
Mobile-Payments Startup Square Discusses Possible Sale - coloneltcb
http://online.wsj.com/news/article_email/SB10001424052702303825604579513882989476424-lMyQjAxMTA0MDIwMDEyNDAyWj
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icelancer
I said for months and years that Square was absolutely myopic and slow-moving
when it came to online transactions and developing and releasing an API (which
still does NOT exist).

Stripe came in and absolutely crushed them.

Square deserves it. They had huge first-mover advantage and massive popularity
early. I will do mid six figures through Stripe in the next 12 months and all
of it - 100% of it - could have gone through Square had they simply spent a
few weeks exposing and documenting an API.

Embarrassing.

~~~
dlevine
Square's primary problem is not the lack of an API.

Square's problem is that the margin on processing physical credit cards is
razor thin, especially if you are just using other people's networks. My
thought has been that Square will eventually launch its own credit card
network once they have a large enough share of the credit card processing
market.

Square could have launched an API and done what Stripe did, but the problem of
processing credit cards over the Internet are different from the problem of
processing physical credit cards. I don't think that anyone could have
simultaneously succeeded at both.

~~~
icelancer
They already process cards over the Internet with Square Marketplace. They
clearly were interested in entering this area, but fell years behind everyone
else despite having years+ first mover advantage.

~~~
whbk
I remember emailing Tristan O'Tierney back in 2012 asking about an API after
having seen that they had allowed a small beta group access to an API [0,1].
His response was just that they'd decided against moving forward with it --
not sure of the specifics but they had at least gotten that ball rolling at
one point before deciding to focus on other things, would be interesting to
hear more about that decision.

[0] [https://groups.google.com/forum/#!topic/square-client-
api/c0...](https://groups.google.com/forum/#!topic/square-client-
api/c0rdiYryXJk)

[1] [https://groups.google.com/forum/#!topic/square-client-
api/7x...](https://groups.google.com/forum/#!topic/square-client-
api/7xFFwUotJNY)

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happycube
The other problem is that credit cards are set to go to chip-and-PIN in the
USA (finally!) later next year. All the current readers won't be useful (at
least if you don't want to shoulder the liability!)

~~~
chrisbolt
Got a source on that? Cards with chips are still somewhat rare, so it's going
to be a while before they become required...

~~~
Johnie
The EMV liability shift will move the liability for non-chip transactions to
merchants on Oct 2015.

You will see all your cards get issued with chip in the next year.

~~~
misaelm
Actually, with all the press regarding recent data breaches (e.g. Target) you
might see it happening before that. Some Chase and Citi cards are now being
issued with chip.

~~~
ryanhuff
My recently issued citi card has a chip.

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abalone
Super interesting that the Starbucks deal was a $20m loss. I swear back then I
read Square, or maybe it was Keith Rabois, claim that Square was making money
on the deal. Knew it was bullshit because they also claimed Starbucks was
saving money on processing with Square. That just didn't add up. Makes sense
now to hear this.

Overall, not shocked at the situation. A lot of people like to compare Square
to Apple. Superficially the product design is comparable (simplicity,
elegance).

But a HUGE difference is that Apple has always targeted products that have
generous margins. Payment processing is a commodity, microscopic-margin
business. Square Cash is outright operating at a loss. Not at all Apple-like.

It's cool they initially went after a segment more tolerant of a relatively
fatter fee: the underserved very small business / individual proprietor
market. But at the same time, there's a lot of advertising, support and
perhaps even fraud costs with that segment. And crucially, it's hard to move
upmarket to bigger businesses that demand a more competitive processing fee.

It would be sweet for a company like Square to take a fresh, Apple-like take
on the point of sale market. But sadly that doesn't seem compatible with the
sheer amount of venture funding they've taken on, which demands a highly
profitable multi billion dollar market. They would practically have to take
over the entire world of POS to make that kind of money on it, meeting
resistance to fat margins and bearing significant sales and support costs
every step of the way.

No wonder they are positioning themselves as a "commerce" not "payments"
company.. they need to look elsewhere for profits.

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gitah
At this point, I'm afraid Square is just too expensive to acquire. The company
does not have a solid business model: targeting micro-merchants is simply not
profitable. And due to all the hype, the acquisition price is going to be very
high to cash out all the investors.

Mobile wallet apps have not gained traction and Square marketplace looks like
a giant distraction. Square is going to face incredible competition with card
readers and POS products from Paypal, Apple, Amazon and Shopify.

