Webware

(Credit: PayPal)

PayPal on Tuesday is introducing a new service for parents with kids who are in high school or college. Called Student Accounts, it centers on the use of a special PayPal-branded Mastercard debit card that's tied to a parent's PayPal accounts. The parent acts as the provider and can funnel money in whenever they feel like it at predetermined dates, or--at what will most-frequently happen--the behest of their kids.

Some of the perks include no overdraft fees and the use of a debit card that's not tied to a particular bank account, meaning the balance can come from a variety of sources.

The system has more of an allure for parents though. It's easier for them to dole out cash and track where it goes. In other words, your kid can have the $20 they said they needed for gas money, but if it ends up being for the late-night beer run, you're going to know about it.

The other design behind the card, and one that goes far beyond tracking beer money spending, is to create an ecosystem of PayPal users that become acclimated to handling their finances within the service's confines. Considering parent-child money transfers may happen long after college attendance is complete, PayPal has incentive to get both parties used to dealing with its system.

A good example of this is that these students will one day have the option to "graduate" to having their own full PayPal accounts that they manage on their own and that includes a complete history of transactions they made when they were in school. Don Fotsch, who is PayPal's VP of user experience and design, told me that you cannot currently do this--but that it would be worked in by the time some of the early users reached that point. PayPal will also be working on a way to let students integrate any outside income they're getting from an after or during school job to be able to continue using that debit card on other purchases.

Subaccount pages let parents monitor activity, set permissions, and make new transfers.

(Credit: CNET )

Of course, PayPal being PayPal there is a cost to this service. PayPal takes a $1 cut for every ATM withdrawal, which comes on top of any ATM fee considering the card is not affiliated with any banks. There are also the typical PayPal percentage fees for using that debit card outside of the U.S. either on purchases or trips to the ATM. For things like online purchases, or in-store purchases, there are no fees or limits though. There also aren't any sign up fees, load card fees, or annual fees.

One thing that makes the service really neat is that if the child runs out of money, they can send a text to PayPal to request more. The parent then gets a text message from PayPal asking if they want to transfer the money and can reply with a simple yes or no. The money is then piped into the account within two minutes.

As Fotsche explained to me, this system worked out great for him when his daughter needed to spend an extra $10 on a checked bag at the airport. But parents could also just set up one of these cards for their kids as a real emergency credit card and one they wouldn't have to worry as much about if it were stolen since it couldn't be maxed out. And even if some parents do end up setting up one of these cards for such a purpose, that's two users already in PayPal's pocket.

PayPal suffered a global outage and slow performance Monday, but eBay said its online payment system is mostly back in working order.

"About an hour ago, PayPal started experiencing site issues that affected the ability to send and receive money. We have all hands on deck to get this fixed," said PayPal spokesman Anuj Nayar in a blog post about noon PDT. "We're really sorry for the inconvenience."

An update at 12:40 p.m. said the site was working again for most users.

Nayar said in an interview the outage was global and the worst of the outage lasted about an hour total, though the site wasn't fully recovered just before 2 p.m. PDT.

$2,000 per second in transactions
The outage could be costly for those who rely on PayPal to handle e-commerce transactions. PayPal says about $2,000 in payments per second flows through the system, meaning that a one-hour outage would cut out about $7.2 million in commerce.

Nayar declined to comment immediately about whether sellers would be compensated in any way or how eBay handled such decisions in the past.

As a key driver of growth for eBay, PayPal is becoming more important at the online commerce and auction site.

"PayPal is a business that will be bigger than eBay," eBay Chief Executive John Donahoe said in July. And through a developer release in July of a new PayPal payment system, eBay wants to refashion the service to enable a new generation of online commerce.

PayPal's developer site said the outage hit not just its Web page, but also through PayPal's application programming interface (API), which lets applications use the service without having to go through the Web site. It first noted the problem at 10:41 a.m. PDT.

Updated with more details at 2:04 p.m. PDT.

PayPal, eBay's well established but aging mechanism for online payments, is trying to rebuild itself for a new generation of online commerce possibilities.

At an event for press and developers on Thursday, PayPal and its partners described several new programming interfaces that are part of the company's upcoming Adaptive Payments Service and showed what developers can do with them.

