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PayPal (named Confinity at the time) was originally established in 1998 as a company to provide security software for handheld devices. In particular, one of the founders, Max Levchin, had developed software which allowed fully encrypted messages to be sent between, for those of you old enough to remember them, Palm Pilots. The clever bit was that that the software was small and fast enough to run on the low-powered Palm Pilot platform. In 2000, Elon Musk was brought into the organization along with his company, x.com.
Apart from bringing capital, Musk, was also brought in to help provide inspiration. Levchin´s software was cool, sure enough, but so far there was no application for it that brought any revenue. Musk´s ambition for x.com was that it would provide online banking services. Money transfer was seen as the ideal candidate for Levchin´s cool Palm Pilot software and soon enough they were able to do small money transfers using the infrared ports of the Palm Pilot devices. They called it PayPal. Some coffee houses and small shops adopted this method in the Silicon Valley area, and they were able to build the user-base to 12,000. In order to boost the profile of the PayPal service, Levchin built a web-based demo that users could access via any web-browser on an ordinary PC. Crucially, the demo permitted actual money transfers. Within months the browser users grew enormously – ebay users had started to adopt the web-based PayPal demo as their preferred payment mechanism. By the end of 2000, online PayPal users numbered 1.2 million. Musk, Levchin and co. changed tack, after some soul searching – they abandoned their ambitions for Palm Pilot banking software and online banking services and focussed on what was working – the online payment mechanism, and in particular it´s relationship to ebay. Fortunes were duly made, and ebay eventually purchased Paypal in July 2002 for $1.5Billion. None of this was anticipated by Musk or Levchin in the first half of the year 2000 – they just knew they had some cool Palm Pilot software. However, when opportunity struck, they were able to recognise it and were prepared (and able) to ditch the ideas which had been their focus up until that point.
If you want to find out more about this story or the baloney detection toolkit then please come to Carl Sagan´s Guide to Fake News.