You know the stereotypical spoiled rich girl, who gets everything she wants just by asking? Turns out Carl Icahn is the world’s oldest and hairiest spoiled rich girl.

Carl Icahn, an activist investor also known for his Apple tweets and cash distribution demands, started calling for eBay to spin off its payments unit, PayPal, into its own company nearly a year ago. Well today Carl got his wish because eBay announced it is spinning off PayPal, which should IPO in 2015. Ebay (EBAY) is up 8% from yesterday’s closing price based on the announcement.

PayPal

PayPal currently contributes nearly half of eBay’s revenues, so you may be wondering why eBay would voluntarily split itself in half. Well, with the increasing competition in the mobile payments market, eBay sees both big opportunities for PayPal and a need for PayPal to step up its game.

The competition for mobile pay was already getting started with startups like Square and Venmo (a PayPal subsidiary since 2013). And now the big guns have entered the game, with Apple (AAPL) announcing its new mobile payment system, Apple Pay, along with the new iPhones.

The spin-off of PayPal will allow it to better succeed in the growing mobile payments market in two key ways:

  1. Ditching eBay opens PayPal to a wider customer base

EBay originally bought PayPal in 2002 to create better efficiencies (in business talk: synergies) by combining the place people buy things (eBay) with the method they buy them with (PayPal). This was a great move for eBay but over time has been decreasingly valuable as eBay accounts for less and less of PayPal’s sales. Less than one-third of the total dollar volume of payments PayPal processed last year came from eBay.

Until now, PayPal had been limited in its growth due to its affiliation with eBay. Any retail site that competes with eBay would not want to ink a deal for its customers to use PayPal, since doing so would put spending money directly in the wallet of its competitors. Once PayPal is a standalone entity, it can woo Amazon as a (potentially giant) customer. On top of that, PayPal is open to being included in existing mobile wallet systems like Apple Pay and Google Wallet.

  1. Splitting the two companies creates better agility for each

Here, you can think of the marketplace in terms of a sports analogy. Sometimes it’s ideal to be the big, burly guy on the field who moves slow but can shove people out of his way. And sometimes it’s ideal to be the small, fast guy who can dart around opponents. It seems eBay has determined the current competitive environment is calling for the latter, nimble approach.

Spinning off PayPal will allow each company to focus more closely on its core operations – eBay on sales and marketplaces, and PayPal on the increasingly competitive world of mobile payments. As a first step, eBay announced it is bringing on a CEO to best fit PayPal’s needs. Ebay  announced today it is bringing on a new PayPal President, Daniel Schulman, who will become the PayPal CEO once it’s spun off. Schulman led American Express’s alternative mobile and online payment services strategy, so it looks as though PayPal is looking to step up its mobile game with this spin-off.

The spin-off may also allow PayPal to make more acquisitions to expand its mobile and consumer platforms. PayPal started with the acquisition of Braintree last year. Braintree is a mobile-heavy payments platform popular with fellow startups like Airbnb, LivingSocial, and Uber. Just as key in my opinion, Braintree was the owner of Venmo, a popular consumer-to-consumer payment platform. PayPal can now make more acquisitions like this to expand its reach without having to worry if the acquisitions are a fit for eBay as well.

It seems like this is truly a case of two halves being greater than the whole. I’m looking forward to seeing how PayPal’s IPO turns out next year.

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