business newsCan Square Really Make Money as Starbucks' Little Helper?
By
Jonah Loeb Sep 21, 2012 12:00 pm
Jack Dorsey's highly-valued payment service is trying to be a cleaner fish for the coffee giant.
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MINYANVILLE ORIGINAL For a little gadget, the Square reader is making some big moves.
The company has seen its valuation more than triple in the past year, rising above $3.25 billion and making founder Jack Dorsey (you might also know him from his side project, a little social-networking site called Twitter) into a billionaire. Furthermore, its recent addition of a monthly-fee option makes it a much more attractive proposition for small and medium-sized businesses than it once was. Rather than its original 2.75% processing fee, Square is now offering businesses that process up to $250,000 per year a flat $275 monthly rate, which means that anyone making more than $10,000 per month can now breathe a little easier.
The biggest move, though, is Square’s recent partnership with Starbucks (NASDAQ:SBUX), which is a massive marketing coup for the payment service that immediately makes it one of the world’s hottest gadgets. The deal could boost Square’s value by $2.2 billion and make the company very attractive indeed to other companies with quick turnover and a high transaction volume. (Chipotle (NYSE:CMG) and Dunkin’ Donuts (NASDAQ:DNKN) come to mind.) Only the purchase of Square competitor PayPal by eBay (NASDAQ:EBAY) back in 2002 comes close to this deal in terms of the degree to which it will change the way that the larger company operates. By partnering with Square, Starbucks is actively endorsing the idea of the digital wallet.
However, as Wired's Marcus Wohlsen has pointed out, Square’s move isn’t just a departure from its comfort zone; it appears to be a departure from good business sense.
The company has seen its valuation more than triple in the past year, rising above $3.25 billion and making founder Jack Dorsey (you might also know him from his side project, a little social-networking site called Twitter) into a billionaire. Furthermore, its recent addition of a monthly-fee option makes it a much more attractive proposition for small and medium-sized businesses than it once was. Rather than its original 2.75% processing fee, Square is now offering businesses that process up to $250,000 per year a flat $275 monthly rate, which means that anyone making more than $10,000 per month can now breathe a little easier.
The biggest move, though, is Square’s recent partnership with Starbucks (NASDAQ:SBUX), which is a massive marketing coup for the payment service that immediately makes it one of the world’s hottest gadgets. The deal could boost Square’s value by $2.2 billion and make the company very attractive indeed to other companies with quick turnover and a high transaction volume. (Chipotle (NYSE:CMG) and Dunkin’ Donuts (NASDAQ:DNKN) come to mind.) Only the purchase of Square competitor PayPal by eBay (NASDAQ:EBAY) back in 2002 comes close to this deal in terms of the degree to which it will change the way that the larger company operates. By partnering with Square, Starbucks is actively endorsing the idea of the digital wallet.However, as Wired's Marcus Wohlsen has pointed out, Square’s move isn’t just a departure from its comfort zone; it appears to be a departure from good business sense.
No positions in stocks mentioned.
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