntiny of the law and regulators. They will end up with the same cost structures as C2it and others.
There is nothing in Paypal's business plan other than being unregulated and thereby cheaper, that doesn't exist with banks offering the same services.
What is it in Paypal's business plan that is any different or proprietary ? NOTHING, except running an unlicensed and unregulated bank/money transfer service.
You're right about Paypal's licenses not being unduly withheld. BUT Paypal will have to do business in compliance with the regulating entities. It generally requires a whole dept to meet compliance for all the states in other companies. Banks keep lawyers on retainer in every state they operate in as well as a compliance dept. This will not only increase employment costs, but it will also impact the service itself. It will have to be re-vamped to meet the requiremnets of all 50 states. This includes how and what records are kept, who they are forwarded to, how fraud is handled and prevented, and what information must be used to open accounts. Try opening an account at a bank with only an email address.
I have a friend that works in the tax compliance office for a national fast food chain. There are millions spent in attempting to be in compliance with all 50 states. It's great job security though.
Before it is over, Paypal will be in exactly the same cost structure as banks/money tranfer agents offering the same service because its only claim to fame is being unregulated.
There is yet another caveat. Paypal will also have to come under the Federal acts that prevent money laundering and foreign transfers. A big plan by Paypal is to expand internationally. This will be very interesting since 9-11 as the Feds have been closing down international money transfer businesses for not keeping the proper records or being unlicensed.
Paypal offers nothing in its business plan other than being unregulated.
posted on February 13, 2002 12:34:05 PM
Nonsense. If the business model wasn't sound and the company was truly being viewed as operating illegally, there's no way the big underwriters would touch this company and bring it forward in an IPO. We're talking Morgan Stanley, Bear Stearns, William Blair, etc. Ever heard of these guys?
You have very strong opinions on Paypal, which is fine, but to represent your viewpoints as fact isn't fair or correct. Your assurtions are not supported with anything other than opinion, not fact. Just as the rest of us, you have know idea of what is in store for this company, so please don't reprsent that you do.
I've read the contents of the prospectus and am fully aware of the potential risks that this company faces as it moves forward. I've also looked at the numbers and they speak for themselves. To compare Napsters ad revenue to Paypal's fee structure base is absurd.
If you are so sure of your convictions, short the stock when it opens. Perhaps then, an opportuity will present itself where my shares can be purchased to cover your short position. With a 20% oversubscription on this IPO, there will not likely be much float.
posted on February 13, 2002 02:24:29 PM
The "big underwriters" could care less. They make their money on the IPO transaction, not how viable the business actually is. In fact the IB arms of these underwriters twist the arms of their analysts not to give any negative comments on the companies they underwrite.
I have heard of all of those "big guys" - BUT SO DID THE ENRON INVESTORS. How naive can you be ?
There were companies with worse "business plans" than Paypals and got huge IPO funding- buy where are the now ? Napster got millions from the "big guys" in anticipation of it becomming a legal service. But strage thing, when Napster became legal, it had no business. Same scenario with Paypal, once regulated, it will be no cheaper than C2it or the other services.
The "revenue" from Napster and Paypal are not at issue, however, the "business plans" are nearly identical - offer a service hoping to escape regulations and laws by virtue of it being an "internet" company.
Paypal's "success" and business plan stems from its ability to cheaply offer unregulated money transfers, questionable client identification practices, and accepting interest bearing deposits.
The revenue growth that Paypal has generated is meaningless when the business plan it used in all liklihood can not continue. It like saying you're going to invest in a drug dealer because of his revenue growth and he hasn't been caught yet.
As far as shorting the stock, I am beginning to wonder if it will ever be offered. There has been yet another lawsuit filed.
posted on February 13, 2002 08:45:46 PM
The underwriters certainly do care about the financial condition of the company and must make sure that the prospectus sent to potential buyers properly reflects the true condition of the company. There are liability issues if inaccurate or improper information is present or pertinant information withheld.
Your comparison of Paypal to Enron is just about as ridiculous to that of Napster. I'm quite sure that Enron's business was solid and legitimate before it went public and the problems arrised long after their offering.
By the way, the stock prices tomorrow and begins trading on Friday.
The world is doomed and the entire Nasdaq is destined to fail. Run for your lives, as we are all invested in illegal business operations...
posted on February 13, 2002 10:57:33 PM
I personally find it funny that there are not more Pay Pal disaster situations posted here. Recently we have heard many from our customers and our valued friends.
