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From Peter Thiel's book Zero to One: "At PayPal, our initial user base was 24 people, all of whom worked at PayPal. Acquiring customers through banner advertising proved too expensive. However, by directly paying people to sign up and then paying them more to refer friends, we achieved extraordinary growth. This strategy cost us $ 20 per customer, but it also led to 7% daily growth, which meant that our user base nearly doubled every 10 days. After four or five months, we had hundreds of thousands of users and a viable opportunity to build a great company by servicing money transfers for small fees that ended up greatly exceeding our customer acquisition cost."

Thiel, Peter; Masters, Blake (2014-09-16). Zero to One: Notes on Startups, or How to Build the Future (p. 137). Crown Publishing Group. Kindle Edition.

  • VV

    Visakan Veerasamy

    almost 4 years ago #

    Fun fact: according to former PayPal COO David Sacks, it was Elon Musk who came up with the referral idea.

    Source: http://www.globalsecurity.org/org/news/2003/030422-space01.htm

  • RA

    Ramin Assemi

    almost 4 years ago #

    'The Paypal Wars' by Eric M. Jackson (he was an early employee) is a great book that talks in much detail about this, and other things Paypal tried to drive growth.

  • JA

    Jason Allias

    almost 4 years ago #

    The "Paypal bot"

  • AS

    Adam Szabo

    almost 4 years ago #

    So they just offered people $20, tracked if they actually signed up, and then released the $20, no more obligations? Also, could you elaborate on the referral system @sean please?

    This is an interesting channel for growth, that's for sure :)

    • VV

      Visakan Veerasamy

      almost 4 years ago #

      The "no more obligations" bit worked especially well for Paypal in a way that wouldn't work for anybody else- because while you might sign up purely with the intention of exploiting the system, the "unintended side effect" (from the 'exploiter's' POV) is that you now have a PayPal account. As do all of your friends. And when somebody then says "Hey, can I transfer $$ to your PayPal", you think, "Oh, yeah. Sure. I have an account." So the customer acquisition cost actually made sense for PayPal, in those early days.

      I imagine we may see similar things happening for Bitcoin exchanges if we haven't already! ("Sign up, get free bitcoin. No obligations.")

    • SE

      Sean Ellis

      almost 4 years ago #

      I don't have more details beyond the quote I listed, but @ramin suggested that the book "The Paypal Wars" has more details.

      • AS

        Adam Szabo

        almost 4 years ago #

        Then I guess I'll buy the book as a Christmas gift for myself :)
        Thanks for sharing the quote!

        • SE

          Sean Ellis

          almost 4 years ago #

          I have the book, so will see if I can dig up a quick useful quote. But you should still buy it too :)

          • SE

            Sean Ellis

            almost 4 years ago #

            Here's a quote from PayPal wars: "But PayPal wasn’t just a free service—its promotional bonus program rewarded all new account holders with a $10 deposit just for registering and linking a credit card to their account. And that wasn’t all. Confinity would also pay users $10 for every new customer they referred to the service who completed the registration requirements! It was an obvious ploy to gain new customers, but an effective one. I spent the remainder of that gray afternoon blasting dollars into my friends’ inboxes."

            Jackson, Eric M. (2008-03-01). The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth (Kindle Locations 239-243). Midpoint Trade Books. Kindle Edition.

    • JC

      Jonathan Cordeau

      over 3 years ago #

      Stellar employed a similar launch strategy or distributing "stellars" as customer acquisition. Interesting read on "what happened" here: https://www.stellar.org/blog/direct-signup-program-updates/.

  • LP

    Laxman Papineni

    almost 4 years ago #

    Thanks for sharing @sean

    In fact after PayPal and Dropbox, by default referrals has been part of every business roadmap. It's still increasing and there is lot of scope going forward.

    Specially for mobile app downloads.

  • PM

    Paul Marshall

    over 3 years ago #

    An atypical method of acquisition that adds $20 to CAC and can be measured, tracked and refined like any other channel but is a bold, attractive enticement for short term engagement.

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