For example, Microsoft will use the interface to enable payments within its forthcoming Azure cloud-computing service. And LiveOps' on-demand outsourcing service will use it to automatically handle fluctuating payment amounts and changes to who's being paid. Finally, the interface takes PayPal beyond the browser, opening it up for use on mobile phones, set-top boxes, and other increasingly smart devices.

"It's truly disruptive," said PayPal CEO Scott Thompson at the event. "It puts developers in the driver's seat by allowing you to do what you want to do and (choose) how you want to get paid."

The new service will be available to 300 PayPal partners starting Thursday, with a public beta this November--just in time for PayPal X Innovate 2009, its first developer conference.

PayPal is pitching the Adaptive Payments platform to developers as a way to more easily build PayPal-powered payment options into their applications. It's also a more streamlined version of PayPal's existing program for letting businesses manage transactions between several different parties.

The new payments service is a key part in PayPal's plan to double its revenues within the next three years. Back in March, PayPal's president Scott Thompson promised as much, saying that by 2011, the company should be doing somewhere between $100-120 billion in annual payments. PayPal has also had a fire lit underneath it since Amazon rolled out its own online payments service around this time last year. It let users make online purchases using billing information that was stored on Amazon.com

PayPal isn't just central to eBay's future. It will eclipse the company's auction and commerce operations, the company says.

"PayPal is a business that will be bigger than eBay," eBay Chief Executive John Donahoe said Thursday at the Fortune Brainstorm conference.

PayPal is a force to be reckoned with. On average, more than $2,000 goes through PayPal every second of each day. It has 75 million active accounts, and it's available in 190 markets and 19 different currencies.

Beta testing

Before the announcement, PayPal had been working with a handful of companies to test the new APIs (application programming interfaces). One of those companies is Microsoft, which is tapping PayPal for online payments in the Web applications built for the company's upcoming Azure platform.

At the unveiling, Yousef Khalidi, a Microsoft distinguished engineer, demonstrated an application that integrated PayPal's payment and billing functionality. It took only two days to integrate it into the existing product, Khalidi said.

Khalidi said that Microsoft plans to offer a simple way to build PayPal's mechanism into hosted applications as part of Azure's full release later this year.

Microsoft probably had an easier time choosing PayPal for its payment service than some of the alternatives: Amazon Flexible Payment Services and Google Checkout both come from companies in direct competition with Microsoft's Azure cloud-computing service.

Michael Ivey, CEO and co-founder of TwitPay, also took the stage to show his company's use of the new PayPal API--specifically to let people pay multiple people at once.

"In one transaction, I'm paying four different people," he said. Before the new APIs, the service would require users to make each payment as its own transaction.

Sites already using the new API include: Webassist, GroupCard, Lottay, Rainfall of Envelopes, and MedPayOnline.com

"PayPal will help you get paid for your innovations--your business will become our business," Thompson told the developers. "We view you as our third set of customers."

New features

The new payment service has a handful of new features designed to make it easier for developers to make money with their applications and services.

Thompson said that even if developers were acting as an intermediary between the person sending the money and the recipient, they would now be able to take their cut of that transaction--just as PayPal does.

Part of getting that to happen involves a new API that lets developers create peer-to-peer and business-to-business money-sharing applications. They can now also split up payments into several transactions and let users authorize a payment after the transaction's been made. Those two mechanisms can speed purchasing, regardless of whether the buyer is ready to pay the full amount at the outset.

As part of the new platform, PayPal also is changing the way fees are charged. Application developers can choose to have the sender of the money, not just the recipient, pay the fee.

In addition, the fee rates can be changed based on the type of purchase, which should ease the chore of handling both high-value transactions and micropayments (transactions below $12) within the same application. As it stands today, PayPal currently requires sellers to have two different accounts open, one for bigger payments and another for micropayments--and each has different rates.

People use PayPal today through a Web interface, but a new API will bring PayPal to nontraditional computing platforms including mobile phones, set-top boxes, and gaming consoles. That's important, given that those devices increasingly are networked and have their own ecosystems of applications. And moving to a browser can be disruptive to a user who just wants to make a quick payment.

Using PayPal that way also means that a developer must build the necessary user interface, though. PayPal didn't provide specifics on that element of the new payments system.

Overall, Thompson said the new payment system will help PayPal keep pace with changes in technology and business.

