Said Osama Bedier, PayPal's VP of Product Development, "We'll do 70 billion in sales this year, but there's $30 trillion dollars being spent globally. We need to tap into this... You are the X factor."

Developers can access X.com's SDKs, technical docs and API support tools to produce integrated checkout solutions. Examples of some pre-existing products using the new Adaptive Payments API include:

• The Javastore's new drag-and-drop installation and frictionless payment system;
• Instant storefronts for Facebook via Payvment's social network shopping cart system; and
• Cut-and-paste shopping solutions embedded in mobile applications, including instant purchases via ShopSavvy's barcode-enabled comparative shopping Android application.

So far, one of the key points of this morning's proceedings has been mention of the "removal of pricing barriers." As a direct shot at Amazon, the company plans to offer what it describes as an "enhanced pricing structure," with a $0.50 flat fee per transaction. For more on today's PayPal developer event, check back here for details.

According to the blog post, there are only a few steps necessary to get up-and-running with Google Checkout on your site, a process they claim will only take "a matter of minutes." (That may depend on how much inventory you sell, however.)

After signing up for your Google Checkout Seller Account the next step is to list the products you want to sell in a Google Docs spreadsheet. The process couldn't be easier. Google provides you with a copy of their template spreadsheet. When you click the link, you're prompted to click on another link reading: "Yes, make a copy." Doing so copies the template file over to your own Google Docs account where you'll see a basic spreadsheet that features columns for title, content, price, quantity, shipping, image_link, option, and option_name. So you'll know what those fields are used for, the spreadsheet also includes some example inventory entries. When you're finished listing your inventory, you simply publish the spreadsheet as a web page.

The final step is to pick the embed location, a list which allows you to choose between a normal HTML web site or one of the following Google-owned properties: Google Sites, Blogger, or iGoogle. Then you choose the size of your gadget and make a couple of changes to the code, one of which is pasting in the URL to your own Google Docs spreadsheet.

The Checkout Gadget is still a Google Labs project, meaning (in theory) that it's still in the experimental phase. Of course, with Google, the same company that left Gmail in beta until just this year, it's hard to know exactly how "experimental" the gadget really is at this point.

Google Checkout Gadget is "Good Enough"

At the end of the day, PayPal may offer more options for configuring web site buttons as they allow you to configure shipping by weight, various tax calculations, and a customized button appearance among other things. Still, Google Checkout is doing what Google knows best how to do: provide a simple, easy-to-use service to attract the set of users looking for "good enough" (but not the best). As with many of their other services - like Google Docs and Google Sites, for example - Google's offerings may not be the absolute best in their field, but they're good enough for most users. For example, with Google Docs: to date, Microsoft Office still has more features than Docs and Zoho is by far a more robust online suite, but Docs is straightforward and simple. The same can be said for the new Checkout gadget. It may not be the best, but for small business sellers who don't need complicated setups, the gadget will likely be a good fit.

The new Application Programming Interface (API) is due to become available in early November. It will let software developers plug PayPal payment functionality into their systems to leverage the company's transaction, currency and security capabilities. Most interesting to us was the electric outlet analogy.

Osama Bedier, PayPal's VP of Product Development, said at the announcement event that just like electrical outlets facilitated increased consumption of electricity, "a secure global payment system will let the internet reach parts of our lives we can't even imagine." More and different ways of using the internet will be invented once monetization is possible and a profit motive present for those inventions, he argued.

That makes sense. It is a little unnerving to imagine the global system providing that platform being controlled by one company, but fortunately PayPal is following the footsteps of Amazon and its related Flexible Payment System. (See Leena Rao's account for a comparison of the two systems.)

PayPal believes it can grow even more central to the online payment economy. Ina Fried quotes CEO John Donohue at a separate event today as having said "PayPal is a business that will be bigger than eBay."

Electricity is certainly bigger than auctioneering, even if it does lack its own charming patois.

Whether or not PayPal is the company to pull off this grand vision of distributed, global, secure online payments is another question - but the analogy used by Bedier to describe the vision seems like a sound and important one. A trusted, secure, easy, sophisticated online payment system could very well foster a fundamentally different era in online computing by enabling developers to develop in a financially sustainable way.

Real human social networks (as opposed to the tools that facilitate online communication between people in a social network) have an obvious reverse network effect. If I have too many people in my social network, I cannot pay enough attention to each of them, and without attention, relationships fade.

