Square has been trying to move upmarket for the past year. There are a few obvious reasons for this
- Small merchants cannot afford much. Larger merchants have budgets for Square’s bolt-ons like appointments, gift cards, payroll and others
- Small merchants go out of business at higher rates. This means Square continues spending large quantities of marketing dollars to attract such merchants, but they don’t stick around long enough to be profitable
- Square cannot turn a profit on smaller merchants with their underwriting model
Square’s most recent maneuver is to launch Register, a $999 piece of hardware that, it would seem, aims to be more like a conventional Point of Sale (POS) instead of a simple card reader for the farmer’s market variety. There are some good gems in that TechCrunch article, and we’ll extract them here.
Our first question was whether this cannibalized Square’s existing hardware. That is, Square already has a stand and case for iPads that its “larger” merchants can use as their POS. Square’s head of hardware said that Register comes out of the box with everything loaded, making it theoretically easier for the merchant to set up.
Jack Dorsey’s take was that merchants thought Square was “too consumer-focused” in its existing embodiment. Even though there are undoubtedly thousands of multi-unit operators using a “consumer” Android or iOS tablet, Jack and co. thought their existing hardware solution did not work. We don’t know if this is Jack’s real opinion or if he needed an excuse to move more upmarket without candidly admitting, “I am massively unprofitable processing small merchants and need to find larger merchants”. But we can agree that consumer grade hardware – iPads and the likes – can cause issues due to their lack of ports and LAN support.
In this vein there are some changes in Register that might prove to be worthwhile. Register purports to have an offline mode, but what that means is anybody’s guess. We wrote Square but, alas, they’re batting 1000 in their inability to respond to communications. But could this be the same type of offline mode non-hybrid cloud POS companies believe is workable?
Register adds peripherals as well, so merchants don’t need to worry about bluetooth or wifi connectivity interfering with printers and scanners. This has been a problem we’ve seen with iPads used as POS systems particularly.
Square seems to think a real value add of Register is the fact that it offers a consumer facing screen.
Dorsey said the Register solves a big pain point by coming with separate screens for the buyer and seller. The Square team thought it was ‘clever’ to design the original Square Stand to swivel back-and-forth but larger sellers wanted separate displays, allowing the customer to see each product as they’re being rung up.
Reading Square’s opinion you’d think nobody ever bought anything before there was a screen for them to look at…
Naturally the most intriguing aspect in this whole thing is the processing rate. By default, Square comes out of the gate with a 2.5 percent and 10 cents per transaction processing fee. Yikes. Square says they’re more acommodating for larger merchants, though.
We can create custom pricing packages for some businesses with annual revenues over $250K and an average ticket size over $15.
We’re hard-pressed to classify a merchant that earns $250K/year as “large” considering the average US restaurant does $600K a year in revenue, but to each their own.
It is intriguing that merchants can buy Register outright, eliminating an ongoing monthly software fee. To us this speaks volumes about how Square views software: it’s subservient to the processing revenues. That seems to be the way the market has been thinking about POS over the past two years anyhow…