eBay recently announced that its fast-going division PayPal would be spun off as a new company in 2015. This new idea was proposed by an investor, Carl Icahn. In February he was trying to convince the board that “PayPal’s a jewel and eBay is covering up its value.” However, at that time John Donahoe, the CEO of eBay, saying that “Ebay has accelerated and enhanced PayPal’s success, allowing it to be more aggressive, bolder and to take more risk than if it was separate.”
So why after 9 months, Donahoe make concessions? I think there are several reasons:
Once be released from eBay, PayPal can focus on payment. After Apple jumped into the mobile payment game and Alibaba’s extremely successful IPO (who also has a mobile payment business) the competition in this category becomes a rat race. In order to keep the competitive advantage, PayPal should be more concentrate.
The split of eBay and PayPal also means that PayPal can start to cooperate with eBay’s competitor, which obviously will expand Paypal’s market. Meanwhile, Paypal can find a more outstanding leader to be the CEO because no one wants to lead a company under other company’s control.
Another reason is that With PayPal gone, eBay will save a lot of the cash flow so that they can invest this money in growing its bread and butter business and better compete against Chinese e-commerce giant Alibaba.
Based on the analyze above, we can see that the split of eBay and Paypal is an advisable decision.
Reference
Bertoni, Steven. “Ebay And PayPal To Split: Carl Icahn And Elon Musk Wish Comes True.”Forbes. Forbes Magazine. Web. 9 Nov. 2014.