The fundamental construct of the digital economy is that those who control demand will win the future. Because supply is unbounded, value now rests on companies who control demand. The best feature in Facebook is that it has users. The future winners in fintech will be those who control demand, not just the supply of APIs. If you fail to control demand, you have no future in the digital economy.
The Internet has normalized all digital properties. We begin all searches on Google because Google takes us to the best supply (the newspapers or websites). Magically, power has moved to Google which does not supply the contents but it does one critical thing well: it brings order in a world of too much supply. What happens is that Google has normalized all websites who are now competing to be discovered by Google!
On that construct, when Facebook enters any category, it has a chance because on the day of launch, it has millions of users already. PayPal understands that also – to win the future of finance, it needs users, not just relying on making the best financial tech products.
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That is the motivation for that planned $45 billion acquisition of Pinterest, a “buzzy digital pinning site that allows shoppers to save images to digital pinboards and at times purchase from sellers directly”. With this deal, PayPal has another platform to spread its codes and tax users and merchants on transaction fees.
In Harvard Business Review, I have called this a double play strategy, around a “one oasis”. Provided Pinterest grows, PayPal will capture value by processing all the transactions in the platform. Largely, PayPal is paying for a new market. It has to do so because the old model of fintech is now crowded with Stripe and other emergent startups like Afterpay which links directly to bank accounts, disintermediating companies like PayPal.
Digital payments and online shopping go hand in hand. Now PayPal is trying to unite one with the other.
The Silicon Valley digital payments giant has offered to buy Pinterest, the digital pinboard company that enables e-commerce within its app, in a deal valued at about $45 billion, according to people with knowledge of the discussions. PayPal has offered around $70 a share for Pinterest, the people said, a 25 percent increase from Pinterest’s opening share price on Wednesday.
If completed, the deal would be the largest in the consumer internet industry over the past decade, topping Microsoft’s $26 billion purchase of LinkedIn in 2016 and Salesforce’s $27.7 billion acquisition of Slack last year, according to the data service firm Dealogic. It would also be among the largest deals for PayPal, which was spun off from eBay in 2015 and has snapped up payments companies globally.
Buying Pinterest would underline PayPal’s interest in moving further into e-commerce. In 2019, PayPal agreed to pay $4 billion for the coupon payment platform Honey, which shows people discounts while they shop online. Through Pinterest’s app, people can save images to digital pinboards and buy goods directly through what are known as “buyable pins.”
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