12 ms·

With IPO Hopes Fading, Square and Box Face Reality Of Commodity Products

206 points by onedev 12y ago

sheetjs 12y ago
> Both Square and Box have expanded their product lines dramatically, often without a comprehensive strategy involved. Could the same be said about dropbox and its recent moves?
- AdrianoZum 12y ago
  Yes, it is strange the aricle does not mention Dropbox. Perhaps they are not planning an IPO?
Jormundir 12y ago
> A second iron law of startups might be Iron law "might be"? I don't think I'd ever invest in Box, but I see Square much differently. I think the author arbitrarily pooled them into the same category, and then stumbled over his own argument throughout the article. Square is in a market where once you have a customer, you have the customer. There's not really a reason to switch your payment processor unless your experience with them is particularly terrible, or processing fees dramatically change in the market (not likely at all). They're building a solid revenue stream, and their numbers back it up. Unlike Box, they're hovering around profitability, not hemorrhaging money. They certainly have some stiff competition, mainly Paypal, entering the market, but Square is offering a more comprehensive experience for business owners, not to mention a much smoother product. I can't tell you how many times I've seen a whole line of customers stumble over how to complete a transaction on Paypal's offering.
- angersock 12y ago
  If you want to see the success of Square, go look at any new food truck or coffee shop or streetside vendor. It seems to be the new solution for that sort of thing.
  - hanley 12y ago
    Not all of them are using Square. There a lots of merchant companies that offer card swipe phone adapters, including PayPal and Quicken.
  - raverbashing 12y ago
    I wonder how much would cost to have the actual card reader that's seen in shops around Oh by the way, Square's market is limited. The USA still uses primarily the unsafe magnetic stripe for payments, and even Canada is phasing out its use (in Interac at least)
    - sdm 12y ago
      Square's expansion in Canada last year doesn't appear to have gone anywhere meaningful. It's not just Interac; all cards are now Chip based. Credit Cards still also have the swipe but it's mainly used for cross-boarder shopping. It's been years since I've seen a card swiped in Canada that wasn't from an American tourist. Finally, Interac debit cards dominate the Canadian POS scene and the are Chip only and so won't work with Square any time soon. If Square can't even meaningfully make inroads into Canada, I highly doubt they will be able to make inroads into anywhere else. But, we'll see...
    - sfall 12y ago
      chip is becoming more popular in the us now too
      - mitchty 12y ago
        Mandatory as of October 2015 next year actually. http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/american-credit-cards-improving-security-with-emv-at-last/ http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/america...
        dangrossman 12y ago
        Not mandatory, just (barely) incentivized starting in 2015. You'll see non-EMV cards and terminals around for probably another decade.
- ghshephard 12y ago
  "Square is in a market where once you have a customer, you have the customer. " Square has to compete on precisely three factors - First, and by far most importantly, cost. Next, ease of signing up, and third, Ease of use. Any company that comes up with a cheaper system will almost instantly start winning away square consumers. That, to me, pretty much defines, "commodity"
  - Jormundir 12y ago
    This is a spot where the market Square is in contrasts with the market Box is in. Online storage has had big price drops recently. Payment processing is much more stable, and I don't think it's even possible for another company to price gouge. They'd have to cut an amazing deal with the banks, which sounds unlikely seeing as the incumbent behemoths haven't been able to negotiate better deals either. The price is pretty efficient in this industry, what's really inefficient is the experience for both the businesses and consumers.
    - GregorStocks 12y ago
      On the other hand, the profit margins for Square's customers are generally razor-thin, so it seems like you wouldn't have to undercut them by all that much to steal a lot of their customers.
    - ghshephard 12y ago
      "Payment processing is much more stable, and I don't think it's even possible for another company to price gouge." Another thing that makes me think "Commodity." And the square "dongle" is anything but a good experience. I travel a lot, and I dread every time I return to the Bay Area and have to deal with Taxi Drivers and their attempts at getting credit cards to swipe on the dongle - about 5-10% of the time we just have to enter the numbers in, paying usually takes 30-40 seconds all in, and I don't get a paper receipt which adds another hassle when doing expense reports. Compare to Singapore where my transaction time with comfort cabs is <5 seconds and I get a decent receipt. (Of course, I also end up paying 10% admin fee for using a credit card, so I pay for that convenience) Part of this is skill - swiping the card through the square dongle takes a lot of skill - I note when I pay at a food truck (100% square in Redwood City) - they seem to be able to do the transaction in about 10 seconds.
- pbreit 12y ago
  I think once you're on Box you're not likely to go anywhere. And Square is burning almost as much cash, just not on salespeople.
- dangrossman 12y ago
