5 ms·

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

by abalone 13y 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 13y 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.
- laughinghan 13y ago
  While "fundamental innovation" is a little strong, they are not merely better "decidedly only in the PR and marketing spheres". I'm guessing your experience has been different, but the fact of the matter is that a large segment of the market has such a better experience with Apple products that they're willing to pay a premium. Not to deny that their cultural position as status symbols is also a big factor, but it is an objective fact that many people actually have better experiences, and not by accident or because it's easy to make that experience work, but due to deliberate hard work by Apple that many competitors have tried and failed to supplant.
- bluthru 13y ago
  Lightning strikes Apple time and time again. People like you don't like this for some reason, so they try to rationalize it by blaming it on "marketing".
  - Avshalom 13y ago
    And why not? Diamonds are nothing but marketing. Red bull is nothing but marketing. Nike is nothing but marketing.
- mehrdada 13y ago
  > From a technical perspective nothing they do is particularly innovative. Could not disagree more. While it might look like that on paper if you decompose an Apple product to its parts, there is clear value they are adding as the system integrator. There were very capable Windows Mobile PDAs before the iPhone, and the sensors used existed too, but the particular combination that provided the marvelous user experience never existed before. That is innovation.
- RachelF 13y ago
  Apple is a huge darling of most journalists. They can do no wrong, and the first exposure most people had to the "innovations" were through Apple's consumer tech. The McKinsey article linked to "Grow fast or die" in the Techcrunch article is well worth reading: http://www.mckinsey.com/insights/high_tech_telecoms_internet/grow_fast_or_die_slow http://www.mckinsey.com/insights/high_tech_telecoms_internet...
abcd_f 13y ago
> fraud costs Are you making educated guesses or do you actually know that fraud costs Stripe money? EDIT - Yep, sorry, Square. I'm just in the middle of integrating with Stripe, so it just slipped.
- richardwhiuk 13y ago
  Dealing with fraud costs money (because it costs money to pay people to do it), even if they don't bear the costs of the actual fraud.
- arfliw 13y ago
  Square, not Stripe. And how could fraud not cost them money? That's a cost of doing business for every payment processor.
  - abcd_f 13y ago
    Fraud costs them money the same way support costs them money - it's an operational expense. What I don't know if they are also on a receiving end of any penalty fees, especially in cases of fraudulent merchants.
- abalone 13y ago
  You mean Square. A little of both. The WSJ reported that their gross margin shrank from 27% to 21% in 2013 and specifically mentioned fraud as a component. (Interchange didn't change much.) [1] With very easy signup with minimal due diligence, plus next day payout, it's an attractive target for fraudulent sellers. Even with relatively honest but low volume sellers, chargebacks may be hard to collect once the money's paid out, so Square is left holding the bag. With a gross margin of barely more than half a percent of the transaction amount, one bad merchant can erase the revenue from a great many good ones. Stripe and PayPal face similar issues in the ecommerce world, and you can see how annoying PayPal has had to become to tighten up their fraud controls (lots of bad experiences with funds getting frozen). [1] http://online.wsj.com/news/articles/SB10001424052702303825604579513882989476424 http://online.wsj.com/news/articles/SB1000142405270230382560...

by abalone 13y ago

na85 13y 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.

laughinghan 13y ago
While "fundamental innovation" is a little strong, they are not merely better "decidedly only in the PR and marketing spheres". I'm guessing your experience has been different, but the fact of the matter is that a large segment of the market has such a better experience with Apple products that they're willing to pay a premium. Not to deny that their cultural position as status symbols is also a big factor, but it is an objective fact that many people actually have better experiences, and not by accident or because it's easy to make that experience work, but due to deliberate hard work by Apple that many competitors have tried and failed to supplant.
bluthru 13y ago
Lightning strikes Apple time and time again. People like you don't like this for some reason, so they try to rationalize it by blaming it on "marketing".
- Avshalom 13y ago
  And why not? Diamonds are nothing but marketing. Red bull is nothing but marketing. Nike is nothing but marketing.
mehrdada 13y ago
> From a technical perspective nothing they do is particularly innovative. Could not disagree more. While it might look like that on paper if you decompose an Apple product to its parts, there is clear value they are adding as the system integrator. There were very capable Windows Mobile PDAs before the iPhone, and the sensors used existed too, but the particular combination that provided the marvelous user experience never existed before. That is innovation.
RachelF 13y ago
Apple is a huge darling of most journalists. They can do no wrong, and the first exposure most people had to the "innovations" were through Apple's consumer tech. The McKinsey article linked to "Grow fast or die" in the Techcrunch article is well worth reading: http://www.mckinsey.com/insights/high_tech_telecoms_internet/grow_fast_or_die_slow http://www.mckinsey.com/insights/high_tech_telecoms_internet...

abcd_f 13y ago

> fraud costs Are you making educated guesses or do you actually know that fraud costs Stripe money? EDIT - Yep, sorry, Square. I'm just in the middle of integrating with Stripe, so it just slipped.

richardwhiuk 13y ago
Dealing with fraud costs money (because it costs money to pay people to do it), even if they don't bear the costs of the actual fraud.
arfliw 13y ago
Square, not Stripe. And how could fraud not cost them money? That's a cost of doing business for every payment processor.
- abcd_f 13y ago
  Fraud costs them money the same way support costs them money - it's an operational expense. What I don't know if they are also on a receiving end of any penalty fees, especially in cases of fraudulent merchants.
abalone 13y ago
You mean Square. A little of both. The WSJ reported that their gross margin shrank from 27% to 21% in 2013 and specifically mentioned fraud as a component. (Interchange didn't change much.) [1] With very easy signup with minimal due diligence, plus next day payout, it's an attractive target for fraudulent sellers. Even with relatively honest but low volume sellers, chargebacks may be hard to collect once the money's paid out, so Square is left holding the bag. With a gross margin of barely more than half a percent of the transaction amount, one bad merchant can erase the revenue from a great many good ones. Stripe and PayPal face similar issues in the ecommerce world, and you can see how annoying PayPal has had to become to tighten up their fraud controls (lots of bad experiences with funds getting frozen). [1] http://online.wsj.com/news/articles/SB10001424052702303825604579513882989476424 http://online.wsj.com/news/articles/SB1000142405270230382560...