Conventional wisdom is that great products sell themselves.

However, Paypal cofounder, Peter Thiel, thinks that self-selling products just don’t exist. As he once said at his famous CS183 startup class,

“Poor distribution, not product, is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished…People say it all the time: this product is so good that it sells itself. This is almost never true. These people are lying, either to themselves, to others, or both. “

Given that Paypal today has 143 million active accounts and is processing more than 9 million payments everyday, one would forget this revolutionary company had its own distribution problem in the early days as well.

Back in 1999, when Paypal was still a tiny startup, it faced intense competition with better funded rivals like X.com, dotBank, and eBay’s Billpoint.

For a period of time, Paypal effectively gained a following by offering new users a $10 credit for registering and another $10 for referrals. However, this strategy also burned through its cash reserves pretty quickly. To separate itself from the competition, Paypal had to build and control a proprietary distribution channel that their competitors could not easily detect, much less duplicate.

When Paypal figured that eBay was their key distribution platform, their marketing team came up with a creative marketing campaign to simulate demand. They created a robot — a script that could spider eBay’s site looking for certain types of auctions — that bid on items and then, insisted on paying for the auction using Paypal.

According to Reid Hoffman, an original member of the PayPal mafia and co-founder of LinkedIn,

eBay was the only gold mine that existed. We had to win…One decisive move in the war was focusing on e-mail. The real platform for auctions wasn’t the eBay website, as most people assumed. It was e-mail. People would receive emails when they won auctions. eBay knew this but didn’t understand its importance. PayPal, on the other hand, got it and optimized accordingly. Very often PayPal would notify people that they won the auction before eBay did! People would then use PayPal to pay, which of course was the goal.

However, what if the seller doesn’t want to accept Paypal?

After all these years, most people have no idea what the actual content of the robot email is about anymore.

Eric Jackson, who previously ran the marketing team at PayPal, has shed some light on some more details in his award-winning book, The Paypal Wars.

Within a day we figured out the answer — the bot would bid on items for charity. We’d have our charity robot identify itself to sellers before it placed a bid, sending an e-mail that said it was collecting goods that would be donated but it could only pay with PayPal. The e-mail would then tell the seller that if he didn’t mind transacting with a computer program and accepting PayPal he could reply to the e-mail and a bid would automatically be placed. We thought most sellers would accept this offer since it was a win-win for them — bids from the robot would allow them to participate in a charitable cause while also ensuring that their auction price went higher. From our perspective, even if our bot didn’t win the auction, at least the seller would have been exposed to PayPal.

After successfully convinced Red Cross, an universally respected group, to partner with them, Paypal’s marketing team started sending out their pitches to sellers using the email address “charityrobot@paypal.com”.

Unsurprisingly, most of the sellers were more than happy to help out a charity and receive an extra bid that would increase the price of their listed item.

From then on, “The Paypal Charity Robot” has become PayPal’s secret weapon in the competitive online payments market.

Source: The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth

Source: Zero to One: Notes on Startups, or How to Build the Future

Source: Peter Thiel’s CS183: Startup — Class 9 Notes Essay — If You Build It, Will They Come?