  > or processing fees dramatically change in the market (not likely at all) Square started off tacking 1% on top of what most stores paid for most transactions. Then processing fees dramatically changed in the market, in 2010, when the "Dodd-Frank Wall Street Reform and Consumer Protection Act" and the "Durbin Amendment" to said act were passed. This capped interchange rates, and interchange on most debit cards when swiped as credit (the way Square works) dropped to 0.05% + $0.21 per transaction. The free debit/check card you get from your bank is the daily spender card for millions, making Square's fee on a large portion of transactions almost 100% markup at this point. Even among the "dongles for phones with apps" offerings, they're the most expensive. Intuit's dongle is 1% cheaper -- 1.75% -- if you pay $12.95 a month. EMS, which doesn't have name recognition with hackers but has been around for decades, offers a dongle with 2.25% flat rate.
  - woah 12y ago
    Why the ""?
  - prostoalex 12y ago
    Is there reliable data on the dongle market share? My anecdotal evidence speaks against Intuit's GoPayment. Every. Single. Transaction I tried with Intuit's dongle on day one was classified as fraud and required sending a fax to someone at Intuit with things such as "copy of invoice", "copy of business agreement between two parties", and "copy of physical credit card imprint" (mind you, for a digital dongle). I'm sure most of merchants who have a need for dongle are excited to maintain such extensive documentation per each transaction, but the Intuit dongle is collecting dust for now, even though I'm probably counted as an active user on their platform, as my account is not killed and is active.
- abalone 12y ago
  Square's problem is that their current crop of customers, individuals and very small businesses, are the only ones who would see their premium rate of 2.75% as a good deal, while at the same time that segment eats up a lot of that margin with increased marketing, support and fraud costs. Upmarket where the real volume is, it is very hard to convince medium-sized businesses to pay a premium processing rate just to get a slightly enhanced POS, which itself has huge switching costs. For example we now know that the Starbucks deal turned out to be a loss for Square, a discounted fee probably justified as a marketing expense to get mindshare. Starbucks didn't value Square's product enough to actually pay a premium rate. This is why I think the article is essentially spot-on in calling it a commodity product. Square is often compared to Apple, but Apple successfully decommodifies products through actual fundamental innovation (phones, MP3 players, PCs). They make stuff people actually want to pay premiums for. Square did innovate a cheap card reader, but beyond that it's mostly been beautiful design and attractive but unprofitable terms for the individual and micro business market. Square Cash for example is pretty simple but it must be a money loser, since they charge no fee it costs at least 21 cents to do a debit transaction. Would it be as compelling if they charged 50 cents to send money? Beautiful design and all, probably not. The moral to the story is that IPO-aspiring companies need to make products people actually want to pay premiums for, not just cool executions of commodity offerings that don't move the needle much in terms of actual utility.
  - na85 12y ago
    >Square is often compared to Apple, but Apple successfully decommodifies products through actual fundamental innovation (phones, MP3 players, PCs). Disagree 100%. Apple's products are inherently commodities, and their innovations are decidedly only in the PR and marketing spheres. From a technical perspective nothing they do is particularly innovative. Apple did not invent the mp3 player. Apple built their "seminal" GUI only after Xerox PARC showed them how. Thinkpads have had fingerprint scanners since 2004. Et cetera, et cetera, et cetera. Apple doesn't innovate so much as take someone else's idea and give it a slick marketing campaign and some anodized aluminum casing. >They make stuff people actually want to pay premiums for. This part I agree with. But it's because of the slick marketing, not due to some kind of next-level technical wizardry.
- mikesickler 12y ago
  On the contrary, POS and payments services have never been less "sticky". There are plenty of iPad POS apps and swipe dongle thingy's to choose from, and the cost of switching is negligible, especially for the (Square's) low end of the market, who don't require much functionality. My biggest problem with Square is that they have tied payments to point-of-sale. You can't use Square, the payments product, with another POS system, and you can't use Square Register with another payments product. This kind of closed ecosystem neither serves the customer nor moves the industry forward.
  - dangrossman 12y ago
    You don't have to use Square's POS features to use Square as a payment method. Their apps let you just type in a dollar amount to charge. I know one store that uses Vend [1] for their POS and Square for their CC payments. The Vend app launches the Square app when the cashier presses the button to pay by CC, then you switch back to finish the sale. 1: http://www.vendhq.com/ http://www.vendhq.com/
    - mikesickler 12y ago
      That's not an integration. That's no different than having a standalone CC terminal.
      - dangrossman 12y ago
        Who said it was? And what's wrong with having a standalone CC terminal? That's how most very small businesses (food delivery, auto service, tables at shows/markets) still take credit cards. Their wireless terminals aren't "integrated" into anything else, it's just a swiper/PIN pad with a 3G modem, and Square is the modern version of that.
