Friday, April 22, 2011

Why PayPal is interested in Where

Yesterday, eBay and PayPal announced its acquisition of Where and many felt the reason was to strengthen PayPal's play in the mobile commerce space.

While that is certainly true, the strategic play is to expand PayPal's customer base to include small offline merchants--a much larger market than its current customer base consisting primarily of small online merchants. PayPal's growth and differentiation has been driven by small merchants who were selling online--either on eBay or their own website. Yet the ecommerce industry has begun to be dominated by large players such as Amazon who can provide consistent and simplified buying experiences. Luckily with the recent stunning growth of companies like Groupon, a completely new opportunity opened up for PayPal.

One way to conceptually think about a company like Groupon, which is driving online sales to offline experiences, is as a bank. Groupon is collecting money from online consumers and sending money to its offline merchants. PayPal wants to be that online-offline bank for every small merchant.

The Where acquisition is a great extension of how PayPal will to continue to serve its core customers, small merchants, but in a whole new (and much larger) market -- the offline world.

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