Back in September 2007, we looked at social motivation in the real world, specifically the two distinct types of motivation. One is, "I want to communicate better with the people I already know and trust". The other is, "I want to increase my visibility so that I can connect with more people."

Both have clear limits. The number of people I can really know and trust is limited, because knowing and trusting take time and attention. Increasing visibility, whether by blogging or tweeting or advertising or PR, is less limited. But when visibility goes beyond a certain number of people, it becomes no more social than broadcast media or spamming. The personal touch is gone. The real community spirit is gone.

As Groucho Marx remarked, "I refuse to join any club that would have me as a member." If it is an exclusive club, the membership has to be limited. If it is not exclusive, is it really "social"?

eBay is the classic example of a network that lost its community spirit after reaching a certain scale, as the comments on this post vehemently demonstrate. This loss opened the market for eBay alternatives, such as Bonanzle. It is unclear whether these alternatives will face the same issues when they get to scale.

Etsy will be an interesting case study. It looks like it may avoid the reverse network effect by being focused entirely on handmade goods. That focus may limit its eventual scale, as not everybody wants to make or buy handmade goods, but it will still be able to build a business more than big enough to satisfy even the most demanding dreams of avarice. That focus on handmade goods will act as its social glue. It will grow as eBay would have had it decided to remain focused on the global garage sale, not getting lured into selling mass consumer goods. I suspect if eBay had done that, its core business today would be smaller but ultimately more profitable and sustainable.

Networks Without Messy Human Interaction Are Immune

eBay the corporation owns two businesses that have almost perfect network effects and do not suffer from any reverse network effects: PayPal and Skype.

PayPal works for consumers because merchants use it, and merchants like it because consumers like it. The fact that everybody likes it won't make me like it any less.

Skype gets more useful with each new user, and each new user promotes Skype, consciously or unconsciously, for his or her own reasons. Even better, the cost of providing the service goes down with each new user, and that is really unusual (a function of Skype's P2P architecture). Google and PayPal also benefit from each new user, but they still have to service that user, and that costs money. In the case of a video service such as YouTube, the servicing cost is significant. So Skype really is in a league of its own when it comes to network effects, and that is why it may become the world's largest telephone company and the biggest economic success story of the Web 2.0 era. (Google Voice, having just thrown its hat in the ring to battle Skype, will be interesting to watch. My bet is on Skype.)

The difference, though, is that we do not look at these services as communities. They are simply enablers of commodity transactions: payments and phone calls.

What About Social Networks?

Does Facebook still feel special now that it has 175 million users and is growing at a rate of 600,000 per day? That is a sincere question for Facebook users. I am one of the few people who do not use Facebook. For whatever reason, I never got into the habit. And I have no compelling reason to start now. This has made me a bear on Facebook for a long time. As a non-user, I miss what makes Facebook special and why it grows so fast.

The network that I use is LinkedIn. I use it to connect to people who my contacts know. As far as I am concerned, it is a utility in the same way that the phone or my email/CRM system is a utility. Do I care that LinkedIn has 7.7 million users now? Does that make it more valuable to me? No. Is Facebook 22 times more valuable to me than LinkedIn because it has 22 times more users? No.

Here is the theory:

In a social network, the value for existing users of a new user joining the network plateaus once users have most of their own contacts in that network.

Of course, the social network grows in value as a business as more users come into it because the network then has more eyeballs to sell to advertisers. But that is different from network effects. As a LinkedIn user, I do not benefit when more strangers join. I already have about 90% of my contacts in there, and the remaining 10% may remain hold-outs; and I don't really care anyway, because I can always reach them outside of LinkedIn. When I meet somebody in business, I look them up on LinkedIn and connect if they are on it (I cannot recall anybody recently who was not on it). I do that to keep my Rolodex updated, which is a very valuable utility for me. But my actions are not growing the network. If I joined a new network, I would spam all my contacts asking them to join, but I have zero motivation to do that.

As a long-time Facebook user, do you care when more strangers join? Does it make any difference to the value you get from Facebook?

So, it is possible that the network effect has a natural plateau.

A Plateau Is Okay, But a Steep Downward Slope?

Whether that plateau turns into a downward slope depends on the monetization strategy adopted by the "owners" of the social network. And in the social networking business, a downward slope can very quickly become a steep slope or even a cliff. Trust tends to be binary; viral can work both ways; and switching costs are minimal. That is why I put "owners" in quotation marks. You can never really own a social network or community. You can provide services and extract rent for only as long as the community wants those services and is willing to pay the rent.