        mikesickler 12y ago
        It's certainly prefereble to have your POS integrated with your payments system. Otherwise, there's no guarantee, for example, that the amount charged matches the POS total. In addition, it's much easier for employees to steal, and it simply takes longer.
- paul_f 12y ago
  When NCR launched the first cash register over 100 years ago, the primary value proposition was to reduce employee theft. A major reason we are prominently shown the amount of the purchase, or handed a ticket to sign is so that we can verify we are being charged the right amount and not being ripped off by a minimum wage (or less) employee. It seems using Square gets away from this.
paulbaumgart 12y ago
Box does have "network effects," even if they're not as strong as Facebook's or AirBnB's, because once you get thousands of employees at a company using your product, it's hard to tear that out and replace it with a competitor's product. The platform strategy makes a lot of sense, because that's how you can turn weak product inertia like they have now into strong product inertia: once you have a big ecosystem spring up around your product, you have Microsoft-level staying power. I don't know how realistic that outcome actually is for Box in particular, though.
- ghshephard 12y ago
  Is it a network effect if it's only within a company? For example, because there isn't any (good) data model that allows for resource reservations, calendar systems within a company are always on the same platform so there aren't conflicts in booking meeting rooms (which, even when calendar programs were on the same platform, was a big problem from around 1995-2000). But that doesn't mean people outside the company can't use a different calendar program and send .ics invitations.
  - jaredsohn 12y ago
    Right, I think the GP described a way that they might have "staying power" and be entrenched within their customer organizations, similar to how a poster described that Square might have that same quality.
- grayclhn 12y ago
  That's not what "network effects" means, though. Facebook and AirBnB presumably get better when more people join; their products are better with more users than with fewer users. It's easy to see why having your entire company using the same service is useful. But it's hard to see why "having more users" makes Box a better experience for its other users. Is Box better at a 5000 person company than a 10 person company? Or when 1000 companies use it vs. 10 companies? If not, it's not benefiting from network effects.
- namenotrequired 12y ago
  I think that's called "lock in" rather than "network effects".
LandoCalrissian 12y ago
Box is kind of a nightmare, but I would really like to see square succeed. It's kind of interesting since I see it being used everywhere (Minneapolis), but the margins are so thin I just feel like they have a hard time making money. They should potentially think about raising fees, but I don't know what the potential backlash might be.
ghshephard 12y ago
That was an uncommonly good techcrunch article - good insight, domain knowledge, mostly a balanced look at some of the challenges startups in the "commoditized technology" space might be facing. I was entertained, I learned something, it was a pleasant reading experience (techcrunch has really improved their layout). All in all it makes me more likely to read the next techcrunch article (and some of Danny Crichton back material.)
- pbreit 12y ago
  I thought the opposite. First, the headline is just plain wrong and not even really in a click-baity way. Square hasn't even hinted at an IPO and Box is likely to have a successful one I the next 30-90 days. Dismissing either as a "commodity" is wrong. Both provide services that are fairly sticky and both have demonstrated the rare ability to acquire customers at scale.
  - ryguytilidie 12y ago
    Square hasn't even hinted at an IPO? I think they've been hinting at an IPO to the people they've been recruiting for the past 4 years. They sold my friend on the value of their future IPO and he started there in late 2010...
  - funkyy 12y ago
    I dont know how Box can get succsfull IPO. Then company is burningb cash without clear strategy to change that. Box ipo will be churn and burn unless they either change ceo or get idea how they can compete with dropbox and other big guys...
    - xerophtye 12y ago
      Now i may be wrong, in which case, do enlighten me. But hasn't Box been playing the corporate game for quite some time? And Dropbox was just beginning to step into that market, no? So wouldn't that make Box the big guy, and Dropbox the much adored underdog? I mean sure Dropbox has a MASSIVE userbase, but an enormous percentage of them are free users. Box on the other hand has a corporate userbase, and corporate pays.
ForHackernews 12y ago
Yay! Here's hoping commodity pricing follows for commodity products.
- AdrianoZum 12y ago
  It is already happening. Google Drive now costs one-fifith that of DropBox. Box is probably similar. It is hard to compete against the big guys.
programminggeek 12y ago
To me, in business it always comes down to profits, and if I'm an investor I'd rather invest in profitable companies. A lot of investors think that way and I'm sure the market at some point says "gosh, they are going to burn through a lot more cash before they turn a profit." At some point, you're better off waiting a year or two, paying a little bit more, but investing in the same business once it starts making money.
lsh123 12y ago
