Speculate on Square’s future. What current and future trends may further shape the company?
Speculate on Square’s future. What current and future trends may further shape the company?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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Question
Speculate on Square’s future. What current and future trends may further shape the company?
![Company Case Square: In Relentless Pursuit of a More Elegant Payment Experience
It happened one day at an art fair. Jim McKelvey, an artisan who
worked in handblown glass, had an admirer of his work ready to buy
a piece priced at $2,000. There was just one problem. The customer
did not have that much cash, and Jim wasn't equipped to take credit
cards. McKelvey couldn't close the deal and lost a valuable sale.
But there's a happy ending to this story. McKelvey quickly
recognized that the problem he faced that day was common
to small and medium-size businesses (SMBS) everywhere.
Realizing how much money he was losing by not accepting
credit cards got him going on solving the problem. McKelvey
and partner Jack Dorsey came up with Square, the payment
processing innovator that set fire to an industry. Today, Square is
valued at $27 billion. So you might say that McKelvey's glass art
piece is the most valuable piece of glass never sold.
Square's origins are not unlike the origins of most startup com-
panies: The founders recognize a problem for which there is no cur-
rent product or service solution and set out to solve it. The question
is this: What created the problem that Jim McKelvey recognized
that fateful day? The short answer: The consumer and marketing
environment had changed, but businesses had yet to catch up.
shipped. Online payment processors like PayPal took care of that
problem. But in the offline world, SMBS were still being excluded.
The Dongle That Changed Everything
Square launched in 2009. The idea was simple. Square would
play the role of a big business, putting up the capital and as-
suming the risks of processing credit and debit card transac-
tions. The promise of volume let Square form partnerships with
credit card companies such as Visa and Mastercard, bypassing
the credit card-processing companies altogether and negoti-
ating lower fees. With low fees and minimal overhead, Square
could make its services available to anyone-merchant or ev-
eryday individual-with no contract and no approval process.
Merchants gained piece of mind from a simple structure of af-
fordable transactions fees that were the same for all.
With the back-office part of payment processing sorted out,
Square needed only to figure out the interface between the mer-
chant and the customer. It developed the now-familiar Square
dongle-a small yet elegant white plastic magstripe reader that
plugged into the headphone port of Android or Apple iOs smart-
phones and tablets. The reader cost only $10 (free today), and
the app that powered it was free. The combination of Square's
hardware and software processed unencrypted, analog card in-
formation by digitizing it and sending it to Square's servers.
Thus, with nothing more than a smartphone, any small
business owner could accept credit and debit card payments,
whether selling from a traditional brick-and-mortar store, a street
cart, a booth at an event, or even the trunk of a car. Highlighting
the real benefits of Square, Dorsey notes that payment process-
ing is "not even in the category of things [merchants] want to
think about. They want to think about things like hiring people
and introducing new ingredients."
Once Square launched, its founders quickly realized that it offered
only one solution to a very narrow problem. Credit card payment
processing was now available to all. But a one-size-fits-all solution
is rarely perfect for anyone. For most SMBS, running a card through
a reader connected to a smartphone did not give customers an im-
pression of stability and security. There also remained the challenge
of appealing to the segment of SMBS that already had contracts with
terminal providers. "The biggest thing [we were] competing with,
honestly, was that sellers tend to develop systems of doing things
and it's the adage of 'If it's not broke, don't fix it," says Dorsey.
From its earliest days, Square's founders realized that they
were far from solving the problems associated with payments.
And given how rapidly the forces of the marketing environment
were changing, their task would never be done. To meet the
challenges, Dorsey and McKelvey developed a philosophy of
never-ending innovation with the goal of making payments less
painful and more elegant. By their nature, payments represented
a transaction barrier to both buyer and seller. To remove the
The World before Square
When consumers used cash as the primary means of paying for
goods and services, SMB owners had little problem selling their
wares. But as the 1900s came to a close and more and more busi-
nesses accepted credit cards for payment, people carried less and
less cash. This put SMBS at a disadvantage; many factors made
the processing of credit cards difficult to impossible for them.
For starters, before Square and its many imitators, it was il-
legal for non-registered merchants to accept credit card pay-
ments. Registering with an approved credit card-processing
terminal provider was expensive, with a substantial flat fee at
the start and transaction fees higher than most SMBS could af-
ford. Credit card processing was available to merchants only on
a contract basis-when merchants signed, they were locked in.
Adding to this complexity, the terms of the contracts were dif-
ficult to understand, often leading to unexpected fees.
