PayPal restructuring means lost jobs
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| San Francisco
PayPal聽is cutting about 325 jobs as part of a major reorganization by its new president, David Marcus, designed to regain an innovative edge and head off rising competition.
PayPal, the online payment pioneer owned by eBay Inc , said on Monday the full-time jobs would be eliminated as it combines nine product-development groups into one. The company is also cutting about 120 contractors.
EBay will take a $15 million pretax restructuring charge in the fourth quarter related to the job reductions.
PayPal, which started in the late 1990s as a scrappy Silicon Valley start-up, had almost 13,000 employees earlier this year.
"In a large company, at some point you reach the law of diminishing returns when more people means slower," said Marcus, who used to run mobile payments start-up Zong, which聽PayPal聽acquired last year.
"You have a lot of duplication of roles with nine product groups merging into one," he said.
Wall Street considers聽PayPal聽the crown jewel of eBay because it is growing fast and profit margins are expanding. But in Silicon Valley,听PayPal聽is considered a slow, bureaucratic behemoth - a reputation that has made it difficult for the company to attract and retain smart software engineers and designers.
PayPal聽needs such talent more than ever because a slew of payments start-ups, including Square,听Stripe聽and聽Dwolla, are developing rival services and products that are beginning to catch on with merchants and consumers.
"PayPal聽has been on a very strong growth trajectory, but it's facing a period of disruption ahead," said聽Kevin Hartz, chief executive of ticketing start-up聽Eventbrite.
"We just haven't seen a lot of innovation that's needed for them to continue their leadership," added Hartz, who was an early investor in聽PayPal聽and owns a small stake in Square now.
Marcus said he is reorganizing聽PayPal聽to help engineers and designers develop new products and services more quickly - to keep up with new rivals.
Marcus has organized demonstrations of rival services at聽PayPal聽headquarters聽in聽San Jose,听California, and screen shots of competing products line the walls of some corridors.
"It's important to face the reality of the situation," Marcus said. "In some cases, we don't have better products and we have to do something about it."
In the past, it took聽PayPal聽six to nine months to develop and launch a product, partly because there was a long application process to assemble the required teams of employees.
After products were released, engineers and developers moved on to other projects. That meant any problems with new products took a long time to update and fix, Marcus said.
Marcus' new approach involves giving smaller groups of engineers and designers the freedom to coalesce quickly and release early versions of products that will be tested with a small sub-set of聽PayPal聽users and updated quickly, he said.
'JOLTED'
Hill Ferguson,听PayPal's new head of global product, and Chief Technology Officer聽James Barrese聽oversee the new, single-product development group.
"We had multiple different product teams coming to me with their ideas and requests, which was crazy," Barrese said. "We brought that all together and can make much swifter decisions. Hill and I sit in a room and decide to do something and it's done."
The company launched聽PayPal聽Here, a credit card processing service for small merchants that competes with Square, earlier this year. The product was initially developed by a group that consisted of one product developer, two engineers and two designers.
"We are using that model for how we work going forward," Ferguson said.
PayPal聽is now assembling a small team of engineers and designers to change the company's core online checkout service, Ferguson and Marcus said.
Hartz said customers who pay for tickets through聽Eventbrite聽using聽PayPal聽are "jolted" over to聽PayPal's website to complete the transaction. That can reduce "conversion," or the percentage of customers who complete purchases, he said.
Marcus said聽PayPal聽will be working to fix such issues.
"We want to do what's right for merchants and customers. Neither want to be re-directed when they pay," he said.
TALENT MAGNET?
Marcus, Ferguson and Barrese hope their changes will attract software engineers and designers to the company again. That may be tough.
Soon after eBay acquired聽PayPal聽in 2002, some of the founders and early executives, including Peter Thiel, Reid Hoffman, Jeremy Stoppelman, David Sacks and Max Levchin, left to start other businesses such as LinkedIn Corp, Yelp Inc and Yammer. Thiel and Levchin are among investors in聽Stripe聽now.
That talent drain at the top of聽PayPal, combined with a lack of incentive to innovate further, meant top engineers often went elsewhere.
"They aren't a very strong magnet for talent right now," said聽Elad Gil, a Silicon Valley investor who owns stakes inStripe聽and Square. "It's possible that may change."
Douglas Crockford, an expert in JavaScript, came to聽PayPal聽from Yahoo! Inc recently, joining聽Bill Scott, former director of User Interface Engineering at聽Netflix听滨苍肠.
Ed Sexton came to聽PayPal聽in September as a lead engineer after working at聽Apple聽Inc and聽Jive Software Inc聽. Sexton had previously worked at eBay for about five years.
"I heard from my colleagues that there was an insurgence of new management at聽PayPal, some of whom I worked with in the past when I was at eBay," he said.
One attraction was聽PayPal's recent embrace of Hadoop, an聽open-source technology聽for crunching lots of data quickly.
"They are looking to staff engineers for this technology. That brought a lot of comfort to me," Sexton said.
Sexton's LinkedIn page now says, "NO JOB OFFERS PLEASE. Currently having the time of my life at聽PayPal."