Ever since Facebook went public, people in Silicon Valley have been a bit bummed out about the tech industry. Keep in mind that the Valley is infinitely optimistic, so even when they’re bummed, folks here keep smiling. Still, in numerous conversations over the past few months, I’ve detected a sense of gloom, and it’s obvious why.
Social networking had long been hailed as the next big thing, a revolutionary tech that promised to change the world and rake in big money, too. While it’s still promising, Facebook’s dismal stock performance (not to mention that of related companies like Zynga) has cooled the industry on big, ad-sponsored consumer websites. Meanwhile, Google is trying to figure out what it wants to do with its future, while Apple, the tech world’s engine of hardware innovation, feels less exciting than it did when the iPhone and iPad were new products. So far, there’s no sign that Tim Cook’s company is interested in pursuing anything more than incremental, hyper-profitable annual updates to its product lineup (not that there’s anything wrong with that).
The Valley likes to anoint standard-bearers, companies whose amazing, unreasonable success points to sunny days ahead. Before Facebook, everyone was gaga for Google, and before Google there were all those dot-coms. Now there’s a hole in the industry’s crystal ball. There’s no consensus on which company will define the next era of technology.
I believe the tech industry’s next great company is Square. If you’ve heard of Jack Dorsey’s three-year-old firm, you likely think of it as a payments startup. Square is famous for its white plastic card reader, a device that lets small businesses use phones and tablets to accept credit cards. But calling Square a mere payments company minimizes its potential, and it misses Dorsey’s world-changing mission.
If you study Square’s products and its pricing, and if you talk to Dorsey about his plans, you’ll find that the company’s real mission is to alter the psychology of consumption. Dorsey is bent on creating frictionless commerce. His long-term goal is to make accepting payments a breeze for businesses, and he wants to make paying for stuff invisible—for everyone, across the entire economy, for all types of goods and services. If Square succeeds in that mission, it will become a persistent, ever-present part of our daily lives. You’ll use it every time you engage with businesses—which might mean you’ll interact with Square more often than Google, Facebook, Amazon, or even Apple.
I spoke to Dorsey and Keith Rabois, Square’s chief operating officer, at the company’s gleaming San Francisco office last month. I’d come to chat about two recent announcements that won lots of headlines, but whose combined effects haven’t really been appreciated by the tech press. In August, Square announced that, beginning this fall, it will process all credit card payments at Starbucks stores. When the system is fully up and running, customers will be able to shop at Starbucks just by saying their names: After you opt in, your name and photo will pop up on the Starbucks cashier’s screen when you enter the store with your phone in your pocket. To pay, you’ll just tell the cashier to put it on your tab. That’s it—you don’t have to remove your phone or swipe or sign anything.
A few weeks after the Starbucks deal, Square dropped the other shoe. The company had long charged businesses a 2.75 percent fee to process payments through Square, which is less than most credit card processing companies ask for. But now Square has made the deal even better, rolling out a flat fee of $275 per month. The price applies to transactions under $400 on the first $250,000 in a business’s yearly sales, which means that the fee can be as low as 1.3 percent. Businesses that go over the $400-per-item or $250,000-per-year limits pay 2.75 percent on those transactions; the 2.75 fee is also still available for businesses with a low volume of monthly credit transactions. “The basic premise of the program is we wanted to remove any excuse for not taking credit,” Rabois says. “There is no longer any excuse for an American business to not accept credit cards today—they're handicapping their own sales and profits if they don’t, and their customers will be happier if they do.”
Taken together, the Starbucks deal and the monthly pricing plan address what had been Square’s greatest problem—the chicken-and-egg hurdle that all online marketplaces face when starting out. Square’s pay-by-name system will only achieve its potential if lots of stores accept it, but stores have little incentive to sign up with Square if there aren’t a lot of customers clamoring to pay that way. These two announcements solve both sides of the puzzle. The Starbucks collaboration will introduce millions of new customers to the magic of paying with Square, while the new pricing plan will give businesses a clear financial incentive to sign up. Once both sides get together, Square will be unstoppable.
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