David Rosenthal: evaluation

Transcript context

…Yeah, that's interesting. And it really also I guess gave them those product features to move a lot more of their business to this point of sale market instead of the mobile card payments. I think the difference is subtle and I mean it’s best simplified as going from iPhone to going to iPad. But they forked the code base. It became Square and then a different app called Register. If you look at the vast majority of their revenue today, they have on a per quarter basis 482 million in transaction-based revenue, and everything else pales in comparison. It’s like 59 million in subscription and services based, hardware revenue. They do 10 million but 14 million of that is a loss. The vast majority of that 482 million is really in the Point of Sale category that is not quite where they started. I mean, they’ve used that as a wedge to get into the merchants that otherwise wouldn’t have been able to get an account, but now they’re in this rising tide of cloud point of sale. I was thinking about this before the episode. A lot of the growth ahead of them is really just this industry of cloud POS growing much more so than Square being able to continue to bring on more people that wouldn’t have been able to be merchants before or perhaps stealing share from other cloud POS providers like Clover or there’s all these other new ones launching that it’s really like they kind of pioneered this category and then really solidified their position in the category by forcing themselves to do all this work, much of it probably from the Starbucks deal and now it’s just like they get to sit on top while that industry accelerates. Yeah. Well, I would agree but I would argue for a slightly different framing of it which is it’s not just cloud POS and I actually think that the software and data products line item of other revenue they have is hugely important. What this really did is it took Square from being just a payments rails system for anybody to accept credit card payments, to a whole suite of a solution for a merchant of any size really but a world-class suite of tools for a merchant to run their business of which payments is probably the most important part that's accessible to anybody from the coffee shop down the street to Starbucks. And that's what I think this deal did. So if you look at the Point of Sale system itself and the Square Register, it’s no longer just about taking payments. It's about managing your inventory, managing your skews, managing your employees, time punching in and out, and then since then, Square has added so many different features. Payroll for employees, Square Capital to do lending against your revenue. Appointment booking. Basically everything you would need if you’re a business to manage and run your business. And I think that all really happened or started because of this Starbucks deal. I could see that. I like that framing. It is worth noting and I think it’s another business model innovation that they’re bundling all this stuff in largely for free or for a very reasonable cost and the way they monetize it all is through the transaction. So for Square, it’s not like what else can we sell through this channel. It’s more like what can we add to this channel, what can we add to make the lives of small business owners easier so that, number one, they stick around longer and continue to use this product. Number two, their business does better so that we both do better.…

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