Starbucks is Square’s back door to Apple

By Mic Wright on August 8th, 2012

Unless you’re a fortune teller in a travelling circus, predictions carry with them a massive risk of embarrassment. Though many analysts are shameless enough to not care that their claims are found to be fallacious, a journalist should be more careful about raising their standard above a rumour – especially an Apple rumour.

However, this piece is speculation – please hoist that word high and illuminate it in neon – and not a prediction. So here goes. Apple is going to gobble up Square, the mobile payment system, or create its own version of the payment tech to squash Jack Dorsey’s endeavour. 

I’d say the acquisition route is more likely. My confidence comes from today’s announcement that Square will now be processing all of Starbucks’s credit card transactions at its 7,000 locations throughout the US.

The deal means customers will be able to pay with Square by simply saying their name to the cashier: the Square app on the phone will already have alerted staff that they have entered the store and presented them with a picture to aid identification. Starbucks is also making a $25 million investment in Square and its chief executive, Howard Schultz, is joining the start-up’s board.

The arrival of Square at Starbucks is not the first appearance of the device and app partnership at retail. Last year, Apple began stocking the Square reader, a small device that hooks in to audio jack of an iPhone, iPad or iPod touch, in its stores as well as online. While the reader is available free from Square directly, it sells for $9.95 in Apple stores with $10 credit in transactions.

Apple’s support for Square ties in interestingly with the Starbucks deal. Starbucks and Apple have long-standing love for each other. Starbucks is one of the most prominent chains to allow payment using an iPhone app and the companies have worked on projects together since 2007, when they began a music partnership.

The Starbucks investment values Square at $3.25 billion, hardly pocket change but certainly within reach of Apple with its $117 billion cash reserves. With in excess of 200 million sets of credit card details in its database, it makes sense for Apple to further extend its reach in payments to real-world stores. It’s already got a track record of streamlining transactions in its own stores.

Apple has signalled its intention to go further in that space with the Passbook feature in the forthcoming iOS 6. Passbook is a way of storing digital tickets, boarding passes, store cards and vouchers. The new feature is also integrated with the lock screen so offers will be surfaced when you pass a location where you hold a card.

So that’s the picture we have at this point. Square is getting traction in retail, has philosophical and financial support from Apple’s friends at Starbucks and piggybacks on iOS devices. At its current valuation, Square would be a very affordable acquisition for Cupertino and one that could be quickly integrated into the iPhone and iPad, maybe even removing the need for the external reader.

There is, obviously, every chance that Apple could develop its own solution – that’s what it normally does in these situations – and that Passbook is merely the first step. While much of the press around Apple acts as though it simply unveils radical new solutions, it is, in fact, a very iterative company in product terms.

Another reason I suspect Apple may be tempted to acquire Square is that it has started to partner with other companies more enthusiastically in recent years – see also, Facebook and Twitter integration – perhaps in part as a move to outflank its new nemesis. Establishing the iPhone as the easiest way to pay for goods and services makes sense – as does keeping Square an iOS-only option.

Square is sexy, simple and smart – the three qualities that Apple cherishes in products. Whereas continuing rumours that it will purchase Dorsey’s other baby, Twitter, seem fanciful, Apple making a meal of Square seems far more plausible. Expect to see the rumour sites vibrating with speculation.

As a glut of gushing blog posts and articles have noted already, Dorsey is the most Jobsian of the current Silicon Valley crop. He couples vision with style and that’s a killer combination. Look at this quote from the Square man on his fascination with Apple and tell me they’re not a great fit: “A lot of people learn from the surface, the aesthetic. What’s most fascinating to me is the discipline.”

All of which brings us to perhaps the most interesting question. Might a Square acquisition fast-track Dorsey’s candidacy for CEO of Apple?