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Saturday, January 25, 2014

Incentives at EBay to Exploit Its Golden Goose

When is it ok not to worry about a corporate board or management exploiting an institutional conflict-of-interest? I contend in another essay that the very structure of an institutional (i.e., based on the relationships of positions and/or organizations) is inherently unethical, hence even if not actively exploited. Here, I delve into factors that may reduce the likelihood of such a conflict being exploited. I suspect that most folks assume that the presence of such mitigating factors means that a particular conflict-of-interest is not, therefore, inherently unethical. This convenient assumption may be all too easy to make, given that it removes any need ethically-speaking to reorganize positions and roles in an organization and the relationships between organizations.

To uncover at least a few factors, I take an inductive approach here in using the particular case of EBay, which owns PayPal. That is to say, the online marketplace has its own online payments company. PayPal began operations in the late 1990s and went public in 2002. EBay then acquired the company for $1.5 billion.[1] PayPal expanded to handle the payments of other online ecommerce sites even as it thrived as the principal means of payment on EBay. By 2014, with EBay still arduously competing with Amazon, PayPal had come to account “for a substantial portion of the total market value” of EBay’s stock.[2] In 2013, for example, PayPal’s revenue growth was at 19 percent, compared to just 12 percent for EBay.[3] This contrast and the related portion of PayPal value in the corporation’s total market value are crucial points for my larger point.

The corporate headquarters of EBay and PayPal. Which one dominates internally? (Wikimedia Commons: Leon7)

With PayPal having added a substantial number of online sellers—some of which may be competing with EBay—and looking to become a payment method in “brick and mortar” stores in 2014, EBay’s corporate management may be tempted to “tweak” PayPal behind the scenes to make the payment method easier for EBay customers. The institutional, or structural conflict-of-interest here lies in the dual roles of EBay’s corporate management oriented to 1) improving the financial performance of the online marketplace at EBay by more vigorously competing against other online marketplaces as well as sellers, and 2) getting more “golden eggs” from PayPal by expanding its reach even further beyond EBay.

Inserting a bias in PayPal toward EBay at the expense of outside vendors would tend to shrink the “golden eggs” gradually over time even as EBay’s online marketplace would benefit against its competitors. In exploiting the intra- and inter-institutional relations in this way, however, the corporation’s group of top managers (and/or board) would risk “killing the golden goose” for a very uncertain increase in revenue-growth from EBay’s struggling online marketplace. Put another way, the interest that would motivate exploiting the conflict-of-interest is so much weaker than the corporate management’s (or board’s) conflicting interest that the decision to exploit PayPal’s situs in the larger corporation (i.e., PayPal’s dual roles) is unlikely to be made unless the relevant variables change. From this caveat, you may have an intangible sense of the contingency, and thus precariousness, of an institutional conflict-of-interest not being triggered (i.e., exploited). Indeed, the subtle nervousness you may feel may be a psychological indication or sign of the inherently unethical nature of an institutional (or any other type of) conflict-of-interest. Such a nature, or essence, is exists whether or not such a conflict is exploited.

1. Alistair Barr, “Icahn Wants EBay to Spin Off PayPal,” USA Today, January 23, 2014.
2. Ibid.
3. Ibid.