When I learned that my good friends over at Mixpanel, a real-time analytics service, decided to take out a billboard on highway 101 to declare war on Google analytics, I began thinking about whether picking a fight with an 800 pound gorilla is a prudent strategy for startups. It’s certainly not a novel one; It’s not even the first time a startup has picked a fight with an incumbent using signage on Highway 101 (check out Box.net’s billboard, which pokes fun at Microsoft SharePoint for being so complicated).
Startups, by definition, are disruptive, so it’s no surprise that they’re usually trying to dislodge leaders in their respective industries. But I’m not (just) talking about building a better product and stealing customers; I’m talking about openly and publicly picking a fight with an 800 pound gorilla as part of a company’s overarching marketing strategy.
Virgin Chairman Sir Richard Branson is probably the best known example of one who explicitly designs marketing strategies around attacking incumbents. “At Virgin”, he says, “we challenge the dominant players in a range of industries where we believe the consumer is not getting value for money.” This strategy has worked particularly well for Virgin, which specializes in entering markets where the big players have gotten fat and lazy and the consumers are tired of being neglected and mistreated. Virgin America is a shining example, since most of the big guys really suck.
My favorite Virgin story is the time Branson drove a British tank into Times Square and crushed a bunch of Coke and Pepsi cans to promote the launch of his new soda brand, Virgin Cola. I guess it’s easy to pick a fight with an 800 pound gorilla when you’re the one driving the tank.
Given my role at WePay.com, I’m particularly piqued by Branson’s summary of the financial services space: “The consumer has been taken for a ride for too long by an industry which has been able to hide its charges.” I agree, but I think the problem goes even deeper than just hidden fees – especially when it comes to online payments.
Most notably, consumers regularly express visceral frustration with PayPal, the de facto king of online payments. PayPal is well-known for it’s unclear pricing, opaque policies and procedures, and mistreatment of customers.
It hasn’t always been this way, though. PayPal was once an irreverent startup like us, playing David in his epic battle with Goliath. In 2001, PayPal picked a very public fight with eBay by going into the belly of the beast (quite literally), and embarrassing eBay on it’s own turf. During the first eBay Live! Conference, PayPal employees set up shop at a hotel next to the Anaheim convention center and handed out free PayPal T-shirts the night before the conference began. The next morning, during Meg Whitman’s keynote address, about 25% of all attendees were wearing PayPal shirts. This was pretty awkward for eBay, which had acquired Billpoint (eBay’s current in-house payment solution) two years earlier. In 2002, eBay acquired PayPal for $1.5 billion and merged it with Billpoint.
Now almost a decade later, PayPal has become the 800 pound gorilla. And a fat, happy gorilla it is.
Picking a fight with PayPal
I founded WePay.com in 2008 with a former college roommate – a year after graduating from college. I was actually in law school at the time, but that was definitely not my bag.
The original idea was to build a website that made it really easy for “normal people” to collect money from friends, fans, members, supporters, attendees, etc. The idea hasn’t really changed much since then. We added additional tools like the ability to sell tickets and accept donations, but the basic value proposition has stayed the same: giving people an easy way to collect money online.
It’s worth noting that when we first founded WePay, we didn’t think too much about PayPal, and we certainly did not welcome the comparison. PayPal had never been a good solution for us personally (hence our desire to build something new), and unlike WePay, PayPal is built for merchants, not consumers. Our original plan was certainly not to “take down PayPal.”
That being said, it didn’t stop people from comparing us to PayPal before we even built our product or launched the service. I’m sure the fact that we raised money from Max Levchin, the founder of PayPal, had at least something to do with it.
At the time, I remember thinking how much I hated being called the “PayPal for groups”. But when Mashable used the same tagline to describe WePay two years later, I was all for it.
So what changed? Why do I now welcome (even promote) the comparison, and what value does it bring to WePay.com?
The first time we actively embraced the PayPal comparison was when PayPal froze the account of the Flux foundation – a non-profit arts organization – just a few days before the Flux Crew headed to the desert to build their famous Temple at Burning Man.
The Flux Foundation and a bunch of other people and organizations collecting donations ended up turning to WePay in protest (and in desperation). Our pitch was easy: yes, you can use WePay instead of PayPal. WePay.com is better than PayPal for collecting donations, and we won’t freeze your accounts.