If all this wasn't enough to keep most SMBS out of the credit
card loop, when it came to accepting credit and debit cards,
they still had to be approved. Like getting a bank loan, being ap-
proved for credit processing services was contingent on indica-
tions of financial strength and stability. Then, "even if you do get
accepted by a traditional terminal provider to accept payments,
you typically sign up for a contract that is at best opaque and
probably not so fair," says Square's head of hardware. "There's a
teaser rate, there are monthly fees, there's a variety of other fees,
different cards cost different amounts."
Things started to change in the mid-1990s with the advent of
e-commerce. As unlikely as it seems today, in the early days of eBay,
buyers had to mail cash or a check to sellers before goods were](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb2bd54a8-dafa-41fa-8c71-fb475fcdf544%2F644b743d-6c2a-43a9-92a3-294864df0d12%2F1isbf1r_processed.png&w=3840&q=75)
Transcribed Image Text:Company Case Square: In Relentless Pursuit of a More Elegant Payment Experience
It happened one day at an art fair. Jim McKelvey, an artisan who
worked in handblown glass, had an admirer of his work ready to buy
a piece priced at $2,000. There was just one problem. The customer
did not have that much cash, and Jim wasn't equipped to take credit
cards. McKelvey couldn't close the deal and lost a valuable sale.
But there's a happy ending to this story. McKelvey quickly
recognized that the problem he faced that day was common
to small and medium-size businesses (SMBS) everywhere.
Realizing how much money he was losing by not accepting
credit cards got him going on solving the problem. McKelvey
and partner Jack Dorsey came up with Square, the payment
processing innovator that set fire to an industry. Today, Square is
valued at $27 billion. So you might say that McKelvey's glass art
piece is the most valuable piece of glass never sold.
Square's origins are not unlike the origins of most startup com-
panies: The founders recognize a problem for which there is no cur-
rent product or service solution and set out to solve it. The question
is this: What created the problem that Jim McKelvey recognized
that fateful day? The short answer: The consumer and marketing
environment had changed, but businesses had yet to catch up.
shipped. Online payment processors like PayPal took care of that
problem. But in the offline world, SMBS were still being excluded.
The Dongle That Changed Everything
Square launched in 2009. The idea was simple. Square would
play the role of a big business, putting up the capital and as-
suming the risks of processing credit and debit card transac-
tions. The promise of volume let Square form partnerships with
credit card companies such as Visa and Mastercard, bypassing
the credit card-processing companies altogether and negoti-
ating lower fees. With low fees and minimal overhead, Square
could make its services available to anyone-merchant or ev-
eryday individual-with no contract and no approval process.
Merchants gained piece of mind from a simple structure of af-
fordable transactions fees that were the same for all.
With the back-office part of payment processing sorted out,
Square needed only to figure out the interface between the mer-
chant and the customer. It developed the now-familiar Square
dongle-a small yet elegant white plastic magstripe reader that
plugged into the headphone port of Android or Apple iOs smart-
phones and tablets. The reader cost only $10 (free today), and
the app that powered it was free. The combination of Square's
hardware and software processed unencrypted, analog card in-
formation by digitizing it and sending it to Square's servers.
Thus, with nothing more than a smartphone, any small
business owner could accept credit and debit card payments,
whether selling from a traditional brick-and-mortar store, a street
cart, a booth at an event, or even the trunk of a car. Highlighting
the real benefits of Square, Dorsey notes that payment process-
ing is "not even in the category of things [merchants] want to
think about. They want to think about things like hiring people
and introducing new ingredients."
Once Square launched, its founders quickly realized that it offered
only one solution to a very narrow problem. Credit card payment
processing was now available to all. But a one-size-fits-all solution
is rarely perfect for anyone. For most SMBS, running a card through
a reader connected to a smartphone did not give customers an im-
pression of stability and security. There also remained the challenge
of appealing to the segment of SMBS that already had contracts with
terminal providers. "The biggest thing [we were] competing with,
honestly, was that sellers tend to develop systems of doing things
and it's the adage of 'If it's not broke, don't fix it," says Dorsey.
From its earliest days, Square's founders realized that they
were far from solving the problems associated with payments.
And given how rapidly the forces of the marketing environment
were changing, their task would never be done. To meet the
challenges, Dorsey and McKelvey developed a philosophy of
never-ending innovation with the goal of making payments less
painful and more elegant. By their nature, payments represented
a transaction barrier to both buyer and seller. To remove the
The World before Square
When consumers used cash as the primary means of paying for
goods and services, SMB owners had little problem selling their
wares. But as the 1900s came to a close and more and more busi-
nesses accepted credit cards for payment, people carried less and
less cash. This put SMBS at a disadvantage; many factors made
the processing of credit cards difficult to impossible for them.