"The pace of innovation is just staggering," he said. "And the next wave of innovation is poised to move that much faster. "

CNET News reporter Ina Fried contributed to this report.

Mozilla has introduced a new pilot program for Firefox developers to make a little money off add-ons they've created. Developers now have the option to place a "contribution" button on their add-on page, which lets users donate any amount they wish via PayPal.

Contributions are optional, meaning users can continue to download and use add-ons without having to pay anything. Mozilla is also letting developers pick their own suggested price, although users can choose to pay whatever they wish.

For the pilot program, add-on creators get the entire amount of the contribution, minus PayPal's transaction fee. However, in the future that could change with Mozilla taking a small cut. Mozilla is also encouraging developers to set up special PayPal accounts for contributions under $12, since PayPal's fees are less if set up for micropayments.

Mozilla is running the pilot with a limited number of developers, and will likely open it up to all if it's a success. It's definitely a smart way to attract add-on developers to host their creations on Mozilla's site, since there's now a simpler way for them to get paid. However, it will be interesting to see if users are willing to part with their money when they don't really have to.

How much would you be willing to pay a developer for their add-on? Vote in the poll to the right.

Update: Here's an example of what it looks like live as seen on the Download Statusbar extension:

(Credit: CNET)

PayPal just rolled out a fun little mini-site called Do Stuff for Money. The basic premise is that you can send one of your friends an offer, either through Facebook (using Facebook Connect) or e-mail, to do something of your choosing for some sum of money. For example, a recent offer reads, "Laura offered Adam $10.00 to 'Write all the thank-you cards from our wedding.'" If your friend accepts and does what you have asked, you can instantly pay them via PayPal, without having to mess with cash.

Somehow I don't think Steve Jobs is going to take me up on this offer.

(Credit: Screenshot by Harrison Hoffman/CNET)

Do Stuff for Money is more of a novelty promotion than anything else, but PayPal has really been trying to push these sorts of smaller transactions between friends. Since the service is mostly used for purchasing things online, PayPal would love for people to get used to pulling out their phones and sending a friend money when they say, "Hey, you owe me five bucks." PayPal needs to break into some of these other markets if they want to continue to expand. They are already a dominant player in e-commerce transactions, so expanding their presence in everyday life and the real world is a good route to explore.

New applications for Yahoo Mail, such as this one from PayPal, let you send money right from your inbox without having to visit PayPal's site.

(Credit: Yahoo)

Yahoo has added new applications for its users in another step toward giving its users more and more to do from within Yahoo.

The company plans to announce the limited beta of three new Yahoo Mail applications from PayPal, Picnik, and Zumo Drive on Friday. Yahoo Mail users who have indicated an interest in signing up for Yahoo's beta programs will be the first to get a crack at the new services, with the applications coming to the wider user base over the next several months.

It's all part of Yahoo's Open Strategy, designed to let outside developers tap into the company's properties and offer their wares inside Yahoo's network of sites. It's becoming an old story, but the trend these days in the Internet world is the proliferation of large sites like Yahoo, Google, and Facebook as development platforms unto themselves, with application developers spending more and more time writing programs that run on those sites, rather than traditional operating systems.

For example, PayPal's application will let Yahoo Mail users send money to another user by opening a window like a tab in a browser. Picnik, a popular browser-based photo editing tool, will bring that feature to Yahoo Mail in a similar way, letting you open the service right from an e-mail message.

Yahoo is also expanding the Open Strategy to other parts of its portfolio of sites. Wordpress bloggers will be able to post to their blogs from their MyYahoo page, and manage their money with Mint.com's services. And Yahoo TV Widgets will now support searching and viewing of archrival Google's YouTube video collection.

It's taken Yahoo quite some time to put these applications together, first announcing the Yahoo Open Strategy in April 2008 but not taking it live until last December, when it unveiled the first set of applications for Yahoo Mail and the MyYahoo start page. It also appears the company plans to wrap these applications along with forthcoming ones into a redesign of its homepage, which CEO Carol Bartz said this week would arrive "later this fall."

The idea is convenience: letting users get everything they need and want in one place. But the upshot is that by providing incentives to stick around on Yahoo, the company is making it more likely that you'll stumble upon something else at Yahoo, such as an ad or another service that drives a search query: 98 percent of Yahoo's searches come from people who are already on the site.

It might be Facebook's worst-kept secret.

