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> So they would likely lose > 17% revenue very soon. It looks like they loose money on every single Starbucks transaction. Sounds like a good thing.

by 2bluesc 11y ago

roymurdock 11y ago
At this stage it's not about profit...it's about volume. They need to become so big that their scale takes care of profit problems. So it's terrible that they're losing such a huge customer.
- mikeryan 11y ago
  At which stage? They're going public, they're not a startup anymore. If they're still high growth they'd be going after another funding round instead of an IPO.
  - roymurdock 11y ago
    At the stage of still being unprofitable. Just like Twitter and Amazon, which are also both public companies. Filing for an IPO does not mean you're slowing growth...it's just an alternate form of fundraising that allows a different mix of investors to join in on the fun.
    - mikeryan 11y ago
      Twitter is pretty much a counter example. They have a terrible time being profitable despite their size and their stock is getting hammered for it. Amazon is a different beast because they live at the razor's edge of profitability and have for years. Square is not close not to mention they're competing with entrenched competitors.
  - krschultz 11y ago
    Historically that was not true at all. This cycle it has been true, but I'm not sure if that is because of increase compliance cost post Sarbox, increased risk of activist investors choking off growth, or increased availability of private capital.
- bardworx 11y ago
  Volume isn't the only thing in CC realm. Visa, MC, AMEX charge a pass-through rate. If the deal with Starbucks didn't push the pass through rate and charged south of 10 basis points, then they're not making money but still have to spend money on infrastructure. Companies that act as gateways are not making large chunks of cash so every basis point matter. edit: spelling, structure
  - roymurdock 11y ago
    Sure, but you need to burn until you become part of the oligopoly of Visa, AMEX, Mastercard, Discover. Square is offering cheaper transaction rates through better technology - that's the only reason a company would switch to them over the big 4 in the first place. They'll bring down rates for everyone, but at some point they need to find their place as one of the big 5, at which point equilibrium rates will be high enough for them to turn a profit. This means they need large accounts, they need volume, they need credibility, they need to own a big chunk of infrastructure. Even if they're losing money on it now. If I'm a potential customer and I see Square losing its Starbucks account and 17% of its revenue I'm going to be somewhat wary of its ability to exist in 3-5 years, and then I'll have to incur costs of switching back to some other payments processor.
    - VLM 11y ago
      Their competitors are public and are floating in money but aren't investing in technology to lower transaction costs. Ask yourself why. Its not like their competitors don't have money, people, or a desire for profit. Or "the market" isn't interested in middlemen spending money they have (or don't have) to improve their tech, so why would joining "the market" be part of the strategy for a company trying to advance transaction tech? The market doesn't want them to do what they've been doing. So they'll have to pivot, essentially. Into... what? And the what doesn't matter because whatever it is, its not their secret sauce. Their transaction costs are lower than their competitors because they're losing money. I'm sure AMEX would have cheap transaction costs if they were willing to lose staggering amounts of money. I could form a startup to sell gasoline for $1/gallon over the internet. Sure I'd lose tons of money, but look how cheap my gas is compared to BP. Well of course BP is earning a profit whereas I'm losing money on every gallon, but I'm sure after the IPO... They have some traction in very discretionary consumer spending. Not the best place to be in the start of a recession. And public policy has been, is, and will be, to concentrate as much money as possible at the top while draining it out of the bottom. Why would you open a new Ferrari dealership in Detroit? Or rephrased the digital money of the future for farmers markets is EBT "food stamps" cards, not an iphone app. That discretionary money being spent at the coffee shops and farmers markets is "supposed to" by policy all go to .edu, bank mortgages, and health care. The economy is trying to destroy the sector they are trying to middleman off of, good luck with that long term. They're sailing the wrong direction at the customer level. Speaking of competitors... well why even comment in detail about each. The problem with payment middlemen isn't so much that they're there as a class, its that there's so many identical ones. In my alternate life as a volunteer treasurer for a non-profit everyone wanted digital donation/payment processing, however everyone wanted a different one, and I am SO not going to jump thru those hoops, so its cash and checks only. Its like insisting I open a bank account at every branch in the metropolis, good luck with that. Maybe we need a middleman for the middleman to manage the middlemen. I hate to imply history is repeating but this is pretty much Flooz again, isn't it? Those who don't know history are doomed to repeat it?
- aaronbrethorst 11y ago
  $-1/transaction * 1,000,000 transactions vs $-1/transaction * 1,000,000,000
mikedb 11y ago
This pattern, ie. a large loss making enterprise client seems very common. I wonder if its because companies like Starbucks can regularly out negotiate small companies, or if it ends up being a fair trade for the brand value of having them as a client.