This is where the incredibly high valuations of businesses such as Facebook and LinkedIn may become problematic. If these businesses get too eager to monetize to justify those valuations, they may create the reverse network effect.

There are only two ways to monetize: ask for revenue from users who regard the service as a utility (like paying for the phone company), or ask for revenue from vendors that want to sell something to the people using the service. Thus far, all the major social networks have taken the latter fork in the road. They don't want to become utilities because that wouldn't justify their lofty valuations. So they have to sell more to those who use the service. At that point, the reverse network effects may kick in.

Craigslist

Craigslist chose a different path by not taking on external investors. It has no valuation to justify. It can leave masses of money on the table without any worries. So Craigslist won't suffer the reverse network effects that come from over-eager monetization. Its model of allowing lots of free listings will sustain high growth and is clearly impacting eBay's business.

Twitter an Interesting Case Study

Once again, Twitter is the interesting one to watch. The ease with which one can add and delete who one follows makes its size self-regulating. As a real-time search tool, its value goes up with each new user. As a communication tool, it goes up as new people join who might be interesting to follow. Its openness may prevent the reverse network effect.

The other reason Twitter is an interesting case study is that it has not yet disclosed its revenue model. If the revenue model it does adopt involves selling to its users, the reverse network effect may kick in. Twitter would become classic MBA case study material, a fact of which management must be well aware!

John Donahoe made the very reasonable point that online e-commerce will look like offline commerce: fragmented. Consumers will buy from eBay, Amazon, Walmart.com, Zappos, whatever gets their attention and has the right product at the right price. That rings of common sense.

To illustrate this fragmentation, he told us that the mighty Walmart has only 4% of the market.

For a more extensive discussion of the problems facing eBay's core service, read this very well-reasoned (but long) post on SeekingAlpha.

When queried on these issues, Donahoe simply indicated that the problems did not originate on his watch, that he was aware of them, and that they were complex to solve. That does not seem enough. The bits of insight above may be great, but eBay needs to fix its core service to regain its stature as a leader and give investors a good return. You don't transform a company without fixing the core, and investors clearly feel that eBay needs transforming; that is the message behind a stock price that in the last 12 months trails the NASDAQ and peers like Google and Amazon. eBay is actually in the rather miserable club with Yahoo, as perceived by investors.

PayPal: Jewel in the Crown?

Donahoe contrasted the fragmented e-commerce business with the highly consolidated payments business. Clearly, the latter has greater appeal. One can see why. The payments business is global and dominated by a few players: Visa, MasterCard, and Amex. As the low-cost player best suited to the web, PayPal has enormous potential.

I'm pretty sure I even heard Donahoe say, "PayPal should be bigger than eBay." As he spoke about the global payments system, one could see why.

He described the national banking regulatory challenges, a major barrier to entry. Taking money online is the easy bit, he said. Moving that money in and out of the traditional banking system is hard, because the banking system has to adhere to a maze of local regulations. Donahoe told us that eBay works on penetrating something like 5 to 15 new countries each year. Some, like Japan, remain a challenge.

This is clearly a huge opportunity, but these local regulations are a big barrier to entry. Anyone who has done a lot of international business can attest to how archaic some of the processes are. Wiring money is bad enough, but the processes around letters of credit seem positively arcane, almost 19th-century.

Oh, and a $500 million High-Growth Skype Business

Skype is the eBay business I am most familiar with as a user. We use it all the time here at ReadWriteWeb. It is a core tool for running a small business in which colleagues, clients, audience, partners, and everybody else in the community are all over the world. For entirely selfish reasons, I evangelize Skype to everybody. Now, I want Skype on my cell phone to cut my mobile bills; it is definitely ready for prime-time.

And yes, Skype is a real business. Donahoe told us that Skype generated $500 million in revenue last year, with "high-teen margins" and growth rates of 30% to 40%. Saying "That's not a bad business" got a wry laugh from the audience (all of whom would consider it a totally amazing business). In any other market, that would be a red-hot IPO.

Skype is perfectly positioned for a long recession, too. That already shows in the numbers. In the last quarter, Donahoe told us that Skype-to-Skype grew 73% and Skype Out grew 63%. I can personally attest to seeing many smart people, who had not used Skype previously, see it and say, "OMG, it's amazing."

$500 million was only 6% of eBay's total $8.5 billion revenue in 2008. But with Skype growing at 30% to 40% and eBay's core service hurt by a slow-down in consumer spending, this percentage could change significantly in 2009.

