eBay

PayPal's corporate genetics came from Confinity, established in December 1998 by Max Levchin, Peter Thiel, and Luke Nosek as Fieldlink, a security-software startup that pivoted to a digital wallet when its first business foundered; the first version of the PayPal payments system launched in 1999. In March 2000 Confinity merged with X.com, the online financial-services company Musk had co-founded in March 1999 with Harris Fricker, Christopher Payne, and Ed Ho. Musk was optimistic about the money-transfer business; X.com president Bill Harris disagreed about its prospects and left in May 2000. That October, Musk decided X.com would terminate its other internet-banking operations and concentrate on payments, the same month the board replaced him with Thiel as chief executive. The company was renamed PayPal in June 2001 and went public in 2002 at $13 per share, raising over $61 million before eBay acquired it that October for $1.5 billion in stock.

The eBay acquisition validated PayPal's network position. By the time of the October 2002 purchase, more than 70 percent of eBay auctions accepted PayPal payments, and roughly one in four closed auction listings was transacted through the service, which competed against eBay's own Billpoint subsidiary as well as Citibank's c2it, Yahoo's PayDirect, and later Google Checkout. The scale kept compounding under eBay ownership, reaching $1.8 billion in revenue by the end of 2007 and more than 100 million active user accounts across 190 markets and 25 currencies by 2010. For Musk the transaction was an exit that produced roughly $175.8 million and a diaspora. The alumni network, the so-called PayPal Mafia including Thiel, David Sacks, and Luke Nosek, became a standing force in Silicon Valley investing and, two decades later, a reported source of encouragement for Musk's purchase of Twitter.

Facebook's financial coming of age arrived on a compressed timeline. It reached EBITDA profitability in early 2008 and turned cash-flow positive in September 2009, ahead of schedule, after closing a roughly two hundred million dollar operating gap. The Russian investment firm DST injected two hundred million dollars in 2009 at a ten billion dollar valuation, money Zuckerberg described as buffer rather than necessity. By July 2010 the service counted five hundred million users, half of them logging in daily for an average of thirty-four minutes, with one hundred fifty million on mobile. SecondMarket trades valued the company at forty-one billion dollars by November 2010, pushing it past eBay to become the third most valuable American web property after Google and Amazon. In January 2009, Compete data had already ranked it the most used social network in the world, a position it would not relinquish.

The PayPal fortune began as X.com, the online financial-services and e-mail-payment company Musk co-founded in 1999. One of the first federally insured online banks, it signed up more than 200,000 customers in its initial months, yet investors judged Musk inexperienced and replaced him with Intuit chief executive Bill Harris by year's end. In 2000 X.com merged with Confinity, the startup founded by Max Levchin and Peter Thiel whose PayPal money-transfer service outgunned X.com's own product. Musk returned as chief executive of the combined company, but his preference for Microsoft software over Unix opened a rift that pushed Thiel to resign; the board then ousted Musk himself in 2000 and reinstated Thiel. Under Thiel the company focused on the PayPal service and renamed itself PayPal in 2001. When eBay bought PayPal for $1.5 billion in stock in 2002, Musk, the largest shareholder at 11.72 percent, received $175.8 million, the war chest for everything after.

In early 2014 Icahn bought a stake in eBay and publicly demanded the separation of PayPal, arguing that keeping the payments business inside the marketplace company suppressed the value of both and that the board's refusals reflected entrenchment rather than analysis. His letters were unusually blunt, accusing the board of conflicts and poor oversight while praising the PayPal franchise itself.

Although Icahn withdrew his proxy fight that spring after failing to win board seats, eBay announced in September 2014 that it would spin off PayPal anyway. The separation, completed in 2015, created two public companies whose combined market value validated the core of his argument, and the campaign is now taught as a case where activism lost the vote but won the decision.