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Comment by davi | Hacker News Reader

At PayPal we spent tens of millions in marketing through our referral program (get a friend to join we'll give you $5-10)

Assuming a good business case (which PayPal had: bootstrap network effect with pure money), could a web startup ever get funded to do something like that today?

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Assuming you will get a measurable ROI for each referral, you probably could just go to the bank and negotiate a traditional loan to pay for it.

A lot of the ROI is speculative and aggregate, though, isn't it? You're not mainly buying the potential profitability of the specific new customer, but attempting to buy a network with enough critical mass to get off the ground as a viable payment mechanism. I'm not sure how you measure the ROI on that, since it's got huge uncertainty.

If you are going to spend tens of millions of dollars on a referral bonus promotion, it better not be speculative!

Well, it's the nature of markets dominated by network effects that outcomes tend to be fairly binary: either you build your critical-mass network and win huge, or you don't, and go bankrupt. I'm not sure there was a plausible middle-of-the-road outcome where PayPal becomes a small but profitable niche company.

I'm not sure that I agree with that. Niches have popped up and thrived middle of the road in markets that paypal vacated. Adult content and gambling come immediately to mind. So if they weren't getting the wide net traction they were after, they probably could have focused the beam into a successful niche. Who knows, If things went differently paypal could be working the neteller circuit of transactions.

Doesn't Gilt do this?

They give you $25, since most stuff on Gilt is pretty pricey (most items are $80+, with a lot that extend into the hundreds) my guess is it all works out for them. Plus, they have a rather steep $12 shipping+handling fee.

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