David Sacks explains that PayPal’s success came from innovating not only on product but on distribution: early viral email invites, leveraging eBay as an involuntary platform, and embeddable payment widgets. He links these distribution tactics to the later success of many PayPal alumni startups (the “PayPal Mafia”), arguing that scrappiness around distribution—having to find first users from zero—helped produce multiple unicorns compared with large firms like Google that have guaranteed distribution.
Questions this video answers
About 220 pre‑IPO PayPal people.
Seven post‑PayPal unicorns.
Chapters
I'm going to end with sort of this question, what was in the water at PayPal? And I think one of the really key things was that PayPal innovated not just on product, but on distribution as well. PayPal was one of the first products to use a viral strategy. So you could email money to somebody even if they didn't have a PayPal account, and then they would get an email saying, click here to get your money. And then when they click, they would sign up. And so the product was sort of viral from day one. We were one of the first products to use a platform strategy. We kind of turned ebay into an involuntary platform for our applications, which is, you know, a great tactic for getting distribution. You go somewhere where the users already are. And in this case, PayPal is able to get this kind of explosive growth by bootstrapping off of ebay. And then I think the third sort of tactic that we used, and this sort of goes along with the second one, is we were one of the first companies to use embed. So you could actually embed a PayPal payment logo or payment form on your website or auction, and that would drive users back to PayPal. And again, this is very commonplace today. But back in the early 2000s, this was like a really new technique, and it was one that I think some other PayPal mafia companies were able to use very effectively, most notably YouTube. So if you think about the way that YouTube embedded videos on MySpace and other sites in the early days, and that's what really rocketed it. That was a technique that was sort of pioneered at PayPal. And so, you know, again, all of these techniques today are commonplace. But in the early 2000s, we were one of the first companies to do them. Again, that innovativeness that we were innovating, not just on product but on distribution as well, is something that all the PayPal mafia companies have done. There were about 220 sort of pre IPO PayPal people here in management, and they produce seven sort of post PayPal unicorns. If you look at a company like Google, which has something like 20,000 employees, literally 100 times more employees, there aren't seven sort of unicorns created by ex Googlers. And you know, it's a really interesting question why? I think this sort of scrappiness around distribution is a big part of the explanation. When you work at a big company, distribution is guaranteed. Google already has hundreds of millions of users. And so when you think about creating a product at Google, I mean, Google understands hits and misses. I mean, they understand good products versus bad products. But the one thing they really don't have to pay tremendous attention to is this problem of you're an entrepreneur working in a small team with very few resources. Right? I mean, the one thing they have are tons of resources, tons of users. And you've got to figure out from zero, how do I get my first user, how do I get the second user? How does that grow to 10 users? How does that go to 100, then 1000, then a million? They never have to think about that. They've got guaranteed distribution of half a billion users. And so I think that scrappiness about distribution is one of the key reasons that there's been sort of so many kind of PayPal mafia companies. I think it's interesting thing to think about as you guys create your own startups.
