Economic Principles and Future Impact of eBay Decision to Spin Off Pay Pal

Macroeconomics 202: Business cycles: phases, indicators, measures, economic evolution, outlooks
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Introduction
EBay is a Technology Company with three distinct but interrelated units in GSI, Marketplace and Payments. As one of the largest companies in the Internet Software and Services sector, the organization has emerged to provide online platforms for individuals and companies to engage in e-commerce (New York Times, n.d.). Another source of revenue for the company is through marketing and advertising. There is also an option for software developers to rely on the company’s platform where developers can access information that facilitate the creation of software solutions (New York Times, n.d.). Nonetheless the company has unperformed when compared with the industry benchmark, highlighting the need for more robust strategies to improve the company’s future growth outlook.
EBay and spinning off Pay Pal
After the 2008 recession, many firms merged with others or acquired businesses that would help in the diversification process. In the case of eBay, there are suggestions that the PayPal businesses should be made a separate business venture as a spin off in 2015. The company is considering cutting jobs, while Pay Pal is projected to have improved growth prospects in comparison to eBay (Bensinger, 2014). The persons affected by layoffs are mostly in the marketplace unit, with this constituting about 10%. It is noteworthy that this would lower operating costs and make the company target for buyout (Bensinger, 2014). Surprisingly, this decision is different from that of competitors including Apple and Amazon, which have increasingly sought to integrate payment services into there business operations. The need to control costs has informed the management decision on actions to be undertaken.
Background to restructuring in eBay
One of the issues facing eBay is that the decision to spin off Pay Pal may prove costly in the long term, given the trend where online businesses are consolidating there operations. EBay was not in favor of splitting the two entities, but after persistent attempts by an investor, the company management finally decided that there would be two different ventures for Pay Pal and eBay. Nonetheless, Pay Pal was a big source of revenue for the combined company, and it may overtake the eBay marketplace unit for revenue generation over time. It still not certain whether another slow down in the economy would dampen investors expectations on eBay more than other competitors, given that mergers and acquisitions tend to increase when smaller firms face stiff competition.
One of the arguments advanced in favor of a spin off is that it would provide more opportunities for the two companies to have flexibility, independence as well as focus to enable them to adapt to customers and markets. This argument supports the view that separate entities are more likely to emphasize on maximizing shareholders’ values, even in cases where they have less financial muscle compared to the previous situation. If managed properly, eBay has the potential to enter into the online payment market, given that the main problem for Pay Pal has been the inability to keep talen...