PayPal’s biggest competitor on Craigslist

November 30th, 2005

Few people would argue that within the next few years, offline classified ads will be all but extinct. There are lots of obvious reasons why online classifieds are much better. Posting an add to sell a swan statue on Craigslist provides instantaneous publishing, exposure to a potentially limitless number of buyers, and it’s completely free. It’s a nearly perfect example of the powers of the Internet.

Undoubtedly, unless the item is free, the large majority of these listings will close with some kind of payment transaction. The majority will be offline and done the old-fashioned way. When I sell on Craigslist, I don’t take checks. I’m sorry, but it’s a cash only deal if you come to my house to buy a swan statue. Most people feel the same way I do. That’s why PayPal’s biggest competitor on Craigslist is still cash.

But, for all the people that are selling on Craigslist, that do accept online payments, how many accept PayPal? It’s easy to figure out. Divide the number of listings in the For Sale category (it was 113,723 this afternoon) by those that advertise “PayPal” (I get 1377) and it works out to around 1%.

And the winner is… cash!

Ouch…

November 22nd, 2005

We’ve been on the fence lately, considering which type of web statistics package to buy for Coinbridge and our new web application. I’ve always considered buying Click Tracks. Their UI looked much better than similar products, and their functionality seemed competitive. So, when I discovered that Google bought Urchin (which I never thought we could afford) and began offering it as Google Analytics, for free, I was shocked. I’d imagine the team at Click Tracks was too. Imagine how it would feel if Google bought one of your competitors and began offering their service for free, to millions and millions of people. I’ll tell you how it would feel. It would suck.

PayPal and Verisign

November 22nd, 2005

You probably heard about PayPal’s move to purchase Verisign for $370 million a few weeks ago. Here are a few quick thoughts on this topic:

Deployment strategy is still unclear to me

It’s easy to imagine how PayPal will deploy itself to the Payflow Link crowd, but it’s harder for me to see a clear strategy for how PayPal plans to add itself as a payment option to all the Payflow Pro merchants. The Verisign merchants that are using Payflow Pro represent the higher quality segment of the Verisign customer base, but they are also going to be harder for PayPal to reach. Unless the merchant is using a hosted, 3rd party shopping cart — which would be unlikely for the larger merchants — PayPal is going to have to find a way to persuade these merchants to integrate the PayPal API’s into their existing websites and applications. The amount of time and programming to do this is not nominal. Expect to see PayPal persuade merchants to do this via some kind of pricing incentive (e.g., Payflow Pro customers who agree to integrate PayPal’s Express Checkout will get a break in price for the Payflow Pro functionality).

Good boost for the PayPal brand

This deal is great for PayPal’s brand. Over the five years I spent working at PayPal, talking to prospective merchants, it’s clear to me that one of PayPal’s biggest problems is the misconception that it’s only for small businesses. I’ve spoke to literally hundreds of merchants who perceive of PayPal in this way. Like the Dell deal, aligning the PayPal brand closely with Verisign will be a good boost for PayPal’s brand perception amongst successful online merchants.

PayPal required?

How draconian will PayPal’s deployment strategy be? If PayPal wanted to be really aggressive, it could tell Verisign merchants that if you want to process cards with Payflow Pro, you will be required to offer PayPal to your customers as well. This I think is unlikely, but not out of the question.

More on Yahoo Payments

November 21st, 2005

Following up from my earlier post on Yahoo Payments, here’s an interesting story that just bubbled up the other day. Could this be a first step?

Pay By Touch and pin-based debit

November 19th, 2005

I visited Pay By Touch’s offices in San Francisco yesterday, and spent time with some of the team there. I am fast becoming a fan of the services that Pay by Touch and iPay (their division that handles online payments) provides. In addition to credit card and ACH processing, iPay plans to deliver an internet, pin-based debit solution in the near future. It’s the same thing you’re used to using at the supermarket POS or at the gas pump, only soon you’ll being seeing it on the internet. The processing costs for mechants will be much lower than credit cards, and just a bit more than ACH. So, in a way, this offers the convenience and speed of a credit card transaction, at nearly the cost of ACH.

It will be interesting to see how consumers react to being asked to enter their pin number when paying with their debit cards online. Even more interesting though, is how internet pin-based debit could be used to spur innovation within the PSP (payment service provider) space. For anyone that wants to build a payment system similar to PayPal that relies on a huge network of stored value accounts to reduce costs and reliance on interchange, pin-based debit could become a killer way to fund stored value accounts. Unlike ACH which takes days and can’t guarantee funds in real time, pin-based debit could get your stored value account funded and ready to go within seconds. Currently, this technology is still in development for internet transactions, and it could be a little while before operating standards are established and we’ll know how much creativity and shakeup will be possible.