For starters, before Square and its many imitators, it was il-
legal for non-registered merchants to accept credit card pay-
ments. Registering with an approved credit card-processing
terminal provider was expensive, with a substantial flat fee at
the start and transaction fees higher than most SMBS could af-
ford. Credit card processing was available to merchants only on
a contract basis-when merchants signed, they were locked in.
Adding to this complexity, the terms of the contracts were dif-
ficult to understand, often leading to unexpected fees.
If all this wasn't enough to keep most SMBS out of the credit
card loop, when it came to accepting credit and debit cards,
they still had to be approved. Like getting a bank loan, being ap-
proved for credit processing services was contingent on indica-
tions of financial strength and stability. Then, "even if you do get
accepted by a traditional terminal provider to accept payments,
you typically sign up for a contract that is at best opaque and
probably not so fair," says Square's head of hardware. "There's a
teaser rate, there are monthly fees, there's a variety of other fees,
different cards cost different amounts."
Things started to change in the mid-1990s with the advent of
e-commerce. As unlikely as it seems today, in the early days of eBay,
buyers had to mail cash or a check to sellers before goods were
![CHAPTER 3 Analyzing the Marketing Environment
115
payment transaction barriers entirely, payments had to become
perfectly seamless. And to fully accomplish that goal, Square
would likely have to venture beyond the payment business.
These devices have many issues that businesses and customers
have just come to accept. For example, the keypad is small and
clunky, resembling a handheld calculator of 40 years ago. The
screens are tiny and do not let customers examine their complete
bill. The older devices are also difficult to update with new capa-
bilities, often requiring an entirely new hardware interface.
Continuous Innovation
Following the original dongle, Square unleashed a string of prod-
ucts and services that rival the best of Silicon Valley for frequency
and quality. Not only has Square partnered with Apple for vari-
ous projects, references are often made to the "Apple-esque"
design qualities of Square's hardware and software develop-
ments. Although the basic Square dongle is still available today,
the device is the entry level and least sophisticated of Square's
products. Consider the following:
Beyond Exciting Hardware
Square designed each of its products with certain applications
in mind. But the company's approach to innovation rests on the
expectation that customers will apply its products in ways the
company never imagined. "What's exciting to me about it is that
it kind of resonates back to when we first started the company
and wo built tho roador," oxplains Dorscy, roforring
"We had some idea of who would use it, but really no idea how it
would end up being used. This has very similar properties where
we'll probably be surprised at how people use it."
Once merchants get their hands on a Square device, they in-
stinctively figure out how to make it work for them. While Square
expected Terminal to be employed by everyone from "dentists to
bowling alleys," it couldn't have imagined all the ways the prod-
uct would be used. For example, field tests revealed that waitstaff
in restaurants tote Terminal to diners' tables for on-the-spot pay-
ment. Salon operators hand Terminal to customers while they are
still in the chair. In perhaps one of the most unexpected uses, a
plastic surgeon began taking Terminal to the treatment room so
that the bill could be reviewed with the patient and payment could
be made in private, avoiding potential uncomfortable situations.
The Square universe also extends far beyond in-person pay-
ment processing. Square is invading PayPal's territory with on-
line payment capabilities. It's Venmo-like Square Cash lets indi-
viduals send money to each other with the ease of an app. More
important to SMBS, Square provides a full portfolio of business
services, including creating and hosting online store platforms,
omni-channel integration, payroll processing, loans, appoint-
ment scheduling, and much more. Thus, Terminal, Register,
and Stand aren't just exciting pieces of hardware. They are
gateways to an entire ecosystem of small-business essentials.
There's no question that Square has deeply disrupted the
credit card payment establishment. Square's revenues have
nearly tripled in the past three years to $3.3 billion. It also handled
$84.66 billion in transaction payments-impressive but still a drop
in the bucket when you consider that Square's potential market
is "all transactions, online and off." More important is the potential
of Square's portfolio. "Our approach has been to not just stop at
the device, but the connection to the broader ecosystem of tools,"
says Dorsey. "We can handle your payroll, we can give you a loan,
we can handle your appointments if you're a salon, in addition to
walk-ins who come in to buy product and use [Terminal] to swipe
a card. If we can tell a story that is bigger than one piece of hard-
ware that is visible, then we tend to shift minds." In other words,
Square's potential for growth is practically unlimited.63
Square Stand (2013). The Square Stand turned the Apple iPad
into a more complete point-of-sale system. The integrated all-
white stand sits on a merchant's countertop and serves as a
customizable "register," letting employees ring up orders. Once
the bill is finalized, Square Stand rotates to face customers, al-
lowing them to swipe or insert their own card and sign on the
touchscreen. Today, Square Stand has evolved to interface with
commonly used peripherals such as printers, cash drawers, bar
code scanners, and even Square's own Bluetooth Reader.
