* PayPal also eliminating about 120 contractor positions
* EBay to take pretax restructuring charge of $15 mln
* Moves designed to head off competition from start-ups
By Alistair Barr
SAN FRANCISCO, Oct 29 PayPal 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
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 PayPal
acquired last year.
"You have a lot of duplication of roles with nine product
groups merging into one," he said.
Wall Street considers PayPal the crown jewel of eBay because
it is growing fast and profit margins are expanding. But in
Silicon Valley, PayPal is considered a slow, bureaucratic
behemoth - a reputation that has made it difficult for the
company to attract and retain smart software engineers and
PayPal needs such talent more than ever because a slew of
payments start-ups, including Square, Stripe and Dwolla, are
developing rival services and products that are beginning to
catch on with merchants and consumers.
"PayPal has been on a very strong growth trajectory, but
it's facing a period of disruption ahead," said Kevin Hartz,
chief executive of ticketing start-up 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 PayPal and owns a small stake in Square now.
Still, Hartz said PayPal's new executive team is the right
one to overhaul the company's culture and approach.
Marcus said he is reorganizing PayPal 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
PayPal headquarters in San Jose, 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 PayPal 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 PayPal users and updated quickly, he said.
Hill Ferguson, PayPal's new head of global product, and
Chief Technology Officer James Barrese 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
The company launched PayPal 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
"We are using that model for how we work going forward,"
PayPal 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 Eventbrite
using PayPal are "jolted" over to PayPal's website to complete
the transaction. That can reduce "conversion," or the percentage
of customers who complete purchases, he said.
Marcus said PayPal will be working to fix such issues.
"We want to do what's right for merchants and customers.
Neither wants to be re-directed when they pay," he said.
Marcus, Ferguson and Barrese hope their changes will attract
software engineers and designers to the company again. That may
Soon after eBay acquired PayPal 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
That talent drain at the top of PayPal, combined with a lack
of incentive to innovate further, meant top engineers often went
"They aren't a very strong magnet for talent right now,"
said Elad Gil, a Silicon Valley investor who owns stakes in
Stripe and Square. "It's possible that may change."
from Yahoo! Inc recently, joining Bill Scott, former
director of User Interface Engineering at Netflix Inc.
Ed Sexton came to PayPal in September as a lead engineer
after working at Apple Inc and Jive Software Inc
. Sexton had previously worked at eBay for about five
"I heard from my colleagues that there was an insurgence of
new management at PayPal, some of whom I worked with in the past
when I was at eBay," he said.
One attraction was PayPal's recent embrace of Hadoop, an
open-source technology 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 PayPal."