Why PayPal Lost Its Way with Developers, and How It's Coming Back

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PayPal's John Lunn doesn't mince words when talking about the work that needed to be done to repair PayPal's developer programs.

"Just go back a bit in time, toward the end of 2012 and early 2013, we were losing touch with developers," says Lunn, the senior director of developer relations worldwide. PayPal was making its pitch to startups much too late in the companies' lifecycle, and that PayPal's application programming interface was "poor" only added to the challenge, he says.

In the year since, PayPal has worked hard to catch up by hosting hackathons and engaging in outreach programs. It also got a significant boost by parent company eBay's recent $800 million purchase of Braintree, which had better success in courting developers. As eBay CEO John Donahoe said last year, "We were better off taking Braintree's [technology] and merging ours into it."

The goal of all of these efforts is to get PayPal in front of developers substantially faster, Lunn says.

"Startups go from zero to hero in about eight months. We have to talk to them early, to make sure they are using our products in a way that will appeal to consumers," Lunn says.

To improve its developer acumen, PayPal has made moves designed to spot payments innovation at various stages—new technology ideas, new ideas for companies, and new payment applications for existing companies.

PayPal now operates a series of developer events, called hackathons, around the world. "The hackathons involve people who are building something that may or may not become a business, but it's an opportunity to engage with developers and give them feedback that may make get their products to a point where they are able to fund," Lunn says.

To spot high-potential startups that are further along in their progress, PayPal offers transaction fee cuts and other incentives through a program called Startup Blueprint. Through this program, PayPal also works with incubators, which guide new companies through the early stages of development.

The entrepreneurs who work with incubators have often quit their jobs to start a business. "The incubators take a cut of the business, so it's an investment program," Lunn says, adding the incubators also include mentorship and coaching.

For PayPal, the incubator partnerships help sift through the glut of ideas to find new companies that have a good chance of success. PayPal can then approach the new company about payments processing options or other business opportunities.

"It's tough to get into an incubator—they only take a small quantity of new ideas," Lunn says. "So we can invest the time and effort."

PayPal's Startup BluePrint has expanded to more than a dozen partners in its first few months, reaching an addressable market of more than 5,000 startups. It has signed up about 100 startups thus far.

"Since we invest in startups all over the world, who aim to become global businesses, accepting payments in lots of different countries is always a challenge," says Vincent Jacobs, an associate at Kima Ventures, one of Startup BluePrint's partners and its first venture capital firm.

Startups often have to work with local banking partners or payment service providers, requiring engineers to build the integrations necessary to accept payments, Jacobs says. "By using PayPal or Braintree, the startup can get started much faster with simple integration and can start accepting payments from anywhere in the world immediately," Jacobs says.

PayPal's Braintree acquisition, which closed near the end of 2013, brought fresh talent on board to support PayPal's efforts. In January, the Braintree team merged with Lunn's group.

Uber, the car ordering service that was also a client of Braintree, is a good example of how Braintree has added developer heft to PayPal, Lunn says, noting that Uber recently added in-app payments through PayPal.

"It's a good user experience. You don't have to do anything. You just get out of the cab right away," Lunn says. "We want to make payments seamless like that."

The $800 million PayPal spent for Braintree was the price of PayPal's execs realizing "they had lost their way with developers," says James Wester, a research director for global payments at IDC Financial Insights. "In the end that $800 million will probably be a good deal since Braintree has built a great business in making payments easy for developers."

The best part of that acquisition is that PayPal has not substantially changed Braintree, Wester says.

"Developers are developers, not payment experts. So for PayPal to be hands-off with Braintree means there's less likelihood that unnecessary complexity gets introduced into Braintree's methods. It lets them continue to offer developer-friendly payments," Wester says.

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