PayPal looks to specialists to develop services

The company is speaking to publishers about paid content

Online payments firm PayPal is placing its bets on independent specialists to develop new services and help it meet consumer demands for fast product innovation.

Some 36 per cent of European web shoppers have used PayPal to purchase goods over the past quarter, compared with nine per cent in 2004, and the firm plans to double its size over the next couple of years.

To achieve that goal, the company will rely on the expertise of its developer community to bring new products to market quicker, said Alexandre Hoffmann, PayPal’s director of financial products, at the ICT Spring conference in Luxembourg this month.

“The big push for us this year is to explore payment opportunities presented by the convergence of the online and offline [environments], but we cannot do it all ourselves and that’s why we opened our platform,” Hoffmann said.

Launched in November, PayPal’s developer network now has thousands of registered specialists. Since then a competition was introduced whereby members could submit innovative applications using the firm’s application programming interfaces (APIs) and win cash prizes and waived transaction fees on the site.

Shortlisted ideas from the competition ranged from ticketing and crowd sourcing tools to gaming and micro-payment applications.

“We feel constrained about our ability to develop new solutions ourselves because there is so much to be done. We cannot have all the ideas and even if we had, it is not possible that a single company could [execute them all],” said Hoffmann. “The [developer community] is a way of multiplying the power of our own internal resource,” he added.

PayPal will use its in-house capability to focus on areas such as credit and digital goods, which can include ammunition for weapons in online games, for example.

Hoffmann also hinted that his firm expects a significant increase in paid content and is having conversations with major publishing firms around payment solutions.

In the UK, traditional businesses are also taking advantage of the model as online shopping and mobile web use continues to rise. Tesco, for example, opened its API to developers at an event last summer, which involved 70 customers and more than 100 technicians.

The event generated more than 800 technology-led ideas, such as harnessing the use of social media, mobiles, internet TV and set-top boxes. The initiative is ongoing.

How to go about creating a developer network
There are advantages to be gained by businesses wanting to tap into external knowledge for new product development, but the move needs to be well planned, said Neil Ward-Dutton, director at MWD Advisors.

He added: “Opening APIs and creating developer networks can be powerful, but there is no point in any organisation just starting that kind of initiative as some ‘crazy Web 2.0 thing’ – there needs to be a well-defined business reason around it.”

Starting such networks is akin to licensing a business, said the analyst, where the community provides a way of accessing a complementary market and skills the company won’t necessarily have in-house, as well as being able to experiment, but there are challenges.

“Businesses wanting to start such an initiative need to do some comprehensive market research to focus on things that add customer value and have a sound strategy in place,” said Ward-Dutton.

“It is also very important that they have people to foster those communities – you can’t just build something like that and expect it to happen on its own. These people will be marketing-savvy, have an understanding of the needs of their group and, ideally, do this voluntarily.”