The entire interview is very good and well worth an hour for the Google investor. Levchin only talks about payments for a little bit, but spends a lot of time on competing through rapid and relentless innovation -- Google's sweet spot. The money quote is, "If you can go fast, no one will ever catch up."
But since Google just released its payments service for Video and now for Base, Levchin's insights there are important and timely for the Google investor.
Essentially, Levchin says that a newcomer like Google might avoid some of PayPal's missteps by copying the basic features of a payments service, but what Google cannot copy is the experience PayPal had with "bads," or fraudlent transactions. That experience cost PayPal $100 million in the startup days, but taught PayPal how to recognize and prevent fraudlent and money-losing transactions.
He believes that any newcomer like Google will need to go through the same costly experience, since there's nothing you can copy to prevent it. Here are a few lines from the interview:
Bob [Cringely]: Like, is it possible for someone else to start another PayPal today? Or is that opportunity gone?
Max Levchin: I'm not sure. So Google was recently talking smack....
Max Levchin: The specifics of starting another PayPal these days involve, I think, a very specific and much better understood set of steps ... so you can sort of see you go from here to here and then you have a PayPal.
Except that there's a lot of stuff that cannot be done away with because those are the steps that we have distilled down to, and one of them, for example, is this notion of learning about fraud. And the way you learn about fraud is you experience it and you lose lots and lots of money, and hopefully you lose less money than, let's say, we did. But we definitely burned up quite a bit of cash, basically letting the various fraudsters and thieves and online identity dealers take us out to the cleaners as we learned how to stop them.
So Google or PayPal 2.0 or whoever will have to go through a learning process similar to that. And I think this data that you get known as the bads data, where you actually have these bad transactions that you know this and this and this results in a money loss for the company. That's how you get to this knowledge of what do you do to not lose money. And there's no substitute for that. So the no substitute part has got to be pretty interesting. PayPal has gone through at least a hundred million dollars worth of learning experience....
Bob: PayPal went through a hundred million bucks with people stealing?Max Levchin: I don't think it was all stolen, so to say. But I think about a hundred million dollars must have been spent all told in various forms of antifraud efforts. So some of it has definitely gone in the hands of various unsavory individuals. And probably even some of them were organized into unsavory groups of individuals. Some of it has gone into developing technologies and developing technologies that were never used, so - but, I mean, that's the ballpark. And this is a lot of money, right?
So I think Google, who is probably or possibly smarter and has lots and lots of PhDs on staff, could spend less money, partially learning from sort of what's been told - what's been said about PayPal and just learning as they go. But it's still gonna be a lot of money and a lot of time and a lot of effort. And that's one of the limiting factors, probably, to building another PayPal.