This article first appeared in the St. Louis Beacon, Dec. 2, 2009 - It’s hard to question the business acumen of Jack Dorsey, the St. Louis native and co-founder of Twitter. His microblogging service has proven to be uber-popular, and his latest venture -– a mobile phone payment service -– was unveiled yesterday to considerable fanfare.
But as Dorsey would admit, you’re only as good as your last tech startup. So I asked several people who are familiar with the high-tech world to evaluate Dorsey’s latest project, called Square, as if it were coming from an unproven entrepreneur, rather than from the mastermind of a sought-after company.
First, a quick overview of Square, which allows users to make and accept physical credit card payments from their mobile phones quickly. Here’s how the site TechCrunch describes it:
"A small device attaches to the phone via the headset/microphone jack. The device gets the power it needs to send data to the phone from the swipe of the card, and sends the information over the microphone connection … Think PayPal, but anyone can now accept physical credit card payments, too. With no contracts or monthly fees. People are sent receipts by text and email.”
Major credit card companies have reportedly signed on to allow Square to take payments, and the device appears to be compatible with the iPhone. One likely audience is street merchants who are interested in accepting credit card payments on site when before they would only take cash.
With that out of the way, here’s what the business experts are saying:
Clifford Holekamp, senior lecturer in entrepreneurship at Washington University’s Olin Business School, who has been founder or a board member of several start-up businesses and consults with small companies:
While a more hardened and sophisticated device would be more appropriate for heavy commercial use, [Square] looks like a simpler and less expensive solution for lighter-duty mobile sales. It is another step forward in the progression and simplification of digital payments and in the decreasing use of cash.
As an investor, I’d want to know what kind of patent protection they have been able to secure. Other companies have created apps that allow you to type a credit card number into an iPhone, and PayPal already makes it easy to accept credit cards. So the novel element and competitive advantage Square has is that they tie it all together with their impressive card swiper.
Even with a great hardware product, a lot of their future success will depend on their ability to compete (or partner) with the likes of PayPal and thus create greater network value to their users. Along those lines, they have already created a terrific and unique receipt system and will definitely want to create an easier and more efficient merchant account system than what is already available through PayPal or others.
The concept makes me wonder why in this digital age we still swipe physical cards in the first place. Maybe Dorsey will figure that out next.
Alex Miller, organizer of the Strange Loop Conference for software developers and an employee at the Java clustering startup Terracotta:
PayPal showed that lots of money can be made in processing money, and Square is right in line with a huge and growing market. As always, there is a chicken-and-egg problem getting both merchants and consumers to the point where they both have the right hardware to make the transaction. Consumers already have the credit cards and with the increasing ubiquity of smart phones, it is easy for merchants to get started with a small piece of hardware (likely given away for free). I think the audio aspect of Square's device is a very clever way to bootstrap things without needing new hardware in the phone. You could easily see this capability built into phones in the future.
I'm also personally excited to see that Square has strong St. Louis ties and appears to be creating significant infrastructure right here. (On Square's jobs page it says that the company is looking for "someone to build out our operations center in St. Louis, Missouri.")
Hopefully they will be able to leverage the strong and growing startup scene in St. Louis as well as the strong developer community. I hear from developers every day in St. Louis looking for more opportunities like this."
Chris O’Leary, entrepreneur and author of the book Elevator Pitch Essentials
The first question I have -– and this is a standard question -– is what’s the story behind the idea? How did they come up with the product? That often gives you a sense of its viability. Ninety percent of the time, people are successful when they solve their own problems. A fatal flaw is people who solve problems they don’t understand.
(O’Leary, who runs a small business selling basetball pitching and hitting DVDs, said he conducts his transactions through PayPal. Every once in a while he hears from people who want to charge something to their credit card but who don’t have internet access or immediate access to a computer. He said he doesn’t have a way to process the order right then; he can only send people to the website.) I’m certainly leaving some money on the table. The ultimate question is: Are there simpler solutions to the problem (than what Dorsey has come up with), and is this product worth the investment?
O’Leary said because Dorsey already has made a name for himself, “all he has to say is ‘I’m Jack Dorsey and I started Twitter,’ and that will work for 80 percent” of potential investors. “Being an experienced entrepreneur tells someone that you know how the business world works, that the product you come up with may not be the product you go to market with,” he added. "That knowledge is very valuable."
Jim Brasunas, director of IT Entrepreneur Network
The most surprising thing to me about Dorsey’s new project, “Square,” is that no one had already done this in North America yet. We’ve been hearing about cell phone check-out payments in Japan and other parts of East Asia for years. Where have the [North American] cell phone companies, credit card providers, etc. been?
Having said that, congratulations to Dorsey and his new team for launching this project. Execution is going to be the major hurdle (as always), and his experience with Twitter exploding beyond expectations is the best preparation for him to pull this off... Let’s wish him a lot of success, and hope we can claim some street cred for the St. Louis connection. And also let’s tip our ironic collective hat to a guy who launches a new, faster way of paying for stuff just when the country is waking up to being basically broke.