Innovators

Square's Next Move: Solving Shopping's Minor Problems, Again


Square's Next Move: Solving Shopping's Minor Problems, Again

Photograph by James Leynse/Corbis

Square takes its name from the shape of the credit-card swipers it makes, but the company is really trying to be more than a maker of dongles that let people pay for your muffins on an iPad (AAPL). On Tuesday the company said it would begin giving merchants the choice of sending interactive receipts to customers with Square accounts. That came a day after Square rolled out an app to let people place delivery or takeout orders with merchants that use it.

Both products are an attempt to solve Square’s main challenge: It needs to lock business owners and their customers into its services. Software seems to ofer the distinctive edge in a crowded dongle market and Intuit (INTU) and PayPal (EBAY) are making it hard for Square to make ends meet. The company lost $100 million last year, according to the Wall Street Journal. Earlier this month on TechCrunch, Danny Crichton explained the dilemma faced by both Square and Box, another buzzy Silicon Valley startup that raised tons of money and is now falling on difficult times: They did a good job building products in areas where it is hard to stand out.

Square’s new products can be seen as a reaction to this dynamic. “In the rush to create differentiation, companies often try to spit out products hoping to find some feature that secures customer sales. Both Square and Box have expanded their product lines dramatically, often without a comprehensive strategy involved,” wrote Crichton.

Feedback and Order are an attempt to do something Square has had trouble with so far: changing consumer behavior. Neither seems to address any burning desire shared by shoppers. Take Feedback: when a company sells something through Square, it can now attach a question to the e-mailed receipt it sends customers. If customers respond, the merchant has a chance to continue communicating with them. “If I’m a seller and I get feedback from the buyer, that back-and-forth can go on for as long as both parties want,” says KC Simon, a spokesperson for the company. “It’s a platform we think is kind of natural to build on.” Feedback costs merchants $10 monthly following a month’s free trial.

The Order app is an outgrowth of Pickup, a feature that came out earlier this year. It is, in part, an attempt to undercut GrubHub, which serves small business owners that might be tempted to use Square. Customers can order in advance, using the app or Square Market, the company’s consumer-facing website. After a trial period, the company charges an 8 percent commission, significantly lower than GrubHub’s rates.

These attempts to create new consumer behavior come just as Square cuts the cord on what was probably its most ambitious customer service: Square Wallet. That app allowed someone to walk into participating stores and pay without having to take out credit cards. The system had its enthusiasts, but few customers find credit-card transactions taxing, and very few stores adopted it. Square removed Wallet from app marketplaces at the same time it introduced Order.

The company said it will continue to support Wallet and spun the latter’s demise as the result of an educational experience. “We’re taking everything we learned from Wallet and what people love in Wallet and building it into Square Order. We think it’s an even better experience that offers buyers more utility,” the company said in a statement.

The end target isn’t customers but merchants that might choose to use Square and pay transaction fees. It seemed obvious that neither side would fall for Wallet, argues Jordan McKee, a senior analyst at the Yankee Group. “With razor-slim margins and consumer adoption struggling to crest 2 percent after nearly three years, Square was smart to abide by the law of diminishing returns. The failure of its wallet was rooted in a fundamental and all too common flaw: A value proposition for merchants and consumers never existed,” he wrote on the company’s website. The same critique could be made of Square’s newer products: its dongles solved a real problem, even if they haven’t matured into a viable business on their own. It’s not clear that the company’s software products solve much.

Brustein is a writer for Businessweek.com in New York.

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