How much could eBay get for Skype, a business that already has scale, good revenue growth, decent margins, and a model and technology that are disrupting the massive telecom market globally? It is not entirely outrageous to think that Skype could become the biggest telecom company in the world at some not-too-distant point in the future. At some point, the IPO market will come back. All of eBay (including PayPal and Skype) is currently valued by the market at $15 billion. How much would the market value of Skype as an independent entity be? More than 6% of $15 billion? I think so.

eBay spinning off Skype was one of the three web-tech market events that I wished for (not predicted) for 2009. It looks possible. Methinks it is simply a matter of timing and market conditions.

The VC Portfolio

As well as being a collection of great but unrelated businesses, a kind of online conglomerate, eBay also looks like a VC with a strange but interesting mix of minority stakes. The most interesting and oft-discussed is its 28% stake in Craigslist. It is clearly not a happy relationship. But that 28% must be worth something.

The Economic Question

The underlying question for everybody at the Accel Symposium was, "What about the effect of the economy on your business?" Donahoe pointed out that they saw the downturn in their PayPal and eBay lines as early as May. Signals from millions of small buyers and sellers are far more reliable than any GDP numbers. So they were able to take corrective action early.

eBay's biggest action was to offer coupons to buyers, to help sellers. As he pointed out, small sellers have weak balance sheets, so a downturn can make them vanish quickly. eBay moved quickly to support its sellers.

Asked if eBay was recession-proof, Donahoe pointed to Skype as being perfectly positioned, but he noted that if consumer spending slows, then even e-commerce is affected. And e-commerce is down.

Time to Fix E-Commerce While it's Down

eBay needs to have a compelling core proposition for e-commerce that unites auction, fixed price, and classified ads. Donahoe pointed out that search is the obvious unifier. But it is not clear how eBay can use this to its advantage.

E-commerce still makes up only 7% of retail. Given the amount of time we spend online and the obvious opportunities, this could grow to 15% to 20%. A big prize awaits here when the economy turns around. eBay has the financial strength to build through the downturn.

Donahoe also painted a vision of mobile e-commerce. It is one that others have painted before: you go into a real-world retail store; see an item you like; scan the barcode to get the price; find a better price online; then decide whether to buy it in the store or online, depending on whether you prefer convenience or lower price.

As he pointed out, this could encounter a bit of resistance. I can envision videos popping up on YouTube of irate shopkeepers throwing out barcode-swiping bargain hunters! Physical retailers will have to adapt, but online folks such as eBay will have to be sensitive to their needs. This will be interesting to watch.

Granted, this could be another opportunity for us to herald a tipping point for OpenID. But at a time when solutions like OpenID, sign-on services like Facebook Connect, and all-encompassing solutions like JanRain RPX continue to gain traction, we'll settle for noting that the concept of portable digital identities continues to gather momentum - and acceptance.

In conjunction with the PayPal announcement, the Foundation also announced the election of its officers: Brian Kissel of JanRain, Chair; Scott Kveton of Vidoop, Vice-Chair; Mike Jones of Microsoft, Secretary; Raj Mata of Yahoo!, Treasurer, and David Recordon of Six Apart, Committee Liaison. An international liaison is yet to be named.

If you're interested in hearing more on OpenID directly from the members of the OpenID Foundation, ReadWriteWeb recently had the opportunity to sit down for an OpenID podcast with Kissel, Kveton, Chris Messina, and Recordon to discuss OpenID and its potential.

As a blogging platform, Open Salon is about as standard as they come. The front page features a number of especially interesting posts as determined by the editors, as well as the ability to see the top rated, most read, and latest posts. Users can comment, rate, and save the posts on popular bookmarking sites like delicious, digg, and reddit. Open Salon also provides profiles and RSS feeds for every user. We were not able to determine if there was any way to post to Open Salon from a desktop blogging client, but at least for now, there is no indication that this would be possible, so users are restricted to posting from the rich-text editor provided on the site.

Free Tips

To process micropayments from the Tippem jar, Salon.com has chosen Revolution MoneyExchange, which is still officially in beta, but must have proven stable enough by now to be chosen by Salon.com over competitors like PayPal or OboPay. Salon.com has set the default tip amount to $1, with $0.10 being the minimum and $1000 the maximum amount one can tip (for tips of $1000, Open Salon advises you to contact the author directly).