Usability research starts today

November 17th, 2005

I’m conducting usability sessions this afternoon and I debated whether I should spare the time to post a quick note, considering all the preperation I still have to do. Our office is a mess, I haven’t completed the task sheet or even gone to the bank yet to get the cash I’ll need to pay the participants. It’s okay though. My excitement level is so high that I feel great, and am not worried about the details (ususally I always am). We’ve spent the last month working hard on our first product, and today we’re going to put it in front of real users, and have then take it for a spin. Actually, we’re going to have them pretend to take it for a spin. Today’s research is designed around a paper prototype. See yesterday’s post on how we use this method at Coinbridge.

Yahoo Payments?

November 16th, 2005

Everyone is talking about Google’s upcoming payment product. Will it squash PayPal or will it just sell widgets on Google Base? I wouldnt’ know. With all the hype about Google’s payment strategy, no one seems to be talking much about Yahoo anymore. Paydirect was buried a couple years back, and since then, I haven’t heard the word “Yahoo” and “payments” in the same breath. With Google and Yahoo competing for product parity on so many other levels, I can’t help but wonder if we might see a deal between Yahoo and PayPal one of these days. PayPal has got to be working on a strategy to fend of Google payments if indeed it does become a serious threat. I wonder if Yahoo as a massive channel partner could ever be part of that strategy?

Do you use enough paper?

November 16th, 2005

Every designer I know, has a unique design process. Paper prototyping is an important part of my design process, and if you don’t use it, I recommend you start. I love this methodology because it has tons of benefits at almost no cost.

My paper prototyping process is as follows:

Sketch out key screens
I start by sketching out key screens, using pencil and paper, keeping things very rough. I don’t worry about the high-level architecture, I just sketch out whatever seems to be the most important couple of screen designs.

Create hi-fidelity screen designs using Adobe Illustrator
I use Adobe Illustrator to create polished screen designs. Not wireframes. I’m talking good-looking screen designs in full color. Vector art programs are great because you can scale things indefintely and easily reuse widgets.

Print designs in color and post them all over the walls
At Coinbridge, the walls of our offices are covered with print outs. Not single print outs, but stacks of print outs (I’ll explain this in a minute). Too many designers limit the power of the human mind to connect things, by managing information in linear stacks (think power point). When I have a hundred 8.5″ X 11″ screen print outs on the wall, I can easily scan and interconnect data. There are limited ways of doing this elegantly on screen. (Note: Check out Jef Raskin’s work on “zooming” if you want to learn more about innovation that’s been done in this area).

Tape revisions on top of earlier designs — create a history
Don’t throw away your old designs. Just tape new ones on top of them. As time progresses you will find a living history of your design direction. It’s helpful and fun to see how your thoughts have progressed.

Create fictional personas and scenarios
I practice this method very informally (lots of people do it very seriously). Basically, it’s role playing. Create a persona that matches your user base, then create a few tasks that you have to complete. Walk through your designs and start discovering all the scenarios you neglected to design for!

Refine continually. Repeat.
We’re designing a web application right now. We’ve been working on it for about 3 weeks (full time). At this point we’ve probably got half a pound of paper on walls.

Dell accepts PayPal

November 14th, 2005

Have you heard? Dell now accepts PayPal as a payment option on their website. Considering that Dell is one of the largest online retailers in the United States, this could bring PayPal some strong volume and healthy margins. If you’re interested in learning more about how PayPal makes money, than read on. Otherwise, you may find the following extremely boring.

Since the average price of a computer package from Dell is over $1500, it’s likely that PayPal users will be funding their transactions via their bank accounts. That’s good news for PayPal. PayPal’s margins vary depending on the funding mix of each payment. Ach and balance (stored value) payments produce a good margin, while credit card funded payments bring in a comparatively low margin. High dollar transactions (like a laptop) increase the likelihood of an ach funded transaction based on PayPal’s credit card funding limits, and Dell transactions are probably considered to be fairly low risk for PayPal. A low risk payment with a high dollar amount, that’s funded via ach is good business for PayPal. Perhaps even more important, is the credibility Dell could bring to PayPal’s brand. More on that later this week… Phew, that was pretty boring…

Make yours twenty nine

November 11th, 2005

I counted how many steps it takes (pages you have fill out) to signup for a new PayPal account and get approved for PayPal’s Website Payments Pro. Thirty. If you work for a payment processor and consider PayPal merchant services as a competitor, I’ll give you an easy way to differeniate yourself and make your product better — make your signup process a mere twenty nine pages long.

If for some reason you would like to see all thirty screens, without actually having to go through them for real, drop us a line.