After that, people started referring to us as the consumer-friendly or “community-oriented” version of PayPal. CNN actually referred to us as the anti-PayPal. The comparison isn’t completely accurate because — as I said above — WePay is focused on helping everyday consumers collect money from people in their social circles, whereas PayPal is focused on helping merchants sell goods or services online. But it was great for us in terms of press and branding, so we embraced it: “Yeah, we are kinda like PayPal, but we love our customers, have great customer service, and try really hard not to freeze your accounts.
We took the fight to the extreme when we decided to drop 600 pounds of ice in front of the Moscone Center at PayPal’s annual developer conference. In the block of ice was $500 and the words: “PayPal freezes your accounts.” The stunt was covered by TechCrunch and it rode the front page of Reddit for an entire day. It was our highest traffic day ever, and we received about 10 resumes from PayPal employees looking for jobs.
(It’s worth noting that WePay was not the first underdog to punk an incombent in front of the Moscone Center in San Francisco. On Feb. 22, 2000, Salesforce.com CEO Marc Benioff hired ”protesters” to show up at a Siebel conference. They were declaring the “end of software.” When twenty Siebel executives came out of Moscone to see what was going on, local television crews were there waiting.)
People always ask me: “are you worried about PayPal?” It’s kind of a silly question.
I’m not really worried about losing to PayPal. If I looked at it that way, then we’ve already lost. We’re definitely in a race, but PayPal crossed their finish line long before we even started.
I’m also not worried about PayPal “squashing” us. If they’re looking at WePay as competition, as something to be squashed or imitated, then they’ve already lost. Recent history is riddled with big followers who have failed. Amazon tried hard to get into the shoe and diaper game, after watching Zappos and diapers.com pave the way. They failed to catch up, and it cost them $1.5 billion in acquisitions. eBay bought Billpoint and invested a ton of money to compete with PayPal. We all know how that story ends. More recently, Intuit invested heavily in Quicken Online in order to compete with Mint, only to buy Mint a few years later for $170 million.
It’s also not easy for big companies to change course, add features, iterate, or experiment. PayPal can’t simply decide to shift it’s focus toward consumers, nor would they want to. When a commentator on TechCrunch said, “I love the idea, but see a great risk that PayPal will crush them. This is a feature, not a business. PayPal could employ such a feature within weeks,” Dave McClure, a prolific angel investor, early PayPal employee, and WePay investor had a pretty telling response: “Nothing launches in a few weeks from a large service like PayPal, and certainly not a major restructuring of account entity data / group payments. Yes, they might decide to do it at some point, but development and deployment alone would take 6-12 months. More important, the decision framework takes a year or more to launch a major new service.”
Lastly, the giants don’t really care when they get called out by startups. In fact, the worst thing they could do is legitimize or popularize the comparison by taking it seriously. Besides, it’s not really that hard for big companies to ignore attacks by smaller startups: the people on top are far removed from the fighting in the trenches, and the people in the trenches don’t really care because they don’t have meaningful ownership of the company; they’re not nearly as (irrationally) impassioned or loyal as startup employees or founders.
In other words, if you’re a fledgeling startup that’s picking a fight with a big company, you don’t really have to worry about “waking up a sleeping giant.” Fortunately, it’s just not going to happen.
So what does it do?
- It frames the debate. First, it puts the two companies on the same level: There’s PayPal and then there’s WePay, the anti-PayPal. It also limits the debate to two players: the incumbent and the alternative.
- It puts your product in context. If consumers compare WePay to PayPal, it means they at least get the basics: WePay is an online payments company. If they add a qualifier: WePay is a consumer-friendly PayPal, then we win.
- It helps you develop your own ethos and culture. I’m definitely not saying that a startup should copy (or even do the opposite) of the 800 pound gorilla, just that the 800 pound gorilla can anchor the culture context. Startups have the advantage of witnessing and learning from the incumbent’s mistakes. By calling ourselves the anti-PayPal, for example, WePay is making a hefty promise – namely, that we’ll put our customers first. We try extra hard to treat our customers well and promote projects that keep us focused on the right things.
- It makes you the good guy. Since the incumbent is ill-perceived by consumers, it’s easy to put on some shining armor and ride in on your white horse. If the incumbent is not ill-perceived, picking a fight is not the right strategy.
In the end, picking a fight with the 800 pound gorilla forces people to take sides. If you’re confident in your product, and the value that it provides, then declaring war might not be such a bad idea.