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Square Broadens Its Business Strategy with New Hardware Bundle

Square has taken a further step into brick-and-mortar shops.

The payments startup is selling an iPad stand, a cash drawer and a card-swiping dongle for a starting price of $299. With a printer added, the bundle comes to $599. The package is called Business in a Box.

The switch is a stark change for the Silicon Valley company.

Before, it gave away its basic product, which gives micro merchants the ability to accept cards. The Square reader by itself is still free. Now, with this all-in-one product, it has created a product that could be very appealing to more traditional sellers.

"I think it's notable," says Brian Riley, a senior research director in the retail banking and cards practice at CEB TowerGroup. "What Square is finding out quickly, and only because they grew so fast, is that you can't approach cards from a single angle, and [right now] that's kind of what the Square model does — it's a device that plugs into a phone."

Already, he adds, many others have copied that model, after Square legitimized the market — TSYS, VeriFone (unsuccessfully) and PayPal, to name a few.

Others still are offering bundles similar to Business in a Box.

For instance, NCR is selling its point of sale payment system — which costs $499, and comes with a $79 a month fee (waived for the first month after purchase) — at Staples.

Like Square's new product, the NCR package includes NCR's Silver card reader, a cash register, an iPad stand and a cash drawer.

"You can't be a one-trick pony in this business and survive," Riley says. And "you can't diminish that these guys [Square] have a million customers."

Square is charging its Business in a Box merchants the same prices it extends to its casual card acceptors: either 2.75% per swipe or a flat fee of $275 a month.

So far, the new packaging has resonated with at least one roughly 30-year-old doughnut shop in Santa Monica, Calif.

Asked if he'd use Square before it introduced the bundle, Sean Tao, who owns DK's Donuts and Bakery, said no.

"Because I do need a cash register. I do need a printer. And I'd have to find my own [if I used Square], and you don't know if it's compatible with the iPad," says the 25-year-old, who inherited his business from family about three years ago. "It was more of a headache." Before, "you'd have to go out of your way to make it work."

Tao adds that he first began using the bundle in early December, after being cold-called by a Square representative.

Now, he runs roughly 95 percent of his card payment processing through Square, keeping his old POS system (which he describes as more expensive) in case of emergencies, such as when the Wi-Fi in his shop isn't working.

"I try to process as many [transactions] as I can through Square," he says.

Indeed, the decision to bundle hardware and charge a price for that package is natural for Square, says Jim Van Dyke, the chief executive and co-founder of Javelin Strategy & Research, a division of Greenwich Associates.

"Merchant payment processing is one incredibly fragmented market, despite years of consolidation. Square will have to bet on achieving profitability that can only come if they achieve scale," he says. "And that means digging deep into their founder's [Jack Dorsey's] war chest."

The hardware might be valuable to smaller merchants — "not only simplifying payment options but also bringing in advanced technology," he adds.

"Makes you wonder if and when Square will launch a significant foray into mobile POS payments that benefits consumer, merchant and bank."

Still, Square is infamous for its good PR. And, while this announcement surely is a stab at solving some of its real business problems, it has elements that appear to be more sizzle than steak, says Rakesh Agrawal, a consultant on mobile payments and marketing.

"It just seems like a hack," he says. "I don't see it as being meaningful to their business. They don't really have a business channel for this."

He adds that Square's retail relationships with Starbucks (SBUX) and others to distribute its dongles don't necessarily mesh with what small business owners want.

"They've tried to sell the Square reader at retail, and I don't know how successful that's been, but still that's not how small businesses go to buy payments services," says Agrawal. "They don't go to Starbucks hoping to pick up payments technology."

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