Like this one;
2/4/02 Pay Pal restricted our account. They provided no information other than an ambiguous email stating that our account was restricted and there was an email with a link requesting information.
We looked for the email, to no avail. There was no email.
2/4/02 We emailed them requesting information. No response.
2/5/02 We emailed them requesting information. No response.
2/6/02 We emailed them requesting information. No response.
2/7/02 We emailed them requesting information. No response.
2/8/02 We emailed them requesting information. They responded with an even more ambiguous email stating that there were customers who complained of items purchased and never received. Their claims needed to be resolved before the restriction could be lifted.
2/8/02 We emailed them in response. We stated that we had all the tracking information and all the proof of delivery information. All we needed to know was what they needed and where to send the information. No response.
2/9/02 We emailed them requesting a response. No response.
2/9/02 We filed a complaint with www.squaretrade.com. As of today 2/14/02 they have never responded to Square Trade either.
2/10/02 We emailed them requesting a response. No response.
2/11/02 We emailed them requesting a response. No response.
2/12/02 We emailed them requesting a response. No response.
2/13/02 We emailed them requesting a response. No response.
In case anyone would like to know more. We are a verified, high volume seller. We have over 500 completed payments. We are an Ebay Power Seller with a 98% customer satisfaction rating. We do everything by the book, we only ship to the confirmed address. We comply with all the Pay Pal rules and regulations. We are supposedly covered by the sellers protection policy.
Pay Pal has restricted our account, refuses to answer our emails. Basically, they not only treat us as if we were criminals. They also have atrocious customer service which makes us feel as if we are not a valued customer. Actually, it makes us feel much worse, but we will not diminish this forum by using vulgar language.
The last time we checked Pay Pal was making money by taking payments. If they continue to treat their customers in this manner we are quite sure they will find that more and more of them will continue to switch to other services.
We will be signing up with www.C2it.com It would appear they are actually offering a good product. They are offering anyone who signs up $10.00 FREE when they send money for the first time. That means my customers can get a $10.00 discount on their purchases. We are quite sure they will love that. They are also offering $5.00 FREE to the people that assist in signing these new customers up. We are sure that $5.00 will add up as it did with Pay Pal when they needed customers. C2t is also FREE. FREE to all, everyone! Just like Pay Pal was when they needed customers. That means we'll not have to pay the Pay Pal fees. That will most likely save us even more money then the the FREE $5.00 they are offering.
Pay Pal is a great service that believes they have the market sewn up. They believe their is no choice so they can just continue to treat their customers like garbage and we'll just keep coming back. Well, guess what? It isn't true. There is competition. We're quite sure that people will go where the service is best and the fees are the least. You wouldn't pay $1.50 for gas and pump it yourself when the station across the street is pumping the gas for FREE at $1.45. Would you? We didn't think so!
A word of advice for everyone out there in Internet land; SWEEP YOUR ACCOUNTS NIGHTLY! Don't get caught with a bunch of money in some service when they decide to pull the plug. CUT UP THE BOGUS PAY PAL CARD! Keep the money in the bank, where there are rules and regulations and the FDIC standing behind it. Where they must follow a procedure, where they can not just tie up ALL of your money just because they feel like it. DON'T LET THEM CATCH YOU WITH YOUR PANTS DOWN!
Keep in mind the savings and loan industry never saw it coming and neither did the people who lost a small fortune.
PS- We are not Pay Pal haters. We hope the IPO goes great and they make a fortune. WE ALSO HOPE THEY FINALLY LEARN THAT WE GOT THEM THERE AND WE DESERVE THE RESPECT OF A RETURN EMAIL AND SOME QUALITY CUSTOMER SERVICE!
posted on February 13, 2002 11:26:12 PM
What I don't understand is this........
The paypal credit card, not the paypal debit card is offered through Providian, one of the largest credit card providers in this country.
If paypal were to deepen their partnership with Providian when these licensing problems would vanish since through Providian they would be licensed in all 50 states. Providian obviously has money and plenty of it to take paypal in its entirety under its wing.
If C2it were to have its own IPO they would be covered by all the licences and approvals CITIBANK has in all 50 states.
