Why Bill Me Later Said "Buy Me Today" To eBay

The timing of eBay’s $945 million purchase of electronic payments up-n-comer Bill Me Later is certainly interesting. After all, the outlook for e-commerce sales is looking more dour by the hour, and BML’s business model is based in part on volume. It’s also based on the cost of capital, which is critical since BML’s business is to finance purchases by online shoppers who prefer to hit the Bill Me Later icon found on many sites rather than give a credit card number.

So why did eBay pull the trigger now? ZDNet’s Larry Dignan and Scot Wingo at eBay Strategies explain that combining BML with PayPal further strengthens eBay as a leader in online payments—and does so before Amazon got around to buying BML itself, after investing in the company late last year.

And I’m sure BML’s top brass was looking for the best deal they could get—so long as they got a deal. I wasn’t on the conference call, but Wingo says that eBay CEO John Donohoe claimed the price tag would have been twice as high if the deal had been done a year ago. With all of the current economic headwinds—and so little visibility into future economic conditions—each day would likely bring a lower valuation. “Both this year and in general, if you can get a really good profitable liquidity event, it’s smart to do it,” says Mike Kwatinetz, a partner with Azure Capital Partners. He was introduced to the company back in 2001, by the firm’s first VC backer, Crosspoint Venture Partners.

No doubt, the payday is smaller than Kwatinetz and other investors may have wanted. I wrote about the company back in 2005, and even then insiders were thinking more in terms of a $1.5 or $2 billion acquisition. Still, I imagine they are feeling more relief that seller’s remorse right about now. They earned one of the bigger paydays of the year, and no longer have to worry about the future of a company that had raised $200 million over the years but had incurred big losses..

Now, Kwatinetz is hopeful that BML will have far greater impact than it could have had on its own. He hopes that eBay will use the technology to grab share as other credit companies limit their exposure in coming months and quarters. He points out that BML’s real added value is algorithms that check a shoppers’ credit-worthiness in seconds, enabling the merchant to make a smart decision for each transaction. By tweaking the algorithms—say, to lower the maximum purchase amount advanced to person with a high FICO score from $2,000 to $1,500, until they’ve paid their outstanding bills—eBay should be able to continue offering this payments feature without incurring lots of bad debt. Of course, if the integration or execution of this deal doesn’t go well, offering the BML feature could give some of eBay’s already frustrated users even more to complain about—at least judging from many of the responses to this reader survey I once posted (Make sure to look towards the end of the long list of comments).

So is Kwatinetz going to take his share in dollars to put under the mattress, or go get some gold bars? Actually, no. He says he made a lot of money in the dark days after 9-11 by investing in Amazon, Apple, eBay and Microsoft. Now, with even the best companyies’ stocks beaten down, he says he’s again on the prowl. Asked if he’s already made some investments, he says “no, but I’m about to.”

Let’s hope, for the economy’s sake, that he’s not alone.

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