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Square leaps beyond payments to commerce with online marketplace

June 25, 2013|By Jessica Guynn
  • Square co-founder and Chief Executive Jack Dorsey said in March that the company was looking to branch out beyond payments into commerce.
Square co-founder and Chief Executive Jack Dorsey said in March that the… (David Paul Morris / Bloomberg )

SAN FRANCISCO -- Square Inc. is making a significant step toward realizing its larger ambition of cashing in on commerce, not just payments, with the launch of an online marketplace where businesses can sell such things as handmade jewelry and yoga classes.

The new marketplace, called Square Market, enables local businesses to hang an online shingle to extend their reach onto the Web and sell more goods and services, said Ajit Varma, Square's director of discovery.

"Square Market makes local businesses accessible to customers down the block and across the country," Varma said.

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This is an ambitious next step in Square's efforts to harness the "informal economy," UC Irvine anthropology professor Bill Maurer said.

Small businesses across the country that sell merchandise in pop-up shops or teach piano lessons have been using Square's mobile payment technology, which basically enables anyone to accept credit card payments. Now Square is giving these businesses a marketplace that could drive sales on the Web, Maurer said

The result could bring many more of these bricks-and-mortar merchants not yet swept up by EBay and Etsy into the digital age, Maurer said. That includes people who hawk their services on Craigslist or rely on old-fashioned barter networks.

"Square is basically taking all of this existing informal economic activity that is all willy-nilly, scattershot stuff and gathering it all up into a digital platform with a payment system," Maurer said. "That lays the foundation for a whole separate economic sector."

With this latest move, Square is taking on long established, deep-pocketed competitors such as Amazon.com and EBay, said Rick Oglesby, senior analyst with Aite Group.

"A lot of people think of Square as a payments company, but Square is focused on selling. It wants to help small businesses sell online as well as in stores," Oglesby said. "They are much more interested in being a comprehensive marketplace and selling solution than a payments company. They want to be a business in a box."

How it works: Square Market enables anyone to open a storefront for free. Sellers can list items for free and post items directly to their followers on Twitter. Square charges a 2.75% fee for each item sold.

Analysts say the biggest challenge facing Square's online marketplace will be gaining a following from merchants and consumers.

"Many local business users of Square will see this as a welcome marketing channel. But the success of a marketplace like this relies on scale for both merchants and consumers," Opus Research analyst Greg Sterling said. "There have been many such local marketplaces in the past. As a fundamental matter, gaining merchant participation is very challenging."

But Square does have an edge with its tie-in with Twitter, Sterling said.

"A well-executed site that can leverage Twitter for distribution and visibility has a running start," he said.

Square owes that connection to its co-founder and chief executive, Jack Dorsey, who also co-founded Twitter. Dorsey said in March that Square was looking to branch out in commerce.

"We think there is something with higher margins there instead of always being a payments company," Dorsey said.

Dorsey said at the time that Square was focused on the entire transaction, not just payments.

"The good portion of working in payments is you naturally have a business model, so you really don't have to think so much about it, but it's not really who we are, it's something that we have to do," he said. "And where we are going isn't really about payments as a revenue model, but more about the data and the experience.

"Buyers may end up engaging in a transaction, but that transaction is just one tiny unit of the overall continuum. We think there is something much broader in the experience that has very, very little to do with payments."

The marketplace is already up and running. One company, Standard & Strange, is selling men's clothing, Square said, and indie band the Limousines is selling albums on Square Market.

Analysts say young start-up companies such as Square are pushing the envelope on payments, focusing on driving sales, lowering transaction costs and removing "friction" from the commerce process from start to finish.

"It's still early innings, as new service providers are largely unproven and lack critical mass," JP Morgan analyst Tien-tsin Huang wrote in a recent research note.

The beneficiaries of the heightened competition between the newcomers and the established payment industry are merchants and consumers, Huang said.

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