Squaring off against Amazon
Both eBay Inc (NASDAQ:EBAY) and Amazon.com, Inc. (NASDAQ:AMZN) started off as e-commerce portal sites before expanding into other businesses. eBay later expanded into online payments with PayPal, and Amazon started producing media consumption devices such as the Kindle.
Square is now doing the opposite. It is expanding from the online payments business into the e-commerce portal one, issuing a direct challenge to Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY). Its new service, Square Market, essentially offers a similar experience to Amazon or eBay Inc (NASDAQ:EBAY), with a heavier emphasis on local businesses. Square Market allows sellers to post photos of their physical store front, hours of operation, and contact information via a Google Maps plugin. Square Market is a very visual site, which has more in common with Pinterest than Amazon’s rigidly indexed collections.
Although Square has a long way to go before it catches up to Amazon.com, Inc. (NASDAQ:AMZN) or eBay Inc (NASDAQ:EBAY), it has the unique advantage of an existing network of retailers and companies which already depend on its payments system. Square allows merchants to set up shops for free, although it charges its traditional 2.75% transaction fee on every purchase. This is different from Amazon.com, Inc. (NASDAQ:AMZN), which charges $0.99 per listing, and eBay, which charges fees that range between free to $0.30 per sale. Similar to eBay Inc (NASDAQ:EBAY), but unlike Amazon.com, Inc. (NASDAQ:AMZN), Square merchants are responsible for covering all shipping costs.
However, Square might have an ace up its sleeve with its relationship with Twitter, since CEO Jack Dorsey is also the executive chairman of Twitter. When Twitter users tweet a Square Market listing, a “product card” is create that includes a “buy” button that goes straight back to Square Market. In other words, Twitter’s 500 million users could turn the social network into a storefront for Square Market.
The Foolish Bottom Line
Although Square seems like the underdog of the online payments industry, its numbers are surprisingly strong. The company recently revealed that it was processing over $15 billion in payments annually. Considering that Square charges 2.75% per card swipe and 3.5% + $0.15 per manually entered transaction, its annual revenue should be over $412 million. By comparison, PayPal processed $97 billion in payments last year, a 25% increase over the previous year.
I strongly believe that Square is one of the hottest names in e-commerce right now, and investors should be on the lookout for a possible IPO this year. Square’s strong backing from major industry players, its steady, disruptive growth in the POS market, and its new e-commerce portal all indicate that this four-year old company is one to keep an eye on.
The article Beware the Underdog of Mobile Payments originally appeared on Fool.com and is written by Leo Sun.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and eBay. The Motley Fool owns shares of Amazon.com, Apple, and eBay. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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