Unless you really don’t give two hoots about the world of technology, it’s highly unlikely you would have missed the big brouhaha between San Francisco-based startup Square and VeriFone, a payment processing services provider. VeriFone accused Jack Dorsey’s product of not being secure and being easily hackable. Dorsey denied.
This week’s dust-up makes me wonder if VeriFone quite understands its own business. To me, they are a company that provides payment-processing services to big retail outlets, fast food chains and other large transaction volume establishments. That’s what really makes them a good company. Square isn’t going after those customers. It’s going after people who would rather not be VeriFone’s customers. Earlier this year, in a conversation, Square COO Keith Rabois told me that
“Most of our competitors (including the likes of VeriFone and Intuit) focused on 7 million merchants who have the ability to get merchant accounts from say Visa or MasterCard. We are going after 26 million folks who are not merchants in a classic sense.”
When I look at Square, I see a company that’s all about helping payment processing for a different class of customers: you, me and the guy selling apricots at Sunday’s Farmer’s Market. Square is about transactions that are more peer-to-peer in nature. These kinds of transactions are mere crumbs on trail to a much bigger economic trend.
The New Peer-to-Peer Economy
For the lack of a better term, let’s call this trend a peer-to-peer economy. Here, transactions happen between individuals or a group of individuals and not between corporations and individuals.
Just look at AirBnB, a perfect example of a peer-to-peer economy company. It offers a platform for folks to rent rooms (or villas) from other folks. The company takes a piece of the action for making the connection between the buyer and seller — who more often than not, are individuals. Typically, this would be an economic transaction between a traveller and an hotelier. Several other iterations of this basic idea have emerged; for instance, OneFineStay is doing peer-to-peer vacation rentals. RelayRides is another startup that allows you to share cars.
One of the companies I am absolutely fascinated by is New York-based Kickstarter, which I think is less a company and more a socio-economic movement.
KickStarter is a simple site that marries patronage and commerce. Artists come and list their projects and get in touch with friends and supporters, who pledge their money. If the money needed by a project is pledged, the artists get to work. If not, it’s back to the drawing board for them.
In less than two years, Kickstarter has come out of nowhere and is now helping projects raise as much a million dollars a week — from individuals like you and me. It helped raise a lot of money for open-source Facebook rival Diaspora and the iPod watchbands TikTok and LunaTik.
The Network Is the Dollar
This peer-to-peer economy is a throwback to an older way of life, where folks used to barter for goods. It was a different kind of economic transaction, but still it was an economic transaction.
The onset of industrialization brought in mass production and mass consumption into our societies. The Internet and by extension, mobile is going to help change that.
One of the things the Internet enables is our ability to connect with each other very quickly. These connections can go beyond sharing of tweets, photos and links.
The network is a springboard for services and platforms that enable one-on-one (or one-to-many) interactions. The easy to use tools — web and mobile — make it easier for like-minded people to congregate and engage in commerce.
I wouldn’t be surprised if we see more companies try to tap into the shift to the peer-to-peer economy. The winners will be those with big platforms and the likes of Square who provide enablement services. Perhaps next time, VeriFone needs to remember that.
Image courtesy Seattle Municipal Archives
