Okay okay. I get it. Square is sexy. It's one of those gadgets that make you pause and reflect-- thank god that you live in the 21st century. I'm right there with you. In fact, I just had one of those moments the other day when I found a highlighter that had sticky notes hidden inside of it in a little, secret compartment that you slide open. It made me proud to live in the time that I live in-- we have Pinterest, planking, Modern Family and little highlighters that also help you tag pages in a book. These are truly glorious times.
Square is sexy. I get it. It's business model is slightly revolutionary in that it's bringing mobile payments to a completely new niche that, although small in volume (typically less than $50k in annual volume), constitutes a large part of the overall market (issuers estimate that the "small" or "micro-business" contingency is actually 70% or more of the overall market share). This little white dongle, it can be argued, has allowed an unprecedented formalization of small business and has allowed entrepreneurs true access to (relatively) sophisticated, critical payment processing tools for a fraction of the cost.
Square has also grown at a terrifyingly fast pace. In a recent article released by TechCrunch, Square announced they would be landing in approximately 20k stores nationwide. Originally popping up at large, common, big box stores (FedEx, WalGreens, Staples) they are now expanding into Wal-Mart, Best Buy, Apple Stores, Radioshack and Target. They estimate that they have over 1 million customers and process over $5B annually. Their business model is summed up in three prongs: the readers for ipad, iphone and android devices, Register (an app for the iStore) and Pay With Square (a point of sale option that allows users to pay by saying their name to the cashier). They have a valuation of $4B. Impressive numbers for the hobby start-up of Jack Dorsey. What does this all mean though?
In my humble opinion, this is what I think:
- If nothing else, Square should be used as a case study of excellent marketing and brand management. This is a company that is STILL in the red, just because of all the up-front investment that they needed to make. However, by staying on the "bleeding edge" of innovation and continually signing deals with high profile partners (Apple, for one) they have been able to continually stay relevant in the tech scene and continue to expand their reach and get buy in from the general populous. Saying that they're "masters of hype" would be dramatically undermining all of the work they've done, but it also wouldn't be completely inaccurate either
- As an offshoot of the above, their focus on maintaining relevancy also indicates their (very justified) worry on maintaining hegemony as others begin to encroach on their space. Intuit, Vantiv, Verifone and many others have all developed their own dongle solutions. Some, like PayPal, come armed with a lot of experience in the alternative payments space and with a significant, existing market base. Although they are fast followers, there is something to be said about letting someone else do all of the QA for you
- Judging by their newest partners (Best Buy, Wal-Mart, Apple, Radioshack, Target), I think it's clear that they've realized the true value of marketing their dongle as a consumer product. This is only a shade different than their original positioning of small-business technology, but it does indicate they are moving aggressively into micro-business and they know that they've realized a large majority of their transactions are coming from service industry entrepreneurs (local, neighborhood plumbers, contractors, etc.) and individuals (baby sitters, interior designers, etc.) as much as formal "businesses"
- For the future-- Square will most likely continue to be quite popular, but they will need to begin developing additional solutions (by targeting niche or expanding their service offerings into new products) in order to continue generating revenue. The closer the dongle market gets to saturation, the less likely Square will be able to compete when they're known as "the dongle guys". I expect that in order to branch out and grow, Square will begin partnering with more high-profile partners, but probably ones with more of a hardware/software technology focus (think HTC, Amazon or Google) or perhaps even with emerging loyalty solutions (like Belly in Chicago) to create a more compelling value prop
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