Digital Media

PASADENA, Calif.--PayPal is just over a third of eBay's revenue at the moment, but the online payment service will ultimately be bigger than the company's flagship e-commerce site, its chief executive said Thursday.

"PayPal is a business that will be bigger than eBay," CEO John Donahoe said in a talk at the Fortune Brainstorm: Tech conference here. However, he said that shift will take four to six years.

eBay CEO John Donahoe speaks at Fortune's Brainstorm: Tech conference on Thursday

(Credit: Ina Fried/CNET)

Donahoe's comments came just as the company announced that it is opening up its PayPal platform to third-party developers. "There is this opportunity for an explosion of growth."

Among the uses, Donahoe said we are not that far off from the day where a restaurant beams a bill to your mobile device and you pay via PayPal.

Asked about Facebook's long-rumored payment service, Donahoe noted that online payments require a company to be part financial services outfit and part Internet concern. Those that have been one, but not the other, have failed, he said.

"People will find a much better solution building on top of the PayPal platform," he said.

Donahoe, who has been CEO about 15 months, said the company is a leader that is adjusting to shifts in the market. "We're making the tough changes we need to make," he said. "We need to evolve on an auctions site to an e-commerce site."

There is plenty of room for e-commerce to grow, Donahoe said, noting that only 5 percent of sales are online as compared to in stores. That could eventually grow fourfold, he said. "What portion of everything you buy will you ultimately buy online?" Donahoe said.

He said eBay has already come a long way. "We still get referred to as an online auctioneer, but we have moved way beyond that.

Right now, eBay gets about half its money from eBay.com, with half of that auction-based sales and half from fixed-price sales.

As for the core auction business, eBay plans to announce a number of changes next week. Among those, Donahoe said that the company will expand the "eBay Bucks" loyalty program it has been piloting as well as offering telephone support to more buyers.

Given that PayPal may eventually eclipse eBay.com in sales, moderator Adam Lashinsky asked if the company should change its name.

"That's the least thing I worry about," Donahoe said. "We'll probably hire some big fancy consultant who will give us some strange name," he quipped.

Corrected at 2:31 p.m. PDT: The last name of eBay's CEO was misspelled. His name is John Donahoe.

SAN FRANCISCO--E-commerce payment company PayPal has grown organically on the back of eBay, but apparently no longer.

PayPal President Scott Thompson said here at the RBC Capital Markets conference Wednesday that by year's end, his company will derive more total payment volumes from its Merchant Services than from eBay buyers and sellers. Merchant Services is the name for the payment software PayPal provides to third-party sites like Starbucks, Delta Airlines, and American Outfitters.(In the last quarter, eBay buyers and sellers---long the bread and butter of PayPal's business--racked up about 51 percent of the payment volumes.)

That's a big shift for a company that was bought by eBay only six years ago.

"We've had organic growth with eBay, but as merchants migrated off the eBay platform (by building their own sites), they've brought us with them," Thompson said while speaking to a group of fund managers and venture capitalists at RBC's technology, media, and communications conference.

That trend also couldn't come sooner. PayPal is facing increased competition from the likes of Google's Checkout and newcomer Amazon.com. eBay's retail rival, Amazon, recently introduced an e-commerce payment service called Checkout by Amazon.

To be sure, Thompson was giving a virtual sales pitch to investors. But the story is impressive. PayPal now serves 33 percent of the top 100 e-commerce sites in the United States, according to Thompson. In the second quarter, PayPal reported net revenue of $602 million, a 33 percent rise from the previous year. And it reported a total payment volume in the quarter of more than $14 billion, or 35 percent growth.

PayPal's international picture is also promising. He said the company expects that growth overseas will put PayPal's international business over that of its U.S. business next year. "By the back half of 2009, the international business will exceed our North American business."

As for mobile, PayPal has been investing in the market for the last three years, but the company's offering hasn't caught on in the United States, Thompson said. As a result, the company changed its mobile strategy in the last year. It plans to focus on bringing services to underdeveloped payment markets. Those might include China or Russia, which don't have robust electronic infrastructures.

"In Russia, lots of people stand in line to pay their bills every month. That's a perfect use case for PayPal," he said.

Amazon.com quietly unveiled on Tuesday new online-payment services it will offer to other online merchants--a move that puts it in direct competition with eBay's PayPal and Google's Google checkout.

The Seattle-based e-tailer describes Checkout by Amazon as a "complete checkout solution," with features such as Amazon's "one-click" payment option and tools for managing shipping charges, sales tax, and promotions. Google introduced a similar online payment processing system called Google Checkout in 2006, but analysts say it has been slow to catch on with merchants and consumers.

Amazon also unveiled Amazon Simple Pay, a service that allows consumers to use their Amazon account information to pay for purchases on other Web sites. However, as a competitor of PayPal, it's unlikely that Simple Pay will be accepted for purchases on eBay. In 2006, eBay banned its customers from using Google Checkout, according to its accepted payments policy.