One of the interesting problems for SaS companies is that the "easy signup" usually competes with the "vendor lock-in effect". A startup can use "easy signup" to take away customers from an established company but almost immediately it needs to find a way to lock-in the customer to avoid him/her switching to another vendor with even simpler signup, cheaper price, whatever. In a commodity market (like payments), price is usually the most important factor for many users. Thus "vendor lock-in" becomes a must for success. The Square's new products are actually designed to increase customers engagement with the company products and increase the price of switching to a competitor. The payments itself is not sticky but the more advanced products (e.g. online stores) are. The broad range of the products Square is trying right now just shows that the company is searching for the new up-scale market with vendor lock-in where Square can capitalize on the existing customers without risking losing their business. From my point of view, it might be hard for them (they already have a big customers base) and a little too late. Square might have become the victim of its own success where hyper-growth in the last few years didn't allow the management to start this process earlier.
davidu 12y ago
There is zero evidence that Box's IPO "hopes" (or even their plans) are fading. This was a decent article with a flame bait title.
- ProAm 12y ago
  Except for their IPO postponement?
  - davidu 12y ago
    Wouldn't you want to time the market? That's not hopes fading, that's just smart business sense.
steven2012 12y ago
I'm wondering how Square's business will change once EMV readers become active on Oct 2015. First off, the EMV readers are expensive. Second, Square has no idea if the business model will work with EMV. It could be that the flow of having to type in a PIN number disrupts things to the point where merchants would rather use a more expensive but bigger EMV reader. Since they are more expensive, will Square be forced to charge merchants for the readers? There are so many questions for me about how their business will work under EMV and it could be that their growth gets curtailed dramatically, meaning that people who bought in before Oct 2015 would be left holding the bag.
hkmurakami 12y ago
My previous employer delayed its IPO twice. The first was because its revenue stream was undiversified (2008), and the second was because the markets were in turmoil (2011 summer -- US debt ceiling crisis when the markets slid 15%). We ended up IPOing later in 2011 when the markets stabilized somewhat, and the company is now valued at $2BB. This will come to pass.
- this_user 12y ago
  Lately, the ratio of companies that currently are losing money that IPO to IPOs has been extremely high which is generally a sign of a market the is overheated and investors that are too optimistic which is not a good sign going forward. On the other hand, a lot of the high-flying (and arguably overpriced) tech stocks have sold off by a big margin since the beginning of the year. Quite a few are down 20% or more. The overall market vulnerable while the period from May to November is seasonally weak too and the Federal Reserve continues tapering its bond purchases that have propped up the market for the last couple of years. However, a lot of those money losing stocks that are going to need to raise more cash in the foreseeable future. If we see a bigger flush during the summer as we saw in 2011 and 2010, it would give them the opportunity to do secondary offerings at attractive valuations that should attract enough interest to meet their financial needs.
adventured 12y ago
Microsoft: $327 billion market cap; Google: $356 billion market cap; Facebook: $153 billion market cap. Did I miss where someone was arguing that Square or Box would become the next $200 billion company? I don't recall ever once seeing that argument made. So what was the point of this article holding up those straw examples, and then referring to the business dynamics that MSFT / GOOG / FB enjoy? For every Google, there are hundreds of small to mid size, successful technology companies. Square doesn't need a monopoly to build a great $10 or $20 billion business in payments, and there's nothing wrong with achieving that scale vs. becoming a juggernaut like the before mentioned.
davidw 12y ago
Is it just me, or does there exist a set of startups with annoyingly generic names? Square, Stripe, Box, Color... how about Line, Circle, Triangle and Cube, too? Any idea WTF any of those does? Granted, "Google" doesn't give you a clue either, but at least it sticks out from the crowd.
michaelochurch 12y ago
These consumer web startups are a commodity. I don't mean that they're building commodity products, although that's also true. I mean that the VCs, with this Disney-fied entrepreneurship culture they've created, have managed to commoditize business formation itself. It's built out of commodity ideas, commodity people, commodity founders. It provides disappointing but reliably mediocre returns to investors, and it's great for the VC's career. For people who got into the game because they actually wanted to build technology, however, it really sucks.
zht 12y ago
"Square is even more variable, launching a blistering array of products in the last few months including Square Market, Square Wallet, and Square Cash in addition to its core point of sales products. A lack of focus is not a good signal." Square Wallet has been around for years. Aside from the nitpick, is it a bad idea for a company to diversify its revenue streams? Would this article have faulted Square for having 99% of its revenue in its POS offerings?