Torminal,
Square Bluetooth Reader (2015). Connecting to other Square
devices via Bluetooth, the screenless Square Reader is a versa-
tile device that reads chip-embedded cards as well as contact-
less forms of payment such as Apple Pay and Google Pay. The
device can sit in an angled stand on a counter or can be handed
to a customer to accept payment in almost any situation.
Square Register (2017). Despite the versatility of Square's
many products, there were still customer transaction situations
that were not yet "seamless." Enter Square Register-a stand-
alone point-of-sale system designed and produced by Square. A
stand holds the 13-inch anodized aluminum tablet that faces the
employee. A second, smaller touchscreen faces the customer,
either attached to the back of the stand or separate for situ-
ations where the customer is a bit removed from the register.
Square Register interfaces with cards via magstripe or chip and
also accepts contactless forms of payment. Like Stand, Register
interfaces with a variety of peripherals.
Register saves money and time by not requiring an Apple
iPad. But more important, Square developed Register to meet
the needs of larger businesses that found Square's other prod-
ucts to be problematic. For example, iPads have to be updated
frequently. For chains with multiple checkout lanes in multiple
stores, updating each iPad in the company became a full-time
job. Register solves this and other problems with a tablet that
is stripped down in both hardware (for example, no battery) and
software (only Square software). The result is a system that is
faster, more powerful, and more reliable.
Square Terminal (2018). This is Square's all-in-one payment
terminal. Like Register, the device is designed and produced by
Square so that it doesn't rely on any additional hardware or soft-
ware. It can stand alone or interface with other Square products.
With a screen the size of a modern smartphone, Terminal ac-
cepts all forms of payment accepted by other Square products.
Its touchscreen lets customers see and sign for their bill. And
Terminal can also print receipts.
Square Terminal is Square's way of filling a niche that existed
between its other products. More important, it seeks to fix "all the
stuff" that's wrong with traditional credit card terminals. Square
executives quickly point out the antiquity of standard terminals
that still dominate the retail landscape, put in place by traditional
payment processing companies such as Ingenico and First Data.
Questions for Discussion
3-16
Describe how Square has evolved based on actors in
the microenvironment.
3-17
Describe how Square has evolved based on the forces
of the macroenvironment.
3-18
Are factors in the marketing environment not men-
tioned in this case affecting Square? Discuss.
3-19
Speculate on Square's future. What current and future
trends may further shape the company?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb2bd54a8-dafa-41fa-8c71-fb475fcdf544%2F644b743d-6c2a-43a9-92a3-294864df0d12%2Fb6eyytx_processed.png&w=3840&q=75)
Transcribed Image Text:CHAPTER 3 Analyzing the Marketing Environment
115
payment transaction barriers entirely, payments had to become
perfectly seamless. And to fully accomplish that goal, Square
would likely have to venture beyond the payment business.
These devices have many issues that businesses and customers
have just come to accept. For example, the keypad is small and
clunky, resembling a handheld calculator of 40 years ago. The
screens are tiny and do not let customers examine their complete
bill. The older devices are also difficult to update with new capa-
bilities, often requiring an entirely new hardware interface.
Continuous Innovation
Following the original dongle, Square unleashed a string of prod-
ucts and services that rival the best of Silicon Valley for frequency
and quality. Not only has Square partnered with Apple for vari-
ous projects, references are often made to the "Apple-esque"
design qualities of Square's hardware and software develop-
ments. Although the basic Square dongle is still available today,
the device is the entry level and least sophisticated of Square's
products. Consider the following:
Beyond Exciting Hardware
Square designed each of its products with certain applications
in mind. But the company's approach to innovation rests on the
expectation that customers will apply its products in ways the
company never imagined. "What's exciting to me about it is that
it kind of resonates back to when we first started the company
and wo built tho roador," oxplains Dorscy, roforring
"We had some idea of who would use it, but really no idea how it
would end up being used. This has very similar properties where
we'll probably be surprised at how people use it."