It's become increasingly clear in recent weeks that Facebook is finally inching toward the launch of a micropayment platform. The social site has been expanding the presence of its virtual currency, which Facebook debuted last November when it changed the monetary units for its "Gifts" product into "credits" rather than U.S. dollars.

Credits are now bundled with some promotional items in the Gifts app. And soon, select developers on the Facebook Platform will be able to start working "credits" into their own applications, in a move that could lead to a lucrative new revenue stream for Facebook, which currently relies on an advertising-based business model. First reported by a number of tech blogs, the company has confirmed this development.

There's been talk of Facebook's planned foray into the e-commerce sector for well over a year now. But the "credits" product that's being released to developers soon appears to be quite different from the Facebook payment platform that followers of the company have anticipated. As recently as last fall, Facebook's plans--reportedly called "Facebook Wallet"--were something much more like a straight-up, PayPal-like transaction platform.

At least initially, that's likely not the case.

Facebook's official comment on whether this is a shift in company strategy is coy. "We think enabling developers to accept these credits as a form of payment has the potential to create exciting new use cases for users and developers," spokesman David Swain said in an e-mail. "We do not have details to share at the moment because this will be a very small alpha, only a handful of developers, but will likely share more as we evaluate the results of the test."

Swain declined to comment on whether Facebook would ever pursue a more standard e-commerce product like what many had assumed the "wallet" would be. But sources with knowledge of Facebook's product development say that what started as the "wallet" eventually turned into the "credits" system. According to one well-placed source in the virtual-currency sector, there's been a clear change from Facebook's earlier plans to foray into the transaction and payment space.

"It's an absolute change in strategy," the source said. "So, they're not competing with PayPal now."

Virtual currencies, with silly, often casino-inspired names and an unfortunate reputation in the mainstream as the way to buy enchanted swords and potions in fantasy role-playing games or to bling out your virtual penguin, don't carry the serious-business gravitas of services such as PayPal. But shifting strategy to a virtual goods platform is a savvy and forward-thinking move on Facebook's part. Since it launched two years ago, Facebook's developer platform has changed and matured a lot.

Most notably, a few app development companies are making an astonishing amount of money without paying Facebook a cent--and most of these are on the games and entertainment side of things. It's probably not a coincidence that those apps--from poker games to virtual pets to the seemingly endless parade of Mafia Wars and Zombie Wars applications--are the ones that would benefit the most from a virtual currency system. In turn, they're the ones from which Facebook could profit the most by taking a cut of revenue.

Facebook's global reach
But the decision to launch a virtual currency is bigger than simply to appeal to games. More importantly, the credits system is a necessary response to Facebook's newfound role as what's effectively a functioning sovereignty. With well over 200 million members now, Facebook has extended its reach well outside the U.S., and the Palo Alto, Calif., company has said that over three-quarters of membership registrations now come from overseas. The concept of "Facebook Wallet" might have sufficed when the majority of its users were dealing in U.S. dollars. That's far from the case now.

"There are currency implications, there are buying power implications, and there are payment provider implications," said Mike Trigg, vice president of marketing at social network Hi5, when asked in an interview about balancing the physical world's diverse economic systems. Hi5 launched a virtual currency called Hi5 Coins late last year.

For Hi5, launching a virtual currency early on was a logical conclusion because much of its user base is international, particularly in Latin America. "You really see market differences, especially for youth, which is really our target audience, in how they can pay for stuff online," Trigg said. "In some countries (credit cards and PayPal) aren't used at all. We see other markets where paying by SMS is the way to get into the system, and we see markets where cash cards and game cards and wire transfers and mailing cash through the mail even are ways that people get real currency into the virtual currency system."

With Facebook's reach significantly broader than Hi5's, the complications are even greater. And with hundreds of millions of people able to use this currency when it's available to all users, this is no enchanted-swords-and-penguins affair. Economists and Web developers alike will want to keep tabs on the expansion of Facebook credits, as they could quickly become the closest thing the Web has seen to a standard monetary unit.

"I think the universal currency wars are going to be on soon," said Lisa Rutherford, president of Twofish, a company that helps developers and companies manage virtual currencies by providing data and analytics.