206 points by onedev 12y ago

> Both Square and Box have expanded their product lines dramatically, often without a comprehensive strategy involved. Could the same be said about dropbox and its recent moves?

AdrianoZum 12y ago
Yes, it is strange the aricle does not mention Dropbox. Perhaps they are not planning an IPO?

Jormundir 12y ago

> A second iron law of startups might be Iron law "might be"? I don't think I'd ever invest in Box, but I see Square much differently. I think the author arbitrarily pooled them into the same category, and then stumbled over his own argument throughout the article. Square is in a market where once you have a customer, you have the customer. There's not really a reason to switch your payment processor unless your experience with them is particularly terrible, or processing fees dramatically change in the market (not likely at all). They're building a solid revenue stream, and their numbers back it up. Unlike Box, they're hovering around profitability, not hemorrhaging money. They certainly have some stiff competition, mainly Paypal, entering the market, but Square is offering a more comprehensive experience for business owners, not to mention a much smoother product. I can't tell you how many times I've seen a whole line of customers stumble over how to complete a transaction on Paypal's offering.

angersock 12y ago
If you want to see the success of Square, go look at any new food truck or coffee shop or streetside vendor. It seems to be the new solution for that sort of thing.
- hanley 12y ago
  Not all of them are using Square. There a lots of merchant companies that offer card swipe phone adapters, including PayPal and Quicken.
- raverbashing 12y ago
  I wonder how much would cost to have the actual card reader that's seen in shops around Oh by the way, Square's market is limited. The USA still uses primarily the unsafe magnetic stripe for payments, and even Canada is phasing out its use (in Interac at least)
  - sdm 12y ago
    Square's expansion in Canada last year doesn't appear to have gone anywhere meaningful. It's not just Interac; all cards are now Chip based. Credit Cards still also have the swipe but it's mainly used for cross-boarder shopping. It's been years since I've seen a card swiped in Canada that wasn't from an American tourist. Finally, Interac debit cards dominate the Canadian POS scene and the are Chip only and so won't work with Square any time soon. If Square can't even meaningfully make inroads into Canada, I highly doubt they will be able to make inroads into anywhere else. But, we'll see...
  - sfall 12y ago
    chip is becoming more popular in the us now too
    - mitchty 12y ago
      Mandatory as of October 2015 next year actually. http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/american-credit-cards-improving-security-with-emv-at-last/ http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/america...
      - dangrossman 12y ago
        Not mandatory, just (barely) incentivized starting in 2015. You'll see non-EMV cards and terminals around for probably another decade.
ghshephard 12y ago
"Square is in a market where once you have a customer, you have the customer. " Square has to compete on precisely three factors - First, and by far most importantly, cost. Next, ease of signing up, and third, Ease of use. Any company that comes up with a cheaper system will almost instantly start winning away square consumers. That, to me, pretty much defines, "commodity"
- Jormundir 12y ago
  This is a spot where the market Square is in contrasts with the market Box is in. Online storage has had big price drops recently. Payment processing is much more stable, and I don't think it's even possible for another company to price gouge. They'd have to cut an amazing deal with the banks, which sounds unlikely seeing as the incumbent behemoths haven't been able to negotiate better deals either. The price is pretty efficient in this industry, what's really inefficient is the experience for both the businesses and consumers.
  - GregorStocks 12y ago
    On the other hand, the profit margins for Square's customers are generally razor-thin, so it seems like you wouldn't have to undercut them by all that much to steal a lot of their customers.
  - ghshephard 12y ago
    "Payment processing is much more stable, and I don't think it's even possible for another company to price gouge." Another thing that makes me think "Commodity." And the square "dongle" is anything but a good experience. I travel a lot, and I dread every time I return to the Bay Area and have to deal with Taxi Drivers and their attempts at getting credit cards to swipe on the dongle - about 5-10% of the time we just have to enter the numbers in, paying usually takes 30-40 seconds all in, and I don't get a paper receipt which adds another hassle when doing expense reports. Compare to Singapore where my transaction time with comfort cabs is <5 seconds and I get a decent receipt. (Of course, I also end up paying 10% admin fee for using a credit card, so I pay for that convenience) Part of this is skill - swiping the card through the square dongle takes a lot of skill - I note when I pay at a food truck (100% square in Redwood City) - they seem to be able to do the transaction in about 10 seconds.
pbreit 12y ago
I think once you're on Box you're not likely to go anywhere. And Square is burning almost as much cash, just not on salespeople.
dangrossman 12y ago
> or processing fees dramatically change in the market (not likely at all) Square started off tacking 1% on top of what most stores paid for most transactions. Then processing fees dramatically changed in the market, in 2010, when the "Dodd-Frank Wall Street Reform and Consumer Protection Act" and the "Durbin Amendment" to said act were passed. This capped interchange rates, and interchange on most debit cards when swiped as credit (the way Square works) dropped to 0.05% + $0.21 per transaction. The free debit/check card you get from your bank is the daily spender card for millions, making Square's fee on a large portion of transactions almost 100% markup at this point. Even among the "dongles for phones with apps" offerings, they're the most expensive. Intuit's dongle is 1% cheaper -- 1.75% -- if you pay $12.95 a month. EMS, which doesn't have name recognition with hackers but has been around for decades, offers a dongle with 2.25% flat rate.
