Square Inc. Circles the Wagons

October 9, 2014
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Square Inc. Circles the Wagons

Just how much deep poo are Square Inc. in? Having raised $150 million from Singapore governmental sources, Square may not yet have their backs to the wall but their rivalry for dominance in the mobile-payment business from PayPal has been joined in the fray by the newly formed ApplePay. Nevertheless, with the recent decision by eBay’s board of directors to separate eBay from PayPal into two corporate entities, it will take some more time for the smoke to clear, especially taking into consideration the anticipated arrival of Alibaba’s U.S. and European startup.

Just how did this happen? Square started out gangbusters as a unique credit card reading device for smartphones with a niche unto itself. Having already recorded losses of  $12m in 2012, the company recorded a loss of roughly $100 million in 2013. Now, led by the investment arm of the government of Singapore, Goldman Sachs Group Inc. and Rizvi Traverse Management, which valued Square at $6 billion, according to the Wall Street Journal, they are looking for a comeback.

Square Inc. Circles the Wagons

Square’s credit-card readers are used by around one million merchants, who attach them to their smartphones or tablets as a means of accepting or rejecting credit or debit-card payments. Square processed more than $20 billion in transactions, which created revenue of about $550 million in 2013, according to the Wall Street Journal. All had been well and good. Square’s plans were to expand and make themselves look like a very worthwhile investment bet. And while other companies have tried to rival Square using NFC chips, this time it’s different. Going to war with Apple proves pyrrhic for any corporate rival so inclined. As Apple’s massive built-in foundation of millions of satisfied computer, iPad and iPhone customers means Square will lose out massively, as customers who want their servicing and billing issues simplified will walk away.

It’s a familiar tale. So, as predicted losses worsened, Square sought to diversify. As with Über, the ‘instant gratification’ industry has thrived in San Francisco. Literally hundreds of businesses specializing in startup restaurants that deliver gourmet meals via bicycle messenger and other more traditional means have been heavily backed by speculators in a manner that reminds some of the kind of Wild West shenanigans seen on Deadwood. Dicey, you might think. The vicissitudes of a zigzagging economy and gambling on the permanence of culinary tastes and services seems at best risky.  Yet Square announced on August 4, 2014, that it had purchased the curated food delivery service, Caviar.

Square Inc. Circles the Wagons

Caviar is very successful company established across Northern California that allows buyers to receive delivery from top-rated and popular local restaurants. And for the restaurants that do not want to invest in remunerating organized delivery services it’s a simple alternative. Still, just how much profit can one make being a kind of pimp/middle-man? One can’t help but wonder. Nevertheless, according to Square’s CEO, Jack Dorsey, in the company’s blog, SquareUPNews. “Caviar’s curated seamless delivery experience is exactly the kind of service we want to provide buyers and sellers”. Hmmmm!

Details of the deal show Square paying somewhere in between $90 to 100 million in an all-stock transaction for Caviar, according to the New York Times. This would be a fantastic coup for the two-year-old Caviar, which has only had to raise $15 million in venture capital cash from Andreesen-Horowitz and Tiger Global Management.

Square, which launched its own food ordering service, Square Order, on May 14, 2014, now has no substantial rivals in the food delivery business. Yet, having recorded a loss of roughly $100 million in 2013, despite its valuation of $5.2-6 billion, the very fact that the Government of Singapore Investment Corporation came in as chief rescuer suggests that Dorsey and the company found it difficult to attract top tech investors, according to the New York Times.

No wonder when you’ve got the looming apparition of ApplePay breathing over your shoulder!

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