Square’s search for a viable business model just got more desperate, thanks to Amazon

August 13, 2014
August 13, 2014

After years of hype, big investments, and a skyrocketing valuation, the mobile payments startup Square is coming to terms with the fact that even though its core business is wildly successful, it is still unprofitable. It processes billions in payments each year through its card swipe terminals and iPad registers, but its cut of the fees is so small and the space is so crowded that it’s losing money and searching for more revenue.

To make matters worse, an 800-pound gorilla just walked in the door. This morning, Amazon announced that it’s releasing a mobile card reader of its own. When Amazon moves into a space, it doesn’t do so by half measures. The e-commerce giant has repeatedly shown that it is willing to lose money—lots of money—in pursuit of growth or to take over a new market.

Amazon’s new venture will seriously undercut Square’s already low flat rate on transactions for early customers, charging a flat rate of 1.75% per swipe versus Square’s 2.75%, according to Wired. Square’s margins are already extremely thin, and this will pressure them even further. As much money as Square has raised, it’s unlikely to win in a fight against Amazon.

A Fast Company profile of Square founder Jack Dorsey catalogues the company’s efforts to find new businesses. The piece mentions that a mock movie poster next to the team tasked with the job reads “SQUARE QUEST IV: THE SEARCH FOR NON-PAYMENTS REVENUE.”

That revenue could include money transfers, loans, e-commerce, and more—though a rumored credit card apparently isn’t happening.

“It’s a risky strategy that has positioned the company not only against Google and eBay’s PayPal, but also against Amazon, Etsy, GrubHub, Yelp, and a slew of traditional financial players,” Austin Carr writes in Fast Company.

Here are some of Square’s new projects (some launched, some in development) cited by the profile:

Square Cash, a peer-to-peer service that lets people send cash via an email or app. (Square loses as much as 25 cents per transaction, according to Fast Company.)

Order, an app that lets people order ahead at restaurants. (The company recently acquired the food delivery startup Caviar, likely in support of this product.)

Open Tickets, a new software tool for sit-down restaurants.

Appointments, an online system for booking and scheduling appointments.

Square Capital, a cash advance program for merchants which lends money in return for a slice of future sales.

Square Market, an online storefront.

The profile also mentions, but doesn’t elaborate on, products called Feedback, Invoices, and Dashboard—all likely part of what the piece describes as a “forthcoming suite of services to help merchants in the retail, restaurant, and service industries.”

The company claims that it has enough cash to run for some time. “The rumors of our demise have been greatly exaggerated,” CFO Sarah Friar told Fast Company. But if Square wants to justify its $5-billion valuation or move any closer to that long-rumored IPO, one or more of these new products will have to be a smashing success.

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