It's important to note here that everybody who signs up from a Revolution MoneyExchange account from Open Salon immediately gets $10 to give away as tips from Open Salon. While this will surely seed the system at the beginning, the real question, as Caroline McCarthy also points out, will be if users will keep tipping after those first $10 have been exhausted. After all, it's easy to tip if it doesn't cost you anything.

Good Fit For Salon.com's Culture?

Given that most users on the web consider content to be free, it will be hard for Salon to foster a culture where paying for blog content becomes a regular event. But then, Salon.com is, of course, one of the few sites where a lot of the content is not free, but only available to subscribers or after being forced to watch a 15-second full screen advertisement. Because of this, Salon.com's audience might be more willing to pay for content than the average Internet user.

Tippem, by the way, is only available to US citizen at this point.

eBay argued that these changes will lessen the likelihood of "bad buyer experiences" by increasing trust and security between buyers and sellers. But competitors, including Google (allegedly), Paymate, eWay, Qpay, BPAY, American Express, and a handful of eBay seller organizations and Australian banks have lodged counter arguments with the ACCC.

About individual 650 eBay users also submit counters to the ACCC. According to the Comission, "The overwhelming majority of these submissions were opposed to the notified conduct and raised concerns regarding restriction of choice, increased fees and issues associated with PayPal's security, dispute resolution and customer service."

In the end, the ACCC decided that the proposed eBay TOS changes would have "the effect of substantially lessening competition in the market in which PayPal operates" and likely result in "reduced choice for consumers, higher transactions costs and reduced innovation in online payment systems." Therefore, the ACCC released a draft notice denying eBay's request. However, this isn't necessarily the end of the issue. Under ACCC rules, eBay has the right to request a public conference at which all interested parties may speak their case to the ACCC, after which the Commission may reconsider their ruling.

For now, though, PayPal will not be the only option for eBay users in Australia -- and for that, sellers are mostly very happy. eBay's seller forums are this morning filled with threads of almost unanimously happy sellers cheering on the initial ACCC ruling and musing over what effect it might have on governments in other countries where eBay operates.

So what is it that Safari is missing? For one, unlike the other browsers, Safari has no built-in phishing filter which warns web surfers when they visit suspicious web sites.

The other issue is that Safari doesn't support EV (Extended Validation) certificates. This secure web browsing technology turns the address bar green when visiting a legitimate web site.
Currently only IE supports EV certificates, but upcoming versions of Opera and Firefox will be supporting them as well.

"Safari has got nothing in terms of security support, only SSL (Secure Sockets Layer encryption), that's it," Barrett said.

But are these technologies really having an effect? Barrett thinks so. For example, with EV's, he is basing this decision on data compiled on PayPal's web site that show that IE 7 users are more likely to sign on to PayPal. He makes the leap to presume that this is because they are more confident that the site is legit.

But to the contrary, a study (PDF) on the effectiveness of EV shows that EV certificates aren't that useful unless someone is specifically trained to notice the green address bar and what it means.

So, is Barrett being overly cautious? Or is Safari really insecure?

In addition to the wiki, TradeVibes is trying to grow a community around its business information listings. Users are encouraged to discuss businesses in forums, rate whether they are "bearish" or "bullish" on specific companies, or submit news tied to companies listed in the database. News is voted on Digg-style and archived on the pages of companies it is associated with. Submitting news is sort of clumsy, as you have to pick the associated company from a drop down menu -- already a rather frustrating task with just 594 listings. But this is an alpha release, after all.

Each company listing has the expected fields: overview, industry and contact info, people, funding, products, competitors, and related companies. There is also sidebar content that is updated automatically including web metrics from Alexa, Yahoo!, and Technorati. I would love to see the site automatically pull content by keyword from Techmeme or include company blog feeds in these listings.

We have 250 invites available to ReadWriteWeb readers via a this invite link. Let us know what you think of TradeVibes in the comments.

According to David Ciccarelli, the CEO of Voices.com, who alerted us to the outage, the timing could not be worse. "This seriously effects our calendar year-end numbers as I'm sure it does many other businesses that utilize PayPal for managing website subscription payments," he told us.

A serious outage also afflicted the company in October 2004.

One thing all of these outages have so far had in common: they haven't done too much to hurt PayPal's business or let competitors gain some market share. Even now that seems unlikely. PayPal's two biggest competitors are Google, whose Checkout service doesn't support recurring subscriptions and Amazon, whose Flexible Payment Service does offer subscription functionality but is in limited beta and not available to everyone. Other than PayPal, the only other option for most sellers is going with an often costly full merchant account.