To retain its competitive advantage over its competitors, PayPal has announced a planned layoff of some its employees. Company president David Marcus said Paypal is better off letting slashing 325 jobs than retaining them.
The e-Bay-owned online payment firm announced last Monday that it needed to eliminate the jobs amidst the company’s effort to combing nine product-development groups. About 120 contractors will also be cutoff.
PayPal’s mother company, eBay, will shoulder a $15 million pretax restructuring fee for the December quarter in connection to the job reductions.
PayPal, founded during the late 90s, revealed earlier this year that it had about 13,000 employees.
David Marcus quipped: “In a large company, at some point you reach the law of diminishing returns when more people means slower.” Marcus was the former head of Zong, a mobile payment company acquired by PayPal last year.
“You have a lot of duplication of roles with nine product groups merging into one,” he added.
Wall Street analysts look favorably on PayPal as eBay’s crown jewel due to its fast expanding profit margins and fast growth. However, PayPal is seen in the Silicon Valley as slow-moving bureaucratic giant making it difficult to retain talented software designers and engineers. Such talents are hard to find especially that rivals are springing up like Stripe, Dwolla, and Square. These competitors are beginning to attract attention of consumers and merchants around the world.
“PayPal has been on a very strong growth trajectory, but it’s facing a period of disruption ahead,” Kevin Hartz, the head of ticketing firm Eventbrite, noted.
“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.
Marcus’ main aim is to ensure that PayPal maintains its lead over its competitors by helping software engineers and designers develop innovative products and services faster. TO drive this aim, Marcus organized demos of services of his company’s rivals at the company’s headquarters in San Jose, California, providing screenshots of competing products posted on wall corridors.
Marcus said: “It’s important to face the reality of the situation. In some cases, we don’t have better products and we have to do something about it.”
Previously, it took about six to nine months to create a product partly due to a long bureaucratic process to assemble a team of employees.
After the launch of new products, the teams would be scattered or moved to other projects, causing longer time to fix or update existing products.
Marcus plans to create smaller groups of designers and engineers so they can form work on products more quickly. Their new products will then be released to a small number of PayPal users for testing purposes.
Antoerh challenge facing PayPal right now is to make the company more attractive to talented software personnel. After eBay acquired PayPal, some of the company’s early executives and founders left including Max Levchin, David Sacks, Jeremy Stoppelman, Reid Hoffman, and Peter Thiel. Some of them became the founders of other successful online services like Yammer, Yelp Inc, and LinkedIn Corp. Thiel and Levchin are now investors of PayPal rival Stripe.
The said talent drain affected PayPal for a time but the stigma of its being a huge bureaucratic behemoth never seemed to have left the company.
This is one of the hurdles of the new management led by Marcus. “They aren’t a very strong magnet for talent right now,” Elad Gil, an investor for Stripe and Square, said. “It’s possible that may change.”
Ex Sexton also came aboard last September after he left Apple Inc and Jive Software Inc. He also worked for eBay previously.