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> 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 arbi

> 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.
        steven2012 12y ago
        This is highly doubtful. The fact that merchants take on all fraud risk from a fake card present transaction is very high incentive. I have friends in Canada that own retail stores and they said that fraud has dropped to almost zero because of EMV. There are ways to scam it, by pretending that the chip doesn't work and have the cashier swipe it, but if the cashier swipes it instead of using the pin, they get in trouble because the merchant loses money. So I bet you'll see very quick adoption, within a couple of years max.
        prostoalex 12y ago
        Big box stores are already moving towards it, with Target (surprise! surprise!) leading the way. Mom-and-Pop shops will probably not be happy about replacement costs, but they're apparently a diminishing market force anyways.
        PeterisP 12y ago
        Experience from other places that switched to EMV shows that this incentive is large enough to have a rather quick adoption. Yes, there are some niches where non-EMV terminals stick around - those that are low-volume and feel immune to fraud; but all common stores seem to switch quickly as otherwise all fraudsters focus on those who haven't switched yet, and low-margin business can't afford losing that money.
  - nly 12y ago
    This is a good point. Surely Square have a plan for when America finally joins the present decade and adopts EMV/Chip and PIN? Or are they hoping to bootstrap pure mobile payments as an alternative? I don't see a competitive advantage in the latter scenario when PayPal already have a system with photo verification rolling out here in the UK.
- davidu 12y ago
  Unfortunately, in the market of transaction processing, that's not an indicator of success. Transaction volume is. It is the only metric of success.
- abalone 12y ago
  You can't go on adoption alone. You have to look at their balance sheet, and the whole point of the article is that their balance sheet and future sustainability is reportedly not so hot. Although to be fair it does end on a non-fatalist note that leadership may be able to tweak the business into something less grandiose and more oriented towards grinding out a profit on a better-than-average commodity product.
- sdm 12y ago
  Why wouldn't they just use a portable reader like food delivery guys have been for over a decade? I mean, in Canada if you order food the driver shows up with a machine you insert your card and enter your pin. These machines do all communication by 3G. You see food trucks and coffee shops with these too. Isn't that the norm in the US? Portable chip based card readers have been around longer than Square. Hell, I remember using them (pre-chip of course) since around 2000ish. And today they are just ubiquitous. They are straightforward and user-friendly for the user and today the Banks almost give them aways with your merchant account. I'm still trying to understand what problem Square is trying to solve -- other than wanting to use your iPhone for everything. I just don't see a viable business with them.
  - deleted 12y ago
    [deleted]
  - prostoalex 12y ago
    That's not the norm, as of this year the chips are not commonplace in US-issued cards. What you have is an imprint machine, where the merchant sticks your card over a paper with a carbon copy, slides over the top to make an imprint, then hands the piece of paper back to you for signature, then rips out the top page for himself while handing you the carbon copy one. As you can imagine, this does not go well in food truck environment, where the mode of operation at crunch time might be "process as many customers per minute as you can".
    - sdm 12y ago
      Wow. That's just crazy! I haven't seen one of those imprint machines in 15 years. I thought they were completely dead. Even before the Chip cards, it was normal to have portable terminals that you would just swipe, enter your tip, and it prints the receipt that you signed.
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.

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.
      - steven2012 12y ago
        This is highly doubtful. The fact that merchants take on all fraud risk from a fake card present transaction is very high incentive. I have friends in Canada that own retail stores and they said that fraud has dropped to almost zero because of EMV. There are ways to scam it, by pretending that the chip doesn't work and have the cashier swipe it, but if the cashier swipes it instead of using the pin, they get in trouble because the merchant loses money. So I bet you'll see very quick adoption, within a couple of years max.
        prostoalex 12y ago
        Big box stores are already moving towards it, with Target (surprise! surprise!) leading the way. Mom-and-Pop shops will probably not be happy about replacement costs, but they're apparently a diminishing market force anyways.
      - PeterisP 12y ago
        Experience from other places that switched to EMV shows that this incentive is large enough to have a rather quick adoption. Yes, there are some niches where non-EMV terminals stick around - those that are low-volume and feel immune to fraud; but all common stores seem to switch quickly as otherwise all fraudsters focus on those who haven't switched yet, and low-margin business can't afford losing that money.
- nly 12y ago
  This is a good point. Surely Square have a plan for when America finally joins the present decade and adopts EMV/Chip and PIN? Or are they hoping to bootstrap pure mobile payments as an alternative? I don't see a competitive advantage in the latter scenario when PayPal already have a system with photo verification rolling out here in the UK.
davidu 12y ago
Unfortunately, in the market of transaction processing, that's not an indicator of success. Transaction volume is. It is the only metric of success.
abalone 12y ago
You can't go on adoption alone. You have to look at their balance sheet, and the whole point of the article is that their balance sheet and future sustainability is reportedly not so hot. Although to be fair it does end on a non-fatalist note that leadership may be able to tweak the business into something less grandiose and more oriented towards grinding out a profit on a better-than-average commodity product.
sdm 12y ago
Why wouldn't they just use a portable reader like food delivery guys have been for over a decade? I mean, in Canada if you order food the driver shows up with a machine you insert your card and enter your pin. These machines do all communication by 3G. You see food trucks and coffee shops with these too. Isn't that the norm in the US? Portable chip based card readers have been around longer than Square. Hell, I remember using them (pre-chip of course) since around 2000ish. And today they are just ubiquitous. They are straightforward and user-friendly for the user and today the Banks almost give them aways with your merchant account. I'm still trying to understand what problem Square is trying to solve -- other than wanting to use your iPhone for everything. I just don't see a viable business with them.
- deleted 12y ago
  [deleted]
- prostoalex 12y ago
  That's not the norm, as of this year the chips are not commonplace in US-issued cards. What you have is an imprint machine, where the merchant sticks your card over a paper with a carbon copy, slides over the top to make an imprint, then hands the piece of paper back to you for signature, then rips out the top page for himself while handing you the carbon copy one. As you can imagine, this does not go well in food truck environment, where the mode of operation at crunch time might be "process as many customers per minute as you can".
  - sdm 12y ago
    Wow. That's just crazy! I haven't seen one of those imprint machines in 15 years. I thought they were completely dead. Even before the Chip cards, it was normal to have portable terminals that you would just swipe, enter your tip, and it prints the receipt that you signed.

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.