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Marriage of convenience becomes divorce of necessity

Sabri Ben-Achour Sep 30, 2014
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EBay and PayPal are going their separate ways. It’s an amicable parting though. 

They don’t need each other like they used to. PayPal is getting fewer and fewer new users from eBay — 25–30 percent today, dropping to 15 percent three years from now, CEO John Donahoe told CNBC. Ebay needs some flexibility as it tries to grow its share of e-commerce. 

Activist investor Carl Icahn launched a high-profile campaign to split the companies nine months ago, heckling eBay’s leadership and preparing to insert board members of his choosing. He was rebuffed in the short term, but eBay has clearly come around. 

“We are happy that eBay’s board and management have acted responsibly concerning the separation — perhaps a little later than they should have, but earlier than we expected,” Icahn wrote in a statement

“They have to grudgingly admit he is right,” says Paul Sweeney, senior media analyst for Bloomberg Intelligence.

PayPal wants to be the way everyone pays for everything: online and at the store. But so does Square, Softcard, Google and now Apple Pay

“The eBay folks and PayPal folks looked around the marketplace [and] they saw a market that’s continuing to change rapidly and continuing to get more competitive,” says Sweeney.

If PayPal has to consider eBay every time it makes a decision, it’s going to get tied down.  

“They also recognize they were potentially missing out on other business opportunities by being part of the bigger company,” Sweeney says. “By being a stand-alone company they can be a little more nimble, innovative, and perhaps pursue new opportunities.”

There is enormous money at stake. Proximity payments — paying for things using your phone — are blowing up, says eMarketer analyst Bryan Yeager. 

“This year we expect proximity payments to reach $3.5 billion — doubling over last year,” Yeager says. “We expect it to next year reach $8.59 billion, and by the end of 2018 hitting a little more than $118 billion.”

Even so, Yeager says that’s a drop in the bucket when you consider how much money gets put on credit cards.  

EBay also needs to free up cash to work on its own issues; there’s competition from Amazon and maybe even Alibaba. Mergers and acquisitions may even be in eBay’s future, the CEO hinted to CNBC. 

The companies will split late next year. But they’ll still be friends.

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