Zero Reasons to Be Surprised by Square's Success

Even after plotting Square's year-long growth on a "sexy growth curve," Splat F's Dan Frommer is surprised by the company's success -- but he really shouldn't be. 

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Even after plotting Square's year-long growth on a "sexy growth curve," Splat F's Dan Frommer is surprised by the company's success -- but he really shouldn't be. "It is easy to be skeptical of Square," he writes.  "Which — while very cool — also feels like it must somehow be overhyped. (Why did my local café stop using it? Why don’t I ever see it in use? Can it really replace most cash registers? Etc.)," he continues. Whenever Square releases some landmark growth numbers, they've been met with a similar bit of surprise from tech bloggers, but the company's success is easy to understand.

The company has a real stream of revenue. The thing about lots of tech start-ups these days, is that they rely on this idea of "value." Twee social network Pinterest, for example, has generated lots of traffic and interest and can theoretically channel all those page views into money. But, that's just a theory. For now, they only have an abstract notion of who they are valuable to (users, marketers, online retailers, etc.). Square, on the other hand, is makes money right now. Every new person who starts using Square to process payments makes the company money, as the company takes a 2.75 percent cut of every single payment, which Frommer estimates is around $300,000 gross revenue per day. Making real money is the simplest way to demonstrate value to investors (and the rest of the world).

People actually use it. So many that The Atlantic's Alexis Madrigal called it "mainstream," giving us this chart below back in August. Frommer might disagree, as he doesn't see the gadget around much, but these bubbles are more proof that Frommer's personal experience. The company processes more payments than PayPal did at the same stage of its growth, adds Fast Company's Ellen McGrit, who placed Square as number five on this month's most innovative company's list. More than 1 million people use Square to process credit cards, she continues.

Lots of money from the right people. Last summer square announced a $100 million round of funding, valuing it in the billion dollar range. A few months later, in October serial-entrepreneur billionaire Richard Branson behind the many branches of Virgin, threw some money at the company. It's one thing for a startup to raise money from celebrity backers, it's quite another to convince celebrity backers to invest after a company is worth a billion dollars.

Jack Dorsey magic. This is the man that founded Twitter -- he gets the Internet start-up thing. But, unlike Twitter, which has struggled to turn its value into money, Square, as we've already mentioned, is a revenue streams.

Everyone loves it.  Easy to use and smarter than a cash register, Square has won over small business owners. "A three-minute sign-up and I thought, Oh my gosh, this is the way it’s supposed to be!" Jack Root, a merchant who owns a small store told McGrit. It also brings credit cards to merchants who might never have accepted them before. And customers buy into the gimmick. "My clients get a kick out of it when I let them swoop [sic] their own card." Joey Garza, a massage therapist in Houston, told McGrit. Also useful for shoppers is Card Case, a part of the system that tracks buying habits -- something some shoppers (not this shopper!) might appreciate.

This article is from the archive of our partner The Wire.