> So they would likely lose > 17% revenue very soon. It looks like they loose money on every single Starbucks transaction. Sounds like a good thing.

by 2bluesc 11y ago

> So they would likely lose > 17% revenue very soon. It looks like they loose money on every single Starbucks transaction. Sounds like a good thing.

roymurdock 11y ago

At this stage it's not about profit...it's about volume. They need to become so big that their scale takes care of profit problems. So it's terrible that they're losing such a huge customer.

mikeryan 11y ago
At which stage? They're going public, they're not a startup anymore. If they're still high growth they'd be going after another funding round instead of an IPO.
- roymurdock 11y ago
  At the stage of still being unprofitable. Just like Twitter and Amazon, which are also both public companies. Filing for an IPO does not mean you're slowing growth...it's just an alternate form of fundraising that allows a different mix of investors to join in on the fun.
  - mikeryan 11y ago
    Twitter is pretty much a counter example. They have a terrible time being profitable despite their size and their stock is getting hammered for it. Amazon is a different beast because they live at the razor's edge of profitability and have for years. Square is not close not to mention they're competing with entrenched competitors.
- krschultz 11y ago
  Historically that was not true at all. This cycle it has been true, but I'm not sure if that is because of increase compliance cost post Sarbox, increased risk of activist investors choking off growth, or increased availability of private capital.
bardworx 11y ago
Volume isn't the only thing in CC realm. Visa, MC, AMEX charge a pass-through rate. If the deal with Starbucks didn't push the pass through rate and charged south of 10 basis points, then they're not making money but still have to spend money on infrastructure. Companies that act as gateways are not making large chunks of cash so every basis point matter. edit: spelling, structure
- roymurdock 11y ago
  Sure, but you need to burn until you become part of the oligopoly of Visa, AMEX, Mastercard, Discover. Square is offering cheaper transaction rates through better technology - that's the only reason a company would switch to them over the big 4 in the first place. They'll bring down rates for everyone, but at some point they need to find their place as one of the big 5, at which point equilibrium rates will be high enough for them to turn a profit. This means they need large accounts, they need volume, they need credibility, they need to own a big chunk of infrastructure. Even if they're losing money on it now. If I'm a potential customer and I see Square losing its Starbucks account and 17% of its revenue I'm going to be somewhat wary of its ability to exist in 3-5 years, and then I'll have to incur costs of switching back to some other payments processor.
  - VLM 11y ago
    Their competitors are public and are floating in money but aren't investing in technology to lower transaction costs. Ask yourself why. Its not like their competitors don't have money, people, or a desire for profit. Or "the market" isn't interested in middlemen spending money they have (or don't have) to improve their tech, so why would joining "the market" be part of the strategy for a company trying to advance transaction tech? The market doesn't want them to do what they've been doing. So they'll have to pivot, essentially. Into... what? And the what doesn't matter because whatever it is, its not their secret sauce. Their transaction costs are lower than their competitors because they're losing money. I'm sure AMEX would have cheap transaction costs if they were willing to lose staggering amounts of money. I could form a startup to sell gasoline for $1/gallon over the internet. Sure I'd lose tons of money, but look how cheap my gas is compared to BP. Well of course BP is earning a profit whereas I'm losing money on every gallon, but I'm sure after the IPO... They have some traction in very discretionary consumer spending. Not the best place to be in the start of a recession. And public policy has been, is, and will be, to concentrate as much money as possible at the top while draining it out of the bottom. Why would you open a new Ferrari dealership in Detroit? Or rephrased the digital money of the future for farmers markets is EBT "food stamps" cards, not an iphone app. That discretionary money being spent at the coffee shops and farmers markets is "supposed to" by policy all go to .edu, bank mortgages, and health care. The economy is trying to destroy the sector they are trying to middleman off of, good luck with that long term. They're sailing the wrong direction at the customer level. Speaking of competitors... well why even comment in detail about each. The problem with payment middlemen isn't so much that they're there as a class, its that there's so many identical ones. In my alternate life as a volunteer treasurer for a non-profit everyone wanted digital donation/payment processing, however everyone wanted a different one, and I am SO not going to jump thru those hoops, so its cash and checks only. Its like insisting I open a bank account at every branch in the metropolis, good luck with that. Maybe we need a middleman for the middleman to manage the middlemen. I hate to imply history is repeating but this is pretty much Flooz again, isn't it? Those who don't know history are doomed to repeat it?
aaronbrethorst 11y ago
$-1/transaction * 1,000,000 transactions vs $-1/transaction * 1,000,000,000

mikedb 11y ago

This pattern, ie. a large loss making enterprise client seems very common. I wonder if its because companies like Starbucks can regularly out negotiate small companies, or if it ends up being a fair trade for the brand value of having them as a client.