- woah 12y ago
  Why the ""?
- prostoalex 12y ago
  Is there reliable data on the dongle market share? My anecdotal evidence speaks against Intuit's GoPayment. Every. Single. Transaction I tried with Intuit's dongle on day one was classified as fraud and required sending a fax to someone at Intuit with things such as "copy of invoice", "copy of business agreement between two parties", and "copy of physical credit card imprint" (mind you, for a digital dongle). I'm sure most of merchants who have a need for dongle are excited to maintain such extensive documentation per each transaction, but the Intuit dongle is collecting dust for now, even though I'm probably counted as an active user on their platform, as my account is not killed and is active.
abalone 12y ago
Square's problem is that their current crop of customers, individuals and very small businesses, are the only ones who would see their premium rate of 2.75% as a good deal, while at the same time that segment eats up a lot of that margin with increased marketing, support and fraud costs. Upmarket where the real volume is, it is very hard to convince medium-sized businesses to pay a premium processing rate just to get a slightly enhanced POS, which itself has huge switching costs. For example we now know that the Starbucks deal turned out to be a loss for Square, a discounted fee probably justified as a marketing expense to get mindshare. Starbucks didn't value Square's product enough to actually pay a premium rate. This is why I think the article is essentially spot-on in calling it a commodity product. Square is often compared to Apple, but Apple successfully decommodifies products through actual fundamental innovation (phones, MP3 players, PCs). They make stuff people actually want to pay premiums for. Square did innovate a cheap card reader, but beyond that it's mostly been beautiful design and attractive but unprofitable terms for the individual and micro business market. Square Cash for example is pretty simple but it must be a money loser, since they charge no fee it costs at least 21 cents to do a debit transaction. Would it be as compelling if they charged 50 cents to send money? Beautiful design and all, probably not. The moral to the story is that IPO-aspiring companies need to make products people actually want to pay premiums for, not just cool executions of commodity offerings that don't move the needle much in terms of actual utility.
- na85 12y ago
  >Square is often compared to Apple, but Apple successfully decommodifies products through actual fundamental innovation (phones, MP3 players, PCs). Disagree 100%. Apple's products are inherently commodities, and their innovations are decidedly only in the PR and marketing spheres. From a technical perspective nothing they do is particularly innovative. Apple did not invent the mp3 player. Apple built their "seminal" GUI only after Xerox PARC showed them how. Thinkpads have had fingerprint scanners since 2004. Et cetera, et cetera, et cetera. Apple doesn't innovate so much as take someone else's idea and give it a slick marketing campaign and some anodized aluminum casing. >They make stuff people actually want to pay premiums for. This part I agree with. But it's because of the slick marketing, not due to some kind of next-level technical wizardry.
mikesickler 12y ago
On the contrary, POS and payments services have never been less "sticky". There are plenty of iPad POS apps and swipe dongle thingy's to choose from, and the cost of switching is negligible, especially for the (Square's) low end of the market, who don't require much functionality. My biggest problem with Square is that they have tied payments to point-of-sale. You can't use Square, the payments product, with another POS system, and you can't use Square Register with another payments product. This kind of closed ecosystem neither serves the customer nor moves the industry forward.
- dangrossman 12y ago
  You don't have to use Square's POS features to use Square as a payment method. Their apps let you just type in a dollar amount to charge. I know one store that uses Vend [1] for their POS and Square for their CC payments. The Vend app launches the Square app when the cashier presses the button to pay by CC, then you switch back to finish the sale. 1: http://www.vendhq.com/ http://www.vendhq.com/
  - mikesickler 12y ago
    That's not an integration. That's no different than having a standalone CC terminal.
    - dangrossman 12y ago
      Who said it was? And what's wrong with having a standalone CC terminal? That's how most very small businesses (food delivery, auto service, tables at shows/markets) still take credit cards. Their wireless terminals aren't "integrated" into anything else, it's just a swiper/PIN pad with a 3G modem, and Square is the modern version of that.
      - mikesickler 12y ago
        It's certainly prefereble to have your POS integrated with your payments system. Otherwise, there's no guarantee, for example, that the amount charged matches the POS total. In addition, it's much easier for employees to steal, and it simply takes longer.
paul_f 12y ago
When NCR launched the first cash register over 100 years ago, the primary value proposition was to reduce employee theft. A major reason we are prominently shown the amount of the purchase, or handed a ticket to sign is so that we can verify we are being charged the right amount and not being ripped off by a minimum wage (or less) employee. It seems using Square gets away from this.

