Square's Quiet E-Commerce Threat

Most Square merchants go on Market to establish an online and mobile presence—a place to display their goods, services, and pricing Photograph by Nigel Goodman/Getty Images

Square Market was launched as a means for Square’s small business sellers to establish an online storefront quickly and promote their goods easily with social media tools, but Market is showing signs of evolving into an independent online marketplace, competing with the likes of Etsy and Fab.

According to Ajit Varma, who heads up Market for Square, 20 percent of Square’s 500,000 listed merchants have never used its payment hardware, Reader and Stand—they’re solely selling and marketing online. The distinction between selling and marketing is important, because only about 50,000 Market merchants are actually selling their goods online.

Instead, most Square merchants go on Market to establish an online and mobile presence—a place to display their goods, services, and pricing. For instance, neighborhood grocery stores are using Market to list their beer inventories and current prices with the aim of attracting locals to its store. Most of those retailers use Square payment technology at the physical point of sale, but as Varma points out, an increasing number are not. They’re only using Square online, some for e-commerce (Square is charging the same 2.75 percent transaction fee as it does for a Reader swipe) but others merely as a marketing tool.

Since Square doesn’t charge merchants to set up shop and list items in Market, it isn’t collecting any online revenue from most of these merchants, so why bother with Market at all? A lot of it has to do with Square’s philosophy of taking the complexity of payment transactions and designing simple yet well-designed commerce products that all relate to one another—a philosophy that Square’s chief executive, Jack Dorsey, will discuss in more detail at Gigaom’s Roadmap conference next week.

Varma explains that as Square’s core merchant base expands from small mobile business owners working in the field to larger retail businesses, such as stores and restaurants, the company has had to expand its portfolio of commerce tools. That was the logic behind Stand, which is Square’s more sophisticated countertop payment terminal. And that’s the same logic behind Market, Varma says, except that it extends beyond the physical point of sale onto the Internet.

“Square is growing [to support] these larger merchants,” Varma says. “A lot of these larger merchants don’t know how to participate in the online economy.”

While many sellers might have their own Web pages or a Facebook profile, most of them haven’t invested that much into Web development. Market not only gives them the tools to set up simple yet artfully designed online storefronts in the PC browser, but also on the mobile browser, which is becoming increasingly important. More than 40 percent of Market’s traffic is coming from mobile devices, Varma says.

Market also gives them social media tools to promote their goods—for instance, product cards to highlight a sale item in a Twitter feed. As with all of Square’s merchant products, Market links back to Square’s central dashboard, allowing businesses to manage their inventories and pricing across both online and physical stores. Meanwhile, its analytics engine helps retailers identify both overall and in-store trends, which in turn can be tied back to Square’s social marketing tools.

Different businesses use a combination of different transaction methods, so the idea is to let them tailor their commerce model using Square’s different products. For instance, both a boutique store and a custom furniture maker might use Stand or Reader to process in-store transactions, but only the boutique would use Market for sales. The furniture maker would use Market just as way to display and promote its ottomans and divans online. Conversely, a retailer that deals solely online would have plenty of use for Market, but little use for its hardware.

Square benefits from Market because it’s generating more transactions, either directly or indirectly. While Market helps generate more transactions for Square’s existing merchants, Varma says, it’s also broadening its appeal among different types of sellers and putting many more buyers in front of those merchants. Varma’s final point is particularly telling: Half of all payments processed so far on Market have come from consumers who have never made a Square payment before.

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