Once merchants get their hands on a Square device, they in-
stinctively figure out how to make it work for them. While Square
expected Terminal to be employed by everyone from "dentists to
bowling alleys," it couldn't have imagined all the ways the prod-
uct would be used. For example, field tests revealed that waitstaff
in restaurants tote Terminal to diners' tables for on-the-spot pay-
ment. Salon operators hand Terminal to customers while they are
still in the chair. In perhaps one of the most unexpected uses, a
plastic surgeon began taking Terminal to the treatment room so
that the bill could be reviewed with the patient and payment could
be made in private, avoiding potential uncomfortable situations.
The Square universe also extends far beyond in-person pay-
ment processing. Square is invading PayPal's territory with on-
line payment capabilities. It's Venmo-like Square Cash lets indi-
viduals send money to each other with the ease of an app. More
important to SMBS, Square provides a full portfolio of business
services, including creating and hosting online store platforms,
omni-channel integration, payroll processing, loans, appoint-
ment scheduling, and much more. Thus, Terminal, Register,
and Stand aren't just exciting pieces of hardware. They are
gateways to an entire ecosystem of small-business essentials.
There's no question that Square has deeply disrupted the
credit card payment establishment. Square's revenues have
nearly tripled in the past three years to $3.3 billion. It also handled
$84.66 billion in transaction payments-impressive but still a drop
in the bucket when you consider that Square's potential market
is "all transactions, online and off." More important is the potential
of Square's portfolio. "Our approach has been to not just stop at
the device, but the connection to the broader ecosystem of tools,"
says Dorsey. "We can handle your payroll, we can give you a loan,
we can handle your appointments if you're a salon, in addition to
walk-ins who come in to buy product and use [Terminal] to swipe
a card. If we can tell a story that is bigger than one piece of hard-
ware that is visible, then we tend to shift minds." In other words,
Square's potential for growth is practically unlimited.63
Square Stand (2013). The Square Stand turned the Apple iPad
into a more complete point-of-sale system. The integrated all-
white stand sits on a merchant's countertop and serves as a
customizable "register," letting employees ring up orders. Once
the bill is finalized, Square Stand rotates to face customers, al-
lowing them to swipe or insert their own card and sign on the
touchscreen. Today, Square Stand has evolved to interface with
commonly used peripherals such as printers, cash drawers, bar
code scanners, and even Square's own Bluetooth Reader.
Torminal,
Square Bluetooth Reader (2015). Connecting to other Square
devices via Bluetooth, the screenless Square Reader is a versa-
tile device that reads chip-embedded cards as well as contact-
less forms of payment such as Apple Pay and Google Pay. The
device can sit in an angled stand on a counter or can be handed
to a customer to accept payment in almost any situation.
Square Register (2017). Despite the versatility of Square's
many products, there were still customer transaction situations
that were not yet "seamless." Enter Square Register-a stand-
alone point-of-sale system designed and produced by Square. A
stand holds the 13-inch anodized aluminum tablet that faces the
employee. A second, smaller touchscreen faces the customer,
either attached to the back of the stand or separate for situ-
ations where the customer is a bit removed from the register.
Square Register interfaces with cards via magstripe or chip and
also accepts contactless forms of payment. Like Stand, Register
interfaces with a variety of peripherals.
Register saves money and time by not requiring an Apple
iPad. But more important, Square developed Register to meet
the needs of larger businesses that found Square's other prod-
ucts to be problematic. For example, iPads have to be updated
frequently. For chains with multiple checkout lanes in multiple
stores, updating each iPad in the company became a full-time
job. Register solves this and other problems with a tablet that
is stripped down in both hardware (for example, no battery) and
software (only Square software). The result is a system that is
faster, more powerful, and more reliable.
Square Terminal (2018). This is Square's all-in-one payment
terminal. Like Register, the device is designed and produced by
Square so that it doesn't rely on any additional hardware or soft-
ware. It can stand alone or interface with other Square products.
With a screen the size of a modern smartphone, Terminal ac-
cepts all forms of payment accepted by other Square products.
Its touchscreen lets customers see and sign for their bill. And
Terminal can also print receipts.
Square Terminal is Square's way of filling a niche that existed
between its other products. More important, it seeks to fix "all the
stuff" that's wrong with traditional credit card terminals. Square
executives quickly point out the antiquity of standard terminals
that still dominate the retail landscape, put in place by traditional
payment processing companies such as Ingenico and First Data.
Questions for Discussion
3-16
Describe how Square has evolved based on actors in
the microenvironment.
3-17
Describe how Square has evolved based on the forces
of the macroenvironment.
3-18
Are factors in the marketing environment not men-
tioned in this case affecting Square? Discuss.
3-19
Speculate on Square's future. What current and future
trends may further shape the company?
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