paulbaumgart 12y ago

Box does have "network effects," even if they're not as strong as Facebook's or AirBnB's, because once you get thousands of employees at a company using your product, it's hard to tear that out and replace it with a competitor's product. The platform strategy makes a lot of sense, because that's how you can turn weak product inertia like they have now into strong product inertia: once you have a big ecosystem spring up around your product, you have Microsoft-level staying power. I don't know how realistic that outcome actually is for Box in particular, though.

ghshephard 12y ago
Is it a network effect if it's only within a company? For example, because there isn't any (good) data model that allows for resource reservations, calendar systems within a company are always on the same platform so there aren't conflicts in booking meeting rooms (which, even when calendar programs were on the same platform, was a big problem from around 1995-2000). But that doesn't mean people outside the company can't use a different calendar program and send .ics invitations.
- jaredsohn 12y ago
  Right, I think the GP described a way that they might have "staying power" and be entrenched within their customer organizations, similar to how a poster described that Square might have that same quality.
grayclhn 12y ago
That's not what "network effects" means, though. Facebook and AirBnB presumably get better when more people join; their products are better with more users than with fewer users. It's easy to see why having your entire company using the same service is useful. But it's hard to see why "having more users" makes Box a better experience for its other users. Is Box better at a 5000 person company than a 10 person company? Or when 1000 companies use it vs. 10 companies? If not, it's not benefiting from network effects.
namenotrequired 12y ago
I think that's called "lock in" rather than "network effects".

LandoCalrissian 12y ago

Box is kind of a nightmare, but I would really like to see square succeed. It's kind of interesting since I see it being used everywhere (Minneapolis), but the margins are so thin I just feel like they have a hard time making money. They should potentially think about raising fees, but I don't know what the potential backlash might be.

ghshephard 12y ago

That was an uncommonly good techcrunch article - good insight, domain knowledge, mostly a balanced look at some of the challenges startups in the "commoditized technology" space might be facing. I was entertained, I learned something, it was a pleasant reading experience (techcrunch has really improved their layout). All in all it makes me more likely to read the next techcrunch article (and some of Danny Crichton back material.)

pbreit 12y ago
I thought the opposite. First, the headline is just plain wrong and not even really in a click-baity way. Square hasn't even hinted at an IPO and Box is likely to have a successful one I the next 30-90 days. Dismissing either as a "commodity" is wrong. Both provide services that are fairly sticky and both have demonstrated the rare ability to acquire customers at scale.
- ryguytilidie 12y ago
  Square hasn't even hinted at an IPO? I think they've been hinting at an IPO to the people they've been recruiting for the past 4 years. They sold my friend on the value of their future IPO and he started there in late 2010...
- funkyy 12y ago
  I dont know how Box can get succsfull IPO. Then company is burningb cash without clear strategy to change that. Box ipo will be churn and burn unless they either change ceo or get idea how they can compete with dropbox and other big guys...
  - xerophtye 12y ago
    Now i may be wrong, in which case, do enlighten me. But hasn't Box been playing the corporate game for quite some time? And Dropbox was just beginning to step into that market, no? So wouldn't that make Box the big guy, and Dropbox the much adored underdog? I mean sure Dropbox has a MASSIVE userbase, but an enormous percentage of them are free users. Box on the other hand has a corporate userbase, and corporate pays.

ForHackernews 12y ago

Yay! Here's hoping commodity pricing follows for commodity products.