~~~
ianhawes
PayPal, Apple, and Amazon are precisely the companies who would have the cash
to acquire the company and the desire to do so.

I see Square going to Apple so that they can jump start whatever payments
technology they're planning to unleash in the next year. Buying Square's
merchants would be an excellent way to do that.

~~~
ksec
At a valuation of a few billion? Tell me what Square could do and Apple cant
with those few billions?

Apple, as with its iPhone user base is large enough to offer its own Payment
Network to complete with Visa and Mastercard. Although i dont see Apple
wanting to do that either.

~~~
argonaut
You overestimate the ability, dedication, vision, and internal political will
of top tech companies to enter and dominate fields that are not their core
focus.

Remember MobileMe?

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curiosCow
I'm a newbie to startups and Silicon Valley so correct me if I'm wrong. It
seems like Square has spent a lot of money over the years. They come to our
campus recruiting, have hired multiple students from the university I attend,
I heard they've moved into a new expansive office this year and put in such a
big effort. If all of this is going to waste despite the fact that Square is
solving a real business problem (unlike so many many other startups), doing a
startup seems like such a small possibility of success - its scary. As a
college student, a lot of engineers tell me how much they learnt while working
at a startup etc, but is it even worth it if legitimate problem-solving
startups are failing like this? Is this model of being funded millions of
dollars and then failing worth it? Is this a bubble thats going to burst some
day and people will realize the we've just been illogical all the way along?

~~~
zt
They did solve a real problem. They just tried to run a business organization
more like a high-margin software business rather than a low-margin commodity
business, which is what they are right now.

They can change that but they haven't yet.

Put another way, don't solve a problem if the cost to solve it is greater than
solving it pays you.

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anandvc
Can someone please explain:

"Square recorded a loss of roughly $100 million in 2013, broader than its loss
in 2012"

AND

"Square would likely fetch billions of dollars in a sale."

How can BOTH these statements be true?

~~~
lutusp
Easily explained. If an investor believes that a company has a bright future,
the fact that it's losing money in the present may not count for anything. The
investor may turn out to be wrong, but that's the reasoning.

Also, because of the nature of tech investments and the volatile character of
the tech business, one can invest seed money in ten companies, watch nine of
them fail, and still come out ahead.

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boyaka
Another similar company to keep an eye out for is ShopKeep POS.
[http://www.shopkeep.com/shopkeep-vs-square](http://www.shopkeep.com/shopkeep-
vs-square) Found it at the Temple Coffee shops.

I actually enjoy using their interface a lot more than Square, and it seems to
be more feature rich on the merchant end too. The main thing I have fun with
is the ability to print your signature onto the receipt!

It would be interesting to look into all the developers of these POS swipe
machines. What companies fund them? Credit card companies? Grocery store
corporations? Just pure profit from sales of the devices? I know I see a lot
of innovation on grocery store registers, and a lot of the visa swipe devices
have been upgrading their interfaces consistently every few years.

~~~
itsmeduncan
Director of Engineer at ShopKeep here. Happy to answer any questions about the
technical side of things. Some recent ShopKeep news:
[https://news.ycombinator.com/item?id=7641525](https://news.ycombinator.com/item?id=7641525)

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swang
[http://techcrunch.com/2014/04/20/square-and-google-were-
not-...](http://techcrunch.com/2014/04/20/square-and-google-were-not-in-
acquisition-talks/)

Google/Square denies.

~~~
jjude
Don't believe anything until it is officially denied.

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coldcode
With the way Square has designed its business, it only makes sense as part of
a larger company to whom the business is about adding value to themselves.
Youtube is a great example: it couldn't survive in the long run unless
acquired. Nothing wrong with this business model except that you have to find
the right buyer before your model kills you.

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ImJasonH
This article includes the phrase "with the matter" six times, in case anyone
was wondering.

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canadev
Wow, $100m a year is a lot of money.

Could hire a team of 10 top notch devs for $200K + $100K in benefits for
$3m/year. Supposing you had a sales staff that cost the same, that's $6m. Make
it an even ten with hardware designers and support staff.

~~~
tonydiv
Wow. Napkin math can be powerful. This is the most insightful comment on the
page.

~~~
001sky
_Supposing you had a sales staff that cost the same_

Napkin math tells you nothing of the quality of this assumption.

