eBay acquires Zong for $240M in cash

Zong's mobile payments technology is expected to beef up PayPal's standing in the digital goods dept

Big news for the mobile payments industry today. Ebay announced Thursday that it has agreed to acquire mobile payments company Zong for $240 million in cash, claiming that Zong will help strengthen PayPal’s leadership position in the mobile payments space.

Founded in 2008 by CEO David Marcus, Zong was a pioneer in the mobile payments phenomenon by using direct billing to mobile phone carriers to allow users to pay for virtual goods and other online purchases using their mobile phone number. The two-step process involves 1) clicking the red “buy with mobile” Zong button and waiting for your passcode to be sent to you via text message, and 2) entering the passcode online to confirm your purchase. The purchase is billed directly to your carrier and shows up on your next phone bill.

And Zong has the connections to put its money where its mouth is. The company has partnerships with over 250 million mobile network operators around the world—connections that it inherited from its parent company Echovox, which was founded in 2000 by David Marcus as a service for large media companies to allow their audiences to interact with their product (such as allowing audience members to vote for a performer by texting a certain code). Zong currently reaches over 3.2 billion mobile users.

The company spun off of Echovox last year and went on to team up with Facebook to provide a mobile payments option for purchasing Facebook credits.

The company has raised approximately $30 million in funding from Newbury Ventures, Advent Venture Partners, and Matrix Partners. Advent, which led a $7.5 million Series B round in 2007 (back when Zong was Echovox), says that it has made a 7.7x return on its investment. Frederic Court of Advent Venture Partners, who is also a Zong board member, explained in a recent blog post that Advent invested in Zong because it aligned with Advent’s key tech investment themes, had a great entrepreneur and team, and represented a balanced growth equity deal. Said Court:

“At the time of our investment, the company had built a significant mobile media business helping traditional media companies monetize their audiences with mobile, and was just starting to address the digital media and Internet mobile monetization opportunity. We liked the fact that the same infrastructure, talent and technology could address two different opportunities.  The traditional business, including all its mobile infrastructure and know-how, gave us downside protection, while the digital opportunity could provide massive upside.  Both had a lot of potential to grow and could attract a wide range of acquirers.”

PayPal plans to leverage Zong’s technology to offer consumers more payment options without having to leave the merchant’s site.

“Commerce is changing. With mobile phones, we walk around with a mall in our pockets. PayPal helps to make money work better for customers in this new commerce reality – no matter how they want to pay or what device they’re using,” said PayPal President Scott Thompson in a statement. “We believe that Zong will strengthen this value by helping us reach the more than 4 billion people who have mobile phones, giving them more choice and security when they pay.”

Earlier this year, PayPal launched PayPal for digital goods to allow consumers to purchase digital goods without having to leave the game. Zong will definitely provide a much-needed boost to get that project off the ground.

PayPal announced recently that it expects to process more than $3 billion in mobile payments this year, up from the previously estimated $2 billion.

The Zong management team and employees will continue to report to David Marcus as the details of the integration with PayPal are firmed up.