Category Archives: Startup

Square Pulls Failed Wallet App as Troubles Mount

Square is shuttering its Square Wallet app for smartphones, a sign the mobile-payment startup is struggling to expand beyond its low-margin business of credit-card readers. Square Wallet was recently pulled from Apple’s App Store and Google Play because the app “didn’t have a lot of the utility value” for consumers, Square director Ajit Varma said in an interview with technology blog Recode.

The company will continue to support the service for customers who have already downloaded the app.In its place, Square unveiled a new mobile app called Order, designed to let customers place take-out orders from local businesses and skip the line when they arrive. “We learned from Wallet that people loved paying with their name and we knew there was more value we could add to the customer experience,” a Square spokeswoman said in an email. “We moved fast on this strategy and decided that the most efficient way to add this value was to build a new technology on a more agile platform, hence we built Square Order.”

Square is trying to appeal to more consumers and create new lines of revenue as losses in its core business of credit-card readers mount. The company charges merchants 2.75% to swipe cards through the readers, but pays about four-fifths of that money out in fees to payment networks like Visa and MasterCard.

Square recorded a loss of roughly $100 million in 2013, broader than its loss in 2012, two people familiar with the matter said last month. The closely held San Francisco company has suspended plans for a possible initial public offering and held talks about a potential sale to Google Inc. and others has losses mount.

The new Order app will eventually charge merchants a higher rate of 8% to take orders and process transactions. The service competes with a growing field of food-ordering apps that includes Grubhub and Eat24.

Square has been adding services that could eventually be more profitable than its main payments business. In the past 12 months it began Square Cash, which helps people send money to friends via email, and Square Market, a digital marketplace for small businesses. It also offers Square Register to help stores track customer data and is testing a lending program for merchants who have difficulty getting a bank loan.

via Square Pulls Failed Wallet App as Troubles Mount – Digits – WSJ Article by Douglas Macmillan.

Square Pulls Failed Wallet App as Troubles Mount – WSJ Article by Douglas Macmillian – PDF

 

EBay’s $800M Braintree Deal Is Major Bet on Mobile Wallet

EBay Inc. will buy payments service Braintree Payments Solutions LLC for $800M in cash, making a big bet to secure the pole position in the race to get consumers to pay for goods and services on smartphones.

The deal will give eBay’s PayPal unit more extensive customer data as well as the lucrative transaction fees from Braintree’s expanding network, which currently processes more than $12B in payments annually, a third of which is on mobile devices. Braintree charges 2.9% plus 30 cents per transaction.

Braintree is one of the faster growing payments companies in a crowded field that includes Stripe, Square, Google, and others.

A raft of payment startups are fighting for a piece of the mobile market that is expected grow by 31% this year to $235B and to jump more than threefold by 2017.  At stake is control over the future of shopping as consumers move more of their lives onto their smartphones. The devices have the potential to carry rich data on users’ shopping habits, in addition to opportunities to send targeted discounts.

The challenge for PayPal and others in mobile payments has been twofold: creating a process that is easier than swiping credit cards, and one that is adopted by enough vendors to make it worthwhile for the consumers.

Venmo’s app allows users to virtually exchange small amounts of money for free between bank accounts and using debit cards. It charges 3% for sending money using credit cards. Venmo’s recently introduced “Touch” service stores credit card information across mobile apps.

EBay said PayPal is expected to have mobile-payment volume of more than $20B this year. But PayPal faces intensifying competition in mobile payments, particularly from Google, Square and startup Lemon Inc., which are building out so-called digital wallets that store credit and loyalty cards.

Mobile Phone

via EBay to Buy Braintree for $800 Million – WSJ.com article by Greg Bensinger.

Bitcoin Startups Begin to Attract Real Cash

Bitcoin startups are beginning to raise sizable investment capital even as industry leaders warn that hackers are abusing the Internet virtual currency for profit.

In the past year, fledgling businesses Coinbase Inc., Coinsetter Inc. and CoinLab Inc. have raised millions of dollars collectively from prominent venture-capital firms and angel investors, adding credibility to a digital currency that isn’t backed by a central bank.

On Wednesday, Bitcoin, which can be used to make payments over the Internet without transaction fees or involving a financial institution, is expected to win its biggest validation to date with a $5 million investment in San Francisco-based Coinbase led by Twitter Inc. investor Union Square Ventures.

