eBay announced this week that it acquired Zong, a mobile payments provider, for $240 million. The acquisition is an attempt to boost eBay-owned PayPal’s dominance in the mobile payments space as competition in the sector grows and the race to remain relevant heats up. Zong, based in Menlo Park, Calif., allows people to charge online purchases to their mobile phone bill. Zong is primarily used to purchase digital goods such as Facebook Credits for online social games. The company, founded in 2008, raised $15 million in venture capital from Matrix Partners.
We’ve written previously that Zong was a likely target for acquisition (given its unique marketshare and fast growth) and that PayPal was one of the more dominant players in electronic payments. So the combination is not a surprise. Zong will provide PayPal with access to a new user base — people without credit cards, or those uncomfortable sharing their credit-card information online – and will expand its market opportunity in developing countries. Zong’s extensive relationships with mobile carriers (over 250 in 45 countries around the world) will also provide PayPal’s 100 million plus user base with expanded payment options.
PayPal CEO Scott Thompson noted that the digital goods market is worth nearly $20 billion today and still growing. Increasingly advanced smartphones are revolutionizing the retail/e-commerce status quo, allowing shoppers to bring the Internet with them to the store, opening up an entirely new range of buying options. Jupiter Research reports that mobile revenue will reach $670 billion by 2015 — PayPal expects to handle over $3 billion in mobile payments this year alone.
eBay and PayPal have already made five acquisitions this year: local payments and advertising company Where; ecommerce solution Magento; non-profit payment software provider MissionFish; Turkish online-retailer GittiGidiyor; and mobile payment technology FigCard. These acquisitions are no doubt a strategy to fend off increased competition from startups including Square and Google Wallet, as well as companies such as Zong-rival Boku. We expect to see e-commerce and financial services players targeting innovative startups to fill the gaps in their technology that they need to remain relevant to users and consumers. M&A in this space has only just begun.