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PayPal Inc. on Wednesday lost its top executive just as the e-commerce processing giant has embarked on an ambitious strategy to handle transactions for brick-and-mortar stores. The departure of Scott Thompson, who has been PayPal’s president since 2008, also represents the second loss of a key executive at PayPal in less than a year.
Thompson will take over Sunnyvale, Calif.-based Yahoo Inc. as chief executive effective Jan. 9, the struggling Internet search pioneer announced Wednesday morning. The announcement and an accompanying conference call with stock analysts confirmed rumors that began swirling around Silicon Valley Tuesday night. Yahoo has been without a chief executive since firing technology veteran Carol Bartz in September after she produced disappointing revenue growth.
John Donahoe, chief executive of PayPal parent eBay Inc., San Jose, Calif., said in an internal message to PayPal employees that he will take over the president’s position at PayPal on an interim basis. In his message, which eBay posted publicly, Donahoe professed “shock” at Thompson’s decision but promised PayPal “will not slow down” in its pursuit of “an enormous opportunity,” an apparent reference to PayPal’s moves in mobile payments and toward the physical point of sale.
Thompson’s permanent successor remains a critical question mark, as does the probable impact on PayPal of the payments and technology veteran’s departure. A PayPal spokesperson did not address the question in an e-mail message to Digital Transactions News, saying only that Donahoe would be “working closely with the PayPal leadership team.”
Observers, however, say eBay and PayPal can’t afford to dither. “They’ll try to find someone pretty quickly,” says Aaron McPherson, practice director for financial services at IDC Financial Insights. “There’s no question it’s a loss for PayPal.” McPherson says an outsider is likely to take over, given PayPal’s strategy to process for physical merchants, an initiative both Donahoe and Thompson have pushed hard and that went into high gear in 2011. “They’ll look for someone with more of a retail background,” McPherson notes, mentioning processors such as First Data Corp. and Chase Paymentech LLC as possible sources of PayPal’s next leader.
With Thompson’s decision to move to Yahoo, PayPal has now been rocked by the departures of two major executives in the past eight months. In April, Osama Bedier left the company to take a position with Yahoo rival Google Inc. Bedier, who had been a key manager of PayPal’s highly successful open-platform push, has been Google’s point man on its high-profile Google Wallet mobile-payments initiative, which launched commercially in September. In 2010, another former PayPal executive, Stephanie Tilenius, went to Google. In May, eBay and PayPal sued Google, Bedier and Tilenius, alleging theft of trade secrets and violations of employment agreements. Google denied the allegations.
It remains unclear how, if at all, Thompson might apply his payments expertise at Yahoo. A one-time executive with Inovant, Visa Inc.’s technology arm, Thompson will likely have his hands full turning around Yahoo, which has steadily lost ground in the Internet search business to competitors like Google. Still, Yahoo has some history in electronic payments as well as payments assets. Until it shuttered the service in 2004, it operated a person-to-person payments platform called PayDirect for four years, and in 2006, it was awarded a patent in P2P payments. Somewhat ironically, it forged a marketing agreement with eBay in 2006 that called for PayPal to be a preferred payment service on Yahoo’s online services.
Thompson’s experience in developing a cloud-based payments system at PayPal could be valuable to Yahoo, says McPherson. Cloud services rely on information stored on central servers rather than locally stored data. “One challenge for Yahoo is they don’t have a good cloud strategy,” McPherson notes. “They may be looking at Thompson as someone who evolved PayPal into more of a cloud-based service and who has a strong technology background. Potentially, [Yahoo] could be a competitor in cloud payments.”
For his part, Thompson balked during the conference call at charting any particular course for Yahoo, pleading that he hasn't had a chance to understand the company as thoroughly as he'd like. “You’re going to have to give me a little bit of time,” he said to the analysts on the call. In response to a question about mobile technology, however, he called mobile “a fantastic opportunity” for Yahoo, without giving any details.
As of mid-day Wednesday, Yahoo was trading at $15.87 a share, down 41 cents from Tuesday’s close. Meanwhile, eBay was selling at $30.12, down $1.22 per share.