There are plenty of start-ups that have attempted to launch virtual currencies that would be interoperable across participating developers' and companies' games and other applications. None of them have become legitimate Web sensations, perhaps because of the inherent security concerns in online payments. Facebook already has millions of users' credit card numbers on file from transactions through the Gifts app--its "credits" are in the lead before they even launch in full.

"When everyone was launching, when Spare Change and Jambool were launching virtual currencies three or four months ago, we had an opportunity to jump on the bandwagon," Rutherford said. "We just thought that universal currency needed to come from a big, robust, more stable player. It shouldn't come from a start-up."

At the same time, Facebook's massive size and name brand aren't going to make it immune from the concerns that surround any other e-commerce player. Facebook, suffering from a rash of phishing attacks and the occasional bad press about user privacy and safety, is going to have to be more careful than ever when it comes to security. Virtual economies in general have endured their fair share of scrutiny, too: one of the best known, Second Life's "Linden dollars," took a blow when a wave of scams prompted the virtual world to shut down user-run banks. Regulations still keep them a shadow of their former selves.

Still, if anyone can do this, it's Facebook.

"They might all have grand visions," Rutherford continued, "but you're asking people to trust what's essentially a sovereign banking system, and yeah, it should come from one of the big guys."

The murkiness surrounding Facebook's valuation got in the way of its attempt to acquire Twitter last year, according to a BusinessWeek article posted Sunday.

Early Facebook investor Peter Thiel's interview with BusinessWeek make it sound like while the talks were serious, they simply didn't go that far: "It became pretty clear it wasn't going to happen...The deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth." Twitter, according to an anonymous source, was told that the social network's valuation was in the range of $8 billion or $9 billion but was aware that employees were privately trading stock at a valuation that was, at most, half that.

So the deal didn't happen.

Controversy over the true value of the privately owned company also came into play earlier last year when the settlement of the ConnectU vs. Facebook lawsuit was being negotiated. Court documents were redacted to keep the true valuation under wraps, and media outlets, including CNET News, petitioned to have the documents made public. The founders of small social-network ConnectU, who had sued Facebook because they claimed founder Mark Zuckerberg stole their code and business plan, contested the original settlement when they said they had been misled as to Facebook's true valuation.

Way back in October 2007, Microsoft invested $240 million in Facebook at a $15 billion valuation. The company's actual valuation was never really that high, and with the recession, it's currently somewhere south of $4 billion.

But valuations aside, would Twitter really have been a smart buy for Facebook? The "status update" feature on Facebook is very Twitter-like, but integrating the two services would've involved all kinds of complications. For one, Facebook's content is still hidden behind a log-in wall, whereas Twitter's "tweets" proliferate all over the Web. And while Facebook's profitability woes have been well-documented, Twitter beats it in that department: the buzzworthy start-up hasn't yet made public a business model of any kind.

In his interview with BusinessWeek, Thiel, one of the founders of PayPal, didn't discount the possibility that Facebook could make other acquisitions in the future. But as the interview also points out, that could be difficult as long as Facebook's valuation remains as volatile as it has been in recent months.

Marketing agency Rosetta released a study Thursday that found Bill Me Later and PayPal are the most popular alternative payment options on the Web, capturing 26 percent and 25 percent market share, respectively. Google Checkout increased its share by just 1 percent in 2008 commanding just 11 percent of the market.

Rosetta also found that 37 percent of the top 100 major retailers on the Web employ alternative payment options like those offered from PayPal and Bill Me Later, but just 7 percent of those retailers offer all three services.

iPhone developer Smule announced Thursday that it has secured $3.9 million of funding in a round that was led by Granite Ventures. According to the company, its apps have been downloaded by more than 1 million users and due to that success, it was able to raise the capital. It plans to use its funding to further invest in apps for the iPhone and other mobile devices.

Mixx, a Digg-like service "for the mainstream," launched a new homepage Thursday called YourMixx and will allow users to decide whether they want the company's new page to be their start page or their individual notifications page. The company also announced that users who write polls that are selected for publication on the site will be rewarded with "Karma and props." The Mixx user who has the most polls published will be given a Pollster badge to add to their profile page.

Enterprise microblogging service Yammer will announce a hosted version of its software Thursday that can be installed inside a corporate firewall, TechCrunch is reporting. Yammer customers will be able to switch from the SaaS version of the software to the hosted service and it plans to transfer network information between both iterations, the report claims. Yammer plans to charge $12 per seat per year.