Overall I can't help shake the impression that this is kind of a "Yelp move": your core business model isn't that hot, so break the glass of the nearest hot business model and copy it. Yelp's done that with daily deals, checkins, etc.. This is Square doing a "GrubHub".
But, finally a product from Square with a fat profit margin (an extra 5.25%). I wonder if this is a sign of their future monetization strategy.
Their base processing fee of 2.75% + $0.00 is probably actually pretty low-margin for the particular "very small business" market they're targeting. There are big advertising costs, lower volumes per business and probably higher fraud rates.
And upmarket from that, medium-sized businesses are used to commodity processing fees closer to 2%. The whole "free reader/register" pitch is not as appealing there, where a higher processing fee would end up costing a lot more.
Maybe their strategy is to break even on the base processing to get mindshare and sell premium services like this. The challenge, as with all "Yelp moves", is that it makes you a follower not a leader.
(P.S. I don't mean to single out Yelp too much here.. plenty companies do it. I think they came to mind because they're also in the small business space.)
You can't just make a statement like that and play it off. Citations? I see Square devices used everywhere in retail, and no, I don't live in San Francisco or the Bay Area.
That's not their problem. There was some scrutiny of their business model around their recent IPO postponement & acquisition rumors. Here's a citation:
But Square's business yields razor-thin profit margins, if any... About four-fifths of that money is spent on fees to payment networks... other financial intermediaries and fraud costs...
Square's gross margin, the portion of revenue remaining after paying processors and covering other costs like fraud, fell to 21% in 2013, from 27% in 2012, according to a copy of Square's results viewed by The Wall Street Journal.
Square has been adding services that could eventually be more profitable than its main payments business.
But in recent weeks, people close to Square have indicated to Wall Street executives that a 2014 offering is unlikely because the company has run into problems with its "revenue run rate," a key projection of future performance. It has been reported that Square is unprofitable, but that 2013 revenues exceeded $100 million.
I do live in the Bay Area and the only place I have seen Square is at coffee shops and farmers market stands. I don't think it has that much traction and their growth is reported to be poor (or negative, I forget which). The mag stripe reader was a cute hack but when you get down to it the service is pretty expensive and you need a huge up-front investment in equipment, compared to ordinary cash registers which are dirt cheap.
Square is a POS system, comparing it with a cash register is ridiculous. Many POS systems sold to restaurants fly well above the thousands of dollars with shitty UIs that take hours for employees to learn (knowing the turnover in the food industry, it's a lot of wasted time).
But, finally a product from Square with a fat profit margin (an extra 5.25%). I wonder if this is a sign of their future monetization strategy.
Their base processing fee of 2.75% + $0.00 is probably actually pretty low-margin for the particular "very small business" market they're targeting. There are big advertising costs, lower volumes per business and probably higher fraud rates.
And upmarket from that, medium-sized businesses are used to commodity processing fees closer to 2%. The whole "free reader/register" pitch is not as appealing there, where a higher processing fee would end up costing a lot more.
Maybe their strategy is to break even on the base processing to get mindshare and sell premium services like this. The challenge, as with all "Yelp moves", is that it makes you a follower not a leader.
(P.S. I don't mean to single out Yelp too much here.. plenty companies do it. I think they came to mind because they're also in the small business space.)