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Can Square Really Make Money as Starbucks' Little Helper?


Jack Dorsey's highly-valued payment service is trying to be a cleaner fish for the coffee giant.

With the new flat-fee model factored into the equation, Square needs an average transaction of $75 to remain profitable, a figure which will almost certainly be impossible to achieve, given the fact that Starbucks, whose average transactions (a scone, a latte, a breakfast sandwich) are below $10, will make up a massive part of Square's business.

Is latching onto a larger company a good idea? If Square's dream is to fade into a combination of invisibility and indispensability, then it has to make sure that its product becomes a central part of Starbucks' operations. This is clearly part of the plan -- Starbucks has been leading the charge when it comes to mobile payments, and this deal puts them in on the ground floor in a big way.

Even if Square gets a massive amount of publicity from this deal, though, will that outweigh the financial risk it is taking?

The question, it seems, is what sort of strategies can Square employ to help alleviate the average-transaction problem? One solution would be for them to aggregate a bunch of lattes together and process them as bundles of sales; Starbucks sells something like four billion cups of coffee each year, and there's no way that Square could process that many tiny transactions without losing money. According to Dorsey, though, Starbucks' massive stature and Square's ability to prevent expensive problems like credit card fraud have allowed the partnership to save enough money to make the deal viable.

Symbiosis can be a tough goal to reach, and Square is walking a very thin line here by betting on its own ability to cut costs. Either this deal will cause every fast-casual food company to buddy up to Square and Jack Dorsey will be heralded as a genius, or retailers will be put off by financial uncertainties and Jack Dorsey will probably still be heralded as a genius. Either way, it's a story -- and a gadget -- to watch.
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