Square Starts Building Its Commerce Ecosystem
Square is accelerating its investments into the SMB eCommerce market right at the time Shopify is leaving it. Its latest moves prove it. So, what do I mean?
Inventory and multi-channel integration software has become a new flash point in the platform wars.
Square made a pretty savvy move to acquire StitchLabs. I view it as a "jump start" to an ecosystem to take on ... (you know who) Shopify. Victor Castro raised a counterpoint: that perhaps this move was an acquihire (based on the poor—botched, even—communication with StitchLabs’ customer base). It’s an interesting point, and I agree that the communication was atrocious, but stick with me on this Shopify angle, I think it’s worth exploring.
Square is well established in the Retail POS space (who else remembers how cool those original iPhone credit card swipes were?), an area that Shopify is rapidly encroaching into as well.
For Shopify to be able to continue to gain its multiples, it needs more revenue. Most of that will come from a percentage of sales, not from a monthly subscription.
Square doesn't need that because it is first a payments company. Shopify offers payments, but built on Stripe. It doesn't make as much margin from payments as Square.
The "center of gravity" of Shopify is moving up-market and that creates an opening for someone (someone like Square).
Despite their "arm the rebels" mindset, the die has already been cast: they are locked in a relentless march up-market to take down Salesforce (in the commerce space, at least).
I think Square is just fine with that. Shopify abandoning their low-end merchants? Square is right there for you.
“Abandoning” may be a bit harsh, as Loren Padelford, “the guy who started and leads Shopify's push upmarket with Plus” (his words!) called me on. Fair enough. Loren laid out Shopify’s priorities, saying “Plus is 100% focused on solving problems for the largest, most complex merchants. But Shopify is never leaving small entrepreneurs. Our company is built to help people start businesses, and this will never change.” I want to believe Shopify will be able to do both, but it's quite difficult for a company to serve two masters. It's impossible to be "equally" focused in two directions—a company can only have one number one priority, and at this time, I don't know how anyone can say it's not Plus.
In my back-and-forth with Loren, I cautioned that Shopify runs the risk of following in Salesforce’s footsteps when it comes to feature bloat. By catering to both up-market and SMB, there are bound to be enough features and functions to resemble a tank. I think it points to the fact they should keep Shopify Basic lean and focused, and integration-ready.
Integration software is an entirely unappreciated part of SaaS applications. For any platform, it should end up being about 70% of your growth strategy. Why? You can't retain customers without working with other software these days. There is no more "one platform to run your business." There are too many applications and options. Instead, everything must work together. Ross Feldman echoed this, adding “companies that don't consider future integrations when selecting their platforms often end up paying for it later in the form of higher development costs, longer implementations, loss of functionality, and manual workaround processes.”
The conversation that grew from my initial post contained a lot of insights and one new vocabulary word: fiscal homoglation. This came from Miles Thomas, who pointed out that “where Square may come unstuck internationally with their POS is in handling countries where POS needs to comply with strict functional (and hardware) compliance requirements designed to prevent sales tax/VAT avoidance…Fiscal Homolgation is the specific jargon which describes this.” So count that as your word of the month, folks.