AdrianoZum 12y ago
It is already happening. Google Drive now costs one-fifith that of DropBox. Box is probably similar. It is hard to compete against the big guys.

programminggeek 12y ago

To me, in business it always comes down to profits, and if I'm an investor I'd rather invest in profitable companies. A lot of investors think that way and I'm sure the market at some point says "gosh, they are going to burn through a lot more cash before they turn a profit." At some point, you're better off waiting a year or two, paying a little bit more, but investing in the same business once it starts making money.

lsh123 12y ago

One of the interesting problems for SaS companies is that the "easy signup" usually competes with the "vendor lock-in effect". A startup can use "easy signup" to take away customers from an established company but almost immediately it needs to find a way to lock-in the customer to avoid him/her switching to another vendor with even simpler signup, cheaper price, whatever. In a commodity market (like payments), price is usually the most important factor for many users. Thus "vendor lock-in" becomes a must for success. The Square's new products are actually designed to increase customers engagement with the company products and increase the price of switching to a competitor. The payments itself is not sticky but the more advanced products (e.g. online stores) are. The broad range of the products Square is trying right now just shows that the company is searching for the new up-scale market with vendor lock-in where Square can capitalize on the existing customers without risking losing their business. From my point of view, it might be hard for them (they already have a big customers base) and a little too late. Square might have become the victim of its own success where hyper-growth in the last few years didn't allow the management to start this process earlier.

davidu 12y ago

There is zero evidence that Box's IPO "hopes" (or even their plans) are fading. This was a decent article with a flame bait title.

ProAm 12y ago
Except for their IPO postponement?
- davidu 12y ago
  Wouldn't you want to time the market? That's not hopes fading, that's just smart business sense.

steven2012 12y ago

I'm wondering how Square's business will change once EMV readers become active on Oct 2015. First off, the EMV readers are expensive. Second, Square has no idea if the business model will work with EMV. It could be that the flow of having to type in a PIN number disrupts things to the point where merchants would rather use a more expensive but bigger EMV reader. Since they are more expensive, will Square be forced to charge merchants for the readers? There are so many questions for me about how their business will work under EMV and it could be that their growth gets curtailed dramatically, meaning that people who bought in before Oct 2015 would be left holding the bag.

hkmurakami 12y ago

My previous employer delayed its IPO twice. The first was because its revenue stream was undiversified (2008), and the second was because the markets were in turmoil (2011 summer -- US debt ceiling crisis when the markets slid 15%). We ended up IPOing later in 2011 when the markets stabilized somewhat, and the company is now valued at $2BB. This will come to pass.

this_user 12y ago
Lately, the ratio of companies that currently are losing money that IPO to IPOs has been extremely high which is generally a sign of a market the is overheated and investors that are too optimistic which is not a good sign going forward. On the other hand, a lot of the high-flying (and arguably overpriced) tech stocks have sold off by a big margin since the beginning of the year. Quite a few are down 20% or more. The overall market vulnerable while the period from May to November is seasonally weak too and the Federal Reserve continues tapering its bond purchases that have propped up the market for the last couple of years. However, a lot of those money losing stocks that are going to need to raise more cash in the foreseeable future. If we see a bigger flush during the summer as we saw in 2011 and 2010, it would give them the opportunity to do secondary offerings at attractive valuations that should attract enough interest to meet their financial needs.

adventured 12y ago

Microsoft: $327 billion market cap; Google: $356 billion market cap; Facebook: $153 billion market cap. Did I miss where someone was arguing that Square or Box would become the next $200 billion company? I don't recall ever once seeing that argument made. So what was the point of this article holding up those straw examples, and then referring to the business dynamics that MSFT / GOOG / FB enjoy? For every Google, there are hundreds of small to mid size, successful technology companies. Square doesn't need a monopoly to build a great $10 or $20 billion business in payments, and there's nothing wrong with achieving that scale vs. becoming a juggernaut like the before mentioned.

davidw 12y ago

Is it just me, or does there exist a set of startups with annoyingly generic names? Square, Stripe, Box, Color... how about Line, Circle, Triangle and Cube, too? Any idea WTF any of those does? Granted, "Google" doesn't give you a clue either, but at least it sticks out from the crowd.

michaelochurch 12y ago

These consumer web startups are a commodity. I don't mean that they're building commodity products, although that's also true. I mean that the VCs, with this Disney-fied entrepreneurship culture they've created, have managed to commoditize business formation itself. It's built out of commodity ideas, commodity people, commodity founders. It provides disappointing but reliably mediocre returns to investors, and it's great for the VC's career. For people who got into the game because they actually wanted to build technology, however, it really sucks.

zht 12y ago

"Square is even more variable, launching a blistering array of products in the last few months including Square Market, Square Wallet, and Square Cash in addition to its core point of sales products. A lack of focus is not a good signal." Square Wallet has been around for years. Aside from the nitpick, is it a bad idea for a company to diversify its revenue streams? Would this article have faulted Square for having 99% of its revenue in its POS offerings?