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Pivots: Part 5 | Pivoting: Case studies (PayPal, Flickr and YouTube)

This is from the lost section from The Growth Hacker’s Guide to the Galaxy. Mark Hayes and I wrote that book a few years back and went deep down a rabbit hole on the topic of pivoting. Before long, we had too much pivoting content and it got cut from the final manuscript. Now it rises like a phoenix from the ashes as a seven-part blog series. Make sure you stick around until Part 7—it promises to raise some eyebrows.


In this series, we could go on and on about pivoting, but odds are you’ll learn the most when presented with examples of successful pivots.

PayPal’s pivot

Let’s take a look at PayPal, a company that took a very circuitous, customer-focused approach to pivoting and to growth.

The PayPal we know today is a platform that makes it easy for people to securely send others money using only their email address. It also allows for businesses to easily conduct online transactions, say, for their e-commerce store.

But PayPal didn’t start out that way.

In an interview with Fast Company, Reid Hoffman (former executive vice president of PayPal) talks about the story of PayPal and its pivots. The company has an interesting history because it went through a number of pivots and its story follows a nice arc.

With that in mind, let’s explore each of PayPal’s pivots, right from the start.

The beginning

In the beginning, the company wasn’t even known as PayPal. It was called Confinity and was designed to provide encryption on mobile devices. The idea was that someone else would build an application that would then require Confinity’s encryption technology.

The company quickly realized that it was dependent on others to build applications and decided to shift course.

The first pivot

Confinity changed its focus to building an application that could use of its encryption technology, and decided to build an application related to financial transactions on a mobile phone.

Soon after this, the company saw that it would take years for mobile phones to be able to effectively handle financial transactions and it again changed direction.

The second pivot

The company turned its attention to financial transactions between PalmPilots. It did this in the hope that this approach would make it easy for them to eventually service financial transactions over mobile phones—its ideal scenario.

The third pivot

It didn’t take long before the company realized not everyone had PalmPilots.

Reid Hoffman, one of those working at the company, explored a potential use case that highlighted this problem. He detailed a scenario where a group of people went to dinner and wanted to split the tab after dinner.

He questioned how many people at that dinner table would actually have a PalmPilot. Reid argued that you’d only be able to split the dinner tab successfully if everyone had a PalmPilot, a scenario that was rare.

So the company decided to adjust its approach.

The fourth pivot

The company focused on PalmPilot and email payments and called this new system PayPal.

Soon they found that the email payment feature was being used a lot and having a significant impact on the business. The PalmPilot payments, though, weren’t that popular in comparison.

The fifth pivot

Confinity then decided to drop PalmPilot payments and focus only on email payments. This meant that they concentrated on the web and doubled down on the concept of web payments.

All of these changes happened during the space of 15 months.

Over time, the company noticed a lot of traction amongst eBay users, as buyers and sellers were using PayPal to complete transactions. It now realized that these individuals were its customers.

The company decided to focus on this core group of people and the general idea of buying and selling things online, which at that time related to heavily to eBay, but eventually spanned web-wide payments.

While eBay initially had its own online payment service (Billpoint), it eventually gave in and bought PayPal for $1.5 billion in July 2002.

You can see how everything we’ve discussed so far in this series in terms of finding a way to best serve customers comes to fruition in the story of Confinity, later known as PayPal.

Yet, what’s even more important, was that timing was arguably a big factor in PayPal’s ability to succeed. eBay was a big part of PayPal’s success and had eBay not been gaining as much traction as it did, PayPal’s story may have gone a little differently.

Flickr’s pivot

Flickr, as it is known today, is a photo-sharing site that is used by millions of people around the world.

But it originally started out as a massively multiplayer online role-playing game (MMORPG), known as Game Neverending.

One of the features of the game was that it allowed players to take photos and then save them to the web for everyone else to see.

This feature quickly became one the most loved aspects of the game and it was at this point that the founders decided to launch Flickr.

YouTube’s pivot

You probably know a lot about YouTube’s current popularity already.

To begin with, it was a video-dating site with the slogan, “Tune in, hook up,” and was designed to be like the video version of “Hot or Not.” This idea didn’t take off—even when they tried to pay women $20 to put videos on the platform.

Nevertheless, despite this initial failure, they still had a technology that enabled people to easily upload videos to the internet.

Next in this series

In Part 6, we look at different types of pivots and their interdependencies.


Read more in this series

Pivots: Part 1 | Why is pivoting important?
Pivots: Part 2 | The search for product–market fit
Pivots: Part 3 | Why most startups fail at finding product–market fit
Pivots: Part 4 | Some pivoting myths
Pivots: Part 6 | Types of pivots
Pivots: Part 7 | A word of warning about pivoting


 

By Jeff Goldenberg