Apple Pay, not even launched yet, is already making waves. Apple’s payment system has caused eBay to move people and business units around.

Early in 2012, PayPal’s president, Scott Thompson, abruptly left the company to become CEO of Yahoo. During his four-year tenure at the eBay subsidiary, Thompson had doubled PayPal’s user population and increased payment volume by 26% per year to over $120B. So why did he leave? eBay CEO John Donahoe put it this way:

“Scott wanted to be a CEO, and that’s great. He felt the opportunity wasn’t going to come along again. He had the best non-CEO job in the world, but he wanted to be a CEO, and wanted to go for it.”

Yes, Thompson wanted to be CEO…of an independent PayPal, but Donahoe and the eBay board wouldn’t have it.

Fast forward to this year. Activist investor Carl Icahn believes that PayPal would be more creative and make more money for its shareholders if it were freed from eBay tangles, so he makes a non-binding proposal to separate PayPal from its parent company.

In a January 23rd, 2014 blog post, Donahoe rebuffs the offer and doubles down on his position:

“PayPal and eBay make sense together for many reasons. Let me highlight three that we believe are among the most important [emphasis his]:

One: eBay accelerates PayPal’s success.

Two: eBay data makes PayPal smarter.

And three: eBay funds PayPal’s growth.”

Donahoe prays at the Church of Synergy and Leverage: Together, eBay and PayPal will ascend to heights neither is able to reach on its own.

That was then.

Last week, Donahoe left the Church. He and the eBay Board announced their three-part game plan for 2015:

PayPal will become an independent company led by Dan Schulman (American Express, AT&T, Priceline, Virgin Mobile)

Devin Wenig, currently president of eBay Marketplace, will replace Donahoe as eBay CEO.

After the separation is complete, Donahoe will no longer have an executive role but will serve on the board of one or both companies

(Compensation packages for the new CEOs are detailed in this SEC filing.)

What happened?

In eBay’s Investor Presentation, Donahoe extolls the union’s accomplishments, but explains that “Now the Time is Right for Two World Class Independent Platforms” and that the decision to part company “[r]eflects confidence we can preserve relationships and avoid dis-synergies through arm’s-length operating agreements.”

Spoken like a true consultant. (Prior to joining eBay, Donahoe had a stellar career at Bain & Company, where his eBay CEO predecessor Meg Whitman also worked.)

There is a shorter explanation: Apple Pay.

Apple’s new payment system, tied to the iPhone 6, is supported by American Express, Visa, and MasterCard, and recognized by a number of merchants including Walgreens, Macy’s, Target, and Whole Foods.

This changes the competitive landscape in two ways.

The first is the gravitational well, the network effect: More participants will attract more participants. It remains to be seen how well Apple Pay will perform, but we know the Touch ID feature works well—better than this skeptical user expected, and better and more securely than its current competitors.

The second way Apple Pay changes the landscape is much more alarming to competitors: Business Model Disruption. For Apple, revenue from a payment system is peripheral, it’s yet another part of the larger ecosystem that sustains the iDevice money makers. To PayPal, of course, payment revenue is all there is.

This distinction isn’t clear to everyone. In a conversation in Paris last week, an otherwise sensible friend insisted that Apple Pay will be a “huge profit opportunity.” No, Apple will earn about $1 for every $700 charged through Apple Pay. In order to reach the $10 billion “unit of needle movement,” Apple Pay would have to transact $7 trillion. For reference, 2013 US retail revenue was $4.5 trillion.

According to its 2013 annual report, eBay processed about $180 billion in payments in 2013, yielding $6.1 billion in transaction revenue. For that same $180 billion, Apple would content itself with $270 million….that’s about 0.15% of the company’s overall revenue.

When eBay purchased PayPal for $1.5 billion in 2002, the deal made sense—it certainly made much more sense than the later acquisition and disposition of Skype. In recent years, PayPal has grown faster than eBay’s Marketplaces business, to the point where the two were roughly equal last year ($6.1 billion vs $6.8 billion.) Today, Wall Street values the combined companies at approximately $67 billion (although it will be interesting to see how much the PayPal “half” fetches).

The fast-growth, synergistic business Donahoe vigorously guarded last January has been kicked to the curb because its business model is threatened by Apple Pay.

It didn’t have to be that way. We’ve recently heard that PayPal and Apple had been in “massive” talks earlier this year…until Apple found out about PayPal’s partnership with Samsung, thus ending any hope of a collaboration with the Cupertino team. Recall that PayPal president David Marcus unexpectedly left the company last June to lead Facebook’s mobile messaging initiative. The official explanation at the time was that Marcus was simply looking for a new adventure, but it’s more likely that Marcus was frustrated with Donahoe:

“eBay CEO John Donahoe pushed for the Samsung deal even though PayPal president at the time, who left for Facebook following the Apple-PayPal deal collapse, David Marcus was ‘purposely categorically against the Samsung deal, knowing that it would jeopardize PayPal’s relationship with Apple.’”

Looking at the game board three months later, Donahoe dissolved the eBay-PayPal union and deliberately wrote himself out of a job—undoubtedly with the “help” of his board.

In the meantime, we have PayPal’s reaction to Apple Pay: An ad mocking Apple for the selfies fracas. Yes, a number of individual iCloud accounts were compromised by clever social engineering techniques and outright password theft, but no one seriously believes the iCloud infrastructure itself was penetrated. Conversely, in May of this year, eBay suffered a massive security breach requiring all users to change their passwords because hackers did gain access to the company’s servers, something PayPal management chose to ignore.

Again, we don’t yet know if Apple’s payment system will live up to its promise, but with the iPhone 6 and 6 Plus looking like The Mother of All Upgrades (two weeks after the launch, people are still lining up outside Apple Stores), Apple Pay should be on solid ground on its rumored October 20th opening day. Nonetheless, with an ex-Amex exec at the helm of a soon independent PayPal, the payment game is going to be interesting.

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