Coinbase operates an online service that allows users to buy Bitcoin, store the virtual currency in a digital wallet and pay merchants for goods or services with it. The company was founded last year by Fred Ehrsam, a 24-year-old former Goldman Sachs trader, and 30-year-old Brian Armstrong, previously an engineer at short-term rental startup Airbnb.

In April, the Coinbase co-founders said the company had about 116,000 members who converted $15 million of real money into Bitcoin, up from $1 million in January. Mr. Ehrsam said its dollar conversions are increasing by about 15% a week, and its user base is growing at a weekly rate of about 12%. Coinbase profits by charging users a 1% fee to convert dollars to and out of Bitcoin.

Bitcoin is gaining traction with some small merchants and others who want to reduce costs associated with accepting credit cards, such as content-aggregation site Reddit.com. eBay Inc. Chief Executive John Donahoe last month also said the e-commerce heavyweight is exploring ways to integrate Bitcoin into its PayPal payments network.

Last month, Tokyo-based Mt. Gox Co., the largest online exchange trading Bitcoin, said its services were disabled for approximately four hours by an Internet denial-of-service attack. “Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can,” according to the exchange.

Carol R. Van Cleef, a partner specializing in emerging payments and antimoney-laundering-compliance at Washington, D.C., law firm Patton Boggs LLP, said government financial reporting regulations likely will make it difficult for virtual-currency startups. The Financial Times reported on Monday that the Commodity Futures Trading Commission is discussing whether Bitcoin might fall under its regulatory jurisdiction. Regulation is “going to force some players out of the market,” Ms. Van Cleef said. Others, she added, “will bite the bullet and become compliant. But it will be expensive.”

That isn’t stopping venture investors. Jeremy Liew, a partner with Lightspeed Venture Partners, which has invested in three virtual currency startups including OpenCoin, said he’s “incredibly bullish” because it allows for cost-free micro-transactions—such as buying a single candy bar—that would be too small for other electronic payments. “The appeal of zero transaction costs is really strong and extremely disruptive for a massive industry, the payments industry,” he said.

via Bitcoin Virtual Currency Startups Gain New Venture Backers – Article by Sarah Needleman and Spencer Ante – WSJ.com.

Bitcoin Boom

Sycamore Networks: From $45 Billion to Zilch

There was a time when Sycamore Networks was the next big thing—a leader in the race to direct digital traffic across the Internet. This is not that time. On Friday, Sycamore all but went out of business.

Sycamore’s 15-year arc from globe-conquering startup to footnote is a fresh reminder that technology booms can end with a whimper. Its fate recalls the overblown expectations of the early Internet era, when newly public companies could command billion-dollar valuations on scant revenue and no profits. Sycamore went public in 1999 and its shares more than quadrupled on their first trading day, valuing the company at $14 billion. At the time, it had booked a total of $11 million in revenue and no profits. Over the next six months, the shares tripled. Sycamore closed at a split-adjusted high of $1,899 on March 2, 2000, valuing the company at $44.8 billion.

But analysts say the company’s demise reflects strategic missteps—sticking with its initial product line as the market declined and hoarding $1 billion in cash rather than using it to diversify or expand.

Sycamore Graph

via Sycamore Networks: From $45 Billion to Zilch – WSJ.com.

Zipcar: Startup Genius, Public Failure

Zipcar Inc. changed the world. But that didn’t make it a good public company. It was a pretty awful one, in fact. By most measures, Wednesday’s $500 million sale to Avis Budget Group Inc. appears to represent an entrepreneurial high point. But that is far from the case. Even with a nearly 50% purchase premium, Zipcar’s stock is well below its 52-week high, and less than half the $30 a share that investors were paying immediately after its April 2011 debut. It lost 39% of its value last year alone.

All kinds of technology made this business feasible. But it was the inspiration of Zipcar’s founders in 2000 to make it a seamless experience that stands out. The full liberation and efficiencies of this “hyper-rental” economy have really just begun. Yet as Zipcar’s sale at below its IPO price is showing, innovation does have its limits. Mainly the limits of growth capital, efficient scale, and marketing. Its problem was that it just couldn’t find a cost-efficient way of luring ever more members. To expand deeper into Europe, a difficult but promising undertaking, would simply take more resources than the company had at its disposal.

Enter the Avis Budget Group, whose corporate name sounds nearly like a parody of a plodding, if well-capitalized big competitor. Sometimes the small, precious thing really is better off in larger, if indelicate hands. It is the difference between being what Mr. Griffith called a “business model company” and a plain old money-making enterprise.

Zipcar stock chart

via Zipcar’s Sale Represents a Triumph of Brand Over Business – WSJ.com.