eBay Acquisition of Zong

EBay Inc. said Thursday it is acquiring Zong Inc., a venture-backed mobile payments provider, for about $240 million in cash.

Zong, a member of last year's FASTech 50--the "most promising" start-ups that VentureWire selects for its FASTech conference--enables consumers to post payments to their mobile phone bills, mostly to pay for virtual goods inside of games.

EBay said Zong will strengthen PayPal's payment platform, which in the past has focused on microtransactions and digital goods, but didn't enable payments to be posted to the mobile phone bill.

EBay has been on a spending spree, most recently acquiring GSI Commerce Inc. for more than $3 billion, and other companies including Where Inc., Fig Card and Milo Inc.

Founded in 2008, Menlo Park, Calif.-based Zong was spun off from Echovox, and had raised about $30 million from investors including Advent Venture Partners, Matrix Partners and Newbury Ventures.

Advent General Partner Frederic Court said the sale generated a 7.7-times return on his firm's investment.

"Mobile payments for us has been a key investment," Court said. "It's a pretty hot space. We're really delighted for the Zong team. The combination of Zong and PayPal is very powerful."

PayPal's chief financial officer, Patrick Dupuis, said it became obvious that the two companies shared the same vision for the market during discussions over the past few months. "We've been growing by leaps and bounds ourselves, so it was nice to find someone who shares so closely how we can transform commerce," he said.

Zong has access to 3.2 billion mobile users through about 250 carrier connections around the world, and perhaps is best known for working closely with Facebook Inc. to sell the social network's virtual currency over the phone.

It competes heavily against other payment alternatives, such as Boku Inc., Billing Revolution Inc., BilltoMobile and mopay Inc.

In a letter on Zong's website, Chief Executive David Marcus wrote: "Most of e-commerce will shortly become m-commerce, and I genuinely believe that PayPal, hand-in-hand with wireless carriers around the world will win in a big way."

In an interview, Marcus elaborated that he's excited to be able to accelerate what they've been doing for the past few years. "PayPal has 9 million merchants, so accelerating what we are doing on the merchant piece is key, and branching out into other things," he said. "It will make us a clear leader."

PayPal recently revised its estimates to say that it will process $3 billion in mobile-device payments this year, up from the company's previous projection of $2 billion.

Many companies believe the industry is worth duking it out for, but there are so many alternatives being explored, it isn't clear which payment solutions consumers will end up adopting.

Carrier billing is just one of them.

Google Inc. has its own Wallet solution, Square Inc. is trying to replace registers with iPads, and the wireless carriers have their own initiatives, as well.

As the industry evolves, it's becoming increasingly clear that carriers don't want a lot of extra charges appearing on the wireless phone bill, and don't want to take on the risk of consumers paying for it at the end of the month.

So far, with small purchases, such as virtual goods, it hasn't been an issue.

PayPal is exploring various mobile payment initiatives, including in-store mobile payments, and microtransactions in applications and on the mobile Web. Earlier this year, it launched PayPal for Digital Goods, a new product that lets buyers pay in two clicks without leaving their gaming experience or content site.

"Exciting" doesn't even begin to describe how much activity is going on in the space right now, Dupuis said. "Everyone is talking a lot about this, and we've been a wallet in the cloud forever. We want customers to have choice, and this adds one choice. In the end, we want people to pay anytime, anywhere with a whole suite of options. This is centered on the customer--the less friction the better."

EBay said it doesn't expect the acquisition of Zong to have a material impact on its financial guidance issued in its first-quarter earnings release. The deal is expected to close in the third quarter, pending regulatory review.

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