Even though Ecount is hardly used by anyone they do exist and are roughly the same concept as paypal plus a bunch of other small time wannabe's doing the same thing. Why aren't all of these companies looked as a whole sector rather than just rip apart the largest......these smaller companies should at least be mentioned in these articles on the news sites.
posted on February 14, 2002 07:44:24 AM
The problem for Paypal is not "getting" the required licenses.
The problem is Paypal meeting the compliance regulations of all 50 states to get the lincenses.
The ONLY reason Paypal has garnered so many users is because of the unregulated way Paypal runs its business.
If Paypal had to follow the regulations that banks and money transfer agents have to follow, their costs will go way up.
Watch Paypal fees start to climb as they attempt to meet compliance for all the various lincenses and regulations.
There are also certain structures and procedures that must be in place to stem fraud at banks and money transfer services, this includes money laundering.
If anyone was permitted to run an unregulated busines on the internet that has a heavily regulated B&M counterpart, they will be successful in taking market share.
Napster did the same thing. Facilitating free music with no copyright regulations or licenses. More music was moving through Napster than many large retailers were selling.
So what happened to Napster when it complied with all copyright regulations ? It ceased to exist.
If Paypal is forced to come under money transfer and banking regulations for all 50 states, it will be no easier nor any cheaper to use Paypal than any of the other payment services.
Do you realize the costs involved in meeting compliance of all 50 states ? It generally takes retaining a law firm in each regulatiing jurisdiction. Not cheap by any measure.
They way Paypal works will also have to change. Either Paypal will have to program in all 50 different regulations into their software so that when Joe from NY pays Sam in Texas the transaction is in compliance with both jurisdictions - a huge task. The alternative is make the service so that it reaches the lowest common denominator regulations of all jurisdictions.
posted on February 14, 2002 08:29:40 AM
Reamond, your comparison of Paypal and Napster is right on. Both were successful because they skirted or ignored legal issues. For both, it was only a matter of time before they came under legal scrutiny. No one knows what will become of Paypal. But I think it is a risky investment.
One obvious problem with Paypal is that even under the best of conditions, Paypal's business depends on eBay. All its eggs are in one basket. At any point, eBay could ban third-party advertisements from auction pages, and then Paypal would simply disappear from the radar scope.
The only people to use Paypal are small businesses or individuals. That means eBay. Ninety percent or more of Paypal is tied up in eBay business. (You can bet eBay is eyeing that big chunk o' cash.) Big retailers have their own secure credit card processing online. Even mere speculation that eBay might prohibit Paypal could be enough to trash the stock.
I read an article about the founder of Paypal (whose name I disremember). His pattern was to build startups and then sell them before they became profitable. Is Paypal any different? The days of the wild west dot-coms are over. And now Paypal is stuck between a rock and a hard place. Paypal may actually have to turn a profit in order to be successful.
posted on February 14, 2002 08:38:15 AM
me thinks computerboy works for PAYPAL. i cannot wait for them to be regulated then hopefully they will be able to stop changing their TOS as they please and freezing people cash when they feel like it.
I can only see Paypal market share lessen and lessen when companies like C2IT that are far more professional pop up. I appreciate C2IT had start up headaches but can you see them holding your money for 60-90 days whilst doing an investigation?
posted on February 14, 2002 09:09:13 AM
Heck, I like Paypal and have used it extensivly without incident.
But there were millions that loved Napster too. But as soon as I read about Napster and how it worked, I knew it was doomed.
The banking and credit card industry looks at Paypal in many regards as the RIAA looked at Napster. Paypal is offering a product/service that banks offer only without the regulations and licenses, therefore without the cost structure.
However, I think the banks learned from the Napster case. The banks are probably looking to buy Paypal out on its way down and legitimize it rather than allow it to be completely destroyed as was done to Napster.
posted on February 14, 2002 10:13:58 AM
That scenrio may very well play out and I would anticipate that the stock would have a positive reaction if this were to occur.
I have no idea what the stock is going to do when introduced. However, I believe there are some scenerios, from a stock investment perspective, which will allow for some strong appreciation from the directed share price. A buyout scenrio is one.
In the end, there will be a need for an online payment service to faciliate payments for the many small businesses that exist online. From the sheer numbers of subscribers that these various online payment services have in their customer portfolios, it's a very large and significant number of companies/users. One or perhaps several of these companies is going to service this niche, whether it be Paypal, C2it, Billpoint or any entirely new venture. It's my personal belief that with the head start Paypal has in the marketplace and with their 12 million + users, that they will somehow find a way to continue to be one of the major players in the online processing game.
