
With IPO Hopes Fading, Square and Box Face Reality Of Commodity Products - onedev
http://techcrunch.com/2014/05/02/with-ipo-hopes-fading-square-and-box-face-reality-of-commodity-products/
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Jormundir
> 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
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.

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raverbashing
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)

~~~
sfall
chip is becoming more popular in the us now too

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mitchty
Mandatory as of October 2015 next year actually.

[http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/america...](http://www.forbes.com/sites/tomgroenfeldt/2014/01/28/american-
credit-cards-improving-security-with-emv-at-last/)

~~~
dangrossman
Not mandatory, just (barely) incentivized starting in 2015. You'll see non-EMV
cards and terminals around for probably another decade.

~~~
steven2012
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
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.

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ghshephard
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
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.

~~~
funkyy
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
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.

~~~
phamilton
My experience with Box has been as follows:

1\. Employees share files via email. 2\. Employees start sharing files via
Dropbox. 3\. Management pitched Box by salesperson. Signs contract. 4\.
Employees told to use Box instead of Dropbox. Dropbox blocked. 5\. Employees
share files via email.

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steven2012
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.

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lsh123
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.

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sheetjs
> 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
Yes, it is strange the aricle does not mention Dropbox. Perhaps they are not
planning an IPO?

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hkmurakami
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
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.

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davidw
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.

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adventured
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.

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paulbaumgart
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
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
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.

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

~~~
AdrianoZum
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.

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programminggeek
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.

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zht
"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?

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davidu
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
Except for their IPO postponement?

~~~
davidu
Wouldn't you want to time the market? That's not hopes fading, that's just
smart business sense.

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LandoCalrissian
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.

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michaelochurch
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.

