Why Price Matters
June 20, 2000. That was the day we started charging customers to use PayPal and I was a nervous wreck.
The company was six months old, we were growing rapidly and we didn’t want to do anything to disrupt that. We initially thought that we could make money on the float, the money held in the PayPal system as customer balances, but it soon became clear that wouldn’t work. We had to get people to pay us for processing payments.
At first, we only charged the highest-velocity users, mainly small businesses that sold a lot of merchandise on eBay. Still, part of me worried that they would just stop using PayPal.
Our users kept at it, of course, and PayPal’s revenue took off as a fee-based service. We increased prices five times over the next 18 months and started charging fees for things like cross-border transfers. The ease of using PayPal always made it worth it for customers.
What gave us confidence through all this was a simple observation: If you can’t make money, you can’t build an enduring business.
We were going to have to start charging at some point and we concluded it was better to get it over with and fail fast than to spend years of our lives building something only to learn later that no one was willing to pay for it.
That moment will come at a different time for every company. But it will come eventually. If PayPal had started charging too soon we might have lost customers to one of our competitors. At the same time, the tech bubble burst soon after we started charging and having a dependable revenue stream allowed use to raise money in one of the worst periods in Silicon Valley history.