The above makes some sense, doesn't it? I'm not looking to fight a war on this board, but am instead trying to sort through and lay out possible things that can occur for this company and this online payment industry.
posted on February 14, 2002 11:19:29 AM
I am posting a message to this thread so that I can receive the emails of future posts by other contributors to the thread. I don't have the time to look at this Board very often. However, I think this topic is an important one and I want to continue to read what posters have to say about it.
Computerboy, when I come across your posts in other topics I tend to agree with what you say. This time, though, I do think you need to rethink your position on investing in Paypal stock. Perhaps gains can be made with some frenzied day trading in the stock, but if you invest for the long term my instincts tell me you will lose a lot. There are solid companies to make investments in right now, where you can make significant profits, companies that are undervalued in today's market. You need to consult with a reliable broker. For all of the reasons Reamond and others listed, plus more, it is doubtful if investors (including large pension funds and such) will push up Paypal stock in the long term. It is against the current mood of the market, which is to be suspicious of the reported financial papers of corporate entities.
I hope this thread can continue with serious discussion when Paypal goes public and the value goes up and down. To those who may say it is not an eBay topic, I disagree. Ebay sellers and buyers who use Paypal can be forewarned of any impending disaster by watching what happens to the stock. If the stock plummets over the next month, then it is time to focus on the use of Billpoint, C2it and other bank suppoert online payment services. Hopefully, the posters to this thread will discuss such issues.
posted on February 14, 2002 12:46:10 PM
I'm not betting the ranch, so have no fear. I've just grabbed a few hundred shares and am going to roll the dice and see what happens. If Readmond is right and I lose it all, it's no big deal. I'll just view it as a bad crap roll on a cold dice table.
The vast majority of my portfolio is in long term growth stocks and I have a planner who manages most of these investments. I like to play in the market myself, so I have "gambling money" that is used to fund this more aggresive activity.
posted on February 14, 2002 12:51:32 PM
I've never been expensive to employ, as I've always worked for myself. The thought of working for someone else gives me a sick feeling in my stomach.
posted on February 14, 2002 12:55:14 PM
must be nice me being a meer cretin afraid i have to wake up every morning and bear the commuted traffic to go to work
posted on February 14, 2002 01:02:02 PM
The traffic is inescapable...
I have a 30 minute drive to my office each way and use the time to peacefully drink coffee and gather thoughts. It's actually become medicinal over the years and I look forward to it. Except in SNOW.
posted on February 14, 2002 01:22:40 PM
I can not see the banks allowing Paypal to go down the tubes like Napster.
The regulations will hit Paypal and hit it hard. Imagine Paypal being considered a bank in one jurisdiction and a money transfer agent in another, a hybrid bank/money transfer agent in another, and completely illegal in yet another. How can they continue universal service ?
These are the same problems that net vendors have forwarded to prevent interstate taxation for internet sales. It is an impossible gordian knot to figure out how to operate with all the different jurisdictions. Paypal's lincensing could also mean taxes and fees to the states.
Paypal stock could see a bounce from banks if/when it ever opens. But it is in the long term interest of the banks for Paypal to get hit by the regulators and head down before they swoop in. The more bad news the cheaper the stock, the cheaper the banks can buy the company.
posted on February 14, 2002 04:58:04 PM
Hawaii has also filed a suit and a Class action lawsuit is in the works. Paypal may also be in violation of its Paypal Money Market fund Prospectus by involuntarily redeeming user shares to cover unauthorized transactions. The Prospectus clearly states that the SEC (www.sec.gov) doesn't approve of the involuntary redemption of shares and the Prospectus also states that shares will only be redeemed to cover authorized transactions. All of these things are looking to cause Paypal alot of problems. Its amazing what happens when arrogant CEOs call their customers "squeaky wheels". I'm sure when all is said and done the cost of oiling the "squeeky wheels" would've been a lot less than shuting Paypal down. My question is what do they expect when they let internet scam artists register stolen credit cards to "verified" user accounts without crosschecking the name and address on the card to the original verified name and address on the account and then indiscriminately chargeback funds from sellers after the sellers have already shipped the goods? Paypal was a great idea. Too bad they think the customers who make them the most money are expendable.
