Back in June, social/local analyst Rocky Agrawal bet the Reuters financial journalist that Square would be acquired by a company other than PayPal in 2012. Salmon wins the bet if PayPal purchases the Jack Dorsey-helmed company by December 31, 2012, or — more likely — if no one does. Agrawal, who already beat Salmon in a bet once this year, earns a steak dinner if Square is acquired.
On the face, it’s a rather ridiculous bet.
We tried, but Agrawal responded to a tweet saying he did not want to talk about it. In a Quora post back in June, however, he wrote that he thought Google and Facebook were the most likely buyers: “Facebook probably needs [Square] more, but I haven’t seen Facebook push too aggressively into payments.”
Sure: Both Facebook and Google have plenty of money and could buy Square. Why so confident, Salmon?
“[Square has] been doing pretty well on their own. I haven’t seen any reason why they would need to be acquired,” he said. “My overarching theory is that there are 20 companies trying to solve a problem of unknown magnitude. It’s not entirely clear how big of a problem it is that Square is trying to solve.”
I agree with both wagers’ observations. The second, however, is more important. Square has a massive $3.25 billion valuation at last check — partially, of course, because of the brilliance of Jack Dorsey. But I wonder if that’s justified. How big can Square become?
Salmon agreed: “It’s not obvious whether people need or want this. There’s a market for it, for sure. It’s great for anywhere you don’t have electricity — food trucks and flea markets. But how big is that economy?”
While the size is very much in doubt, it’s more than likely that there will be one company that eventually dominates the space. Mobile payments benefit from the network effect — so bigger is better and, subsequently, richer. At this point, you’d have to give Square the inside track to be that company. If that’s the case, it will, eventually, probably be acquired by someone. Who, exactly? In Salmon’s view: The banks.
“Banks are bad at integration, virtual wallets, and that type of thing. They are much happier letting a bunch of Silicon Valley idiots battle it out,” Salmon said. “Then, when there’s one large one standing at the end of it, they can come along with a $5 billion check and buy them.”
But at this point it seems pretty unlikely that this will happen before the end of the year. Advantage: Salmon. In fact, I don’t think it’s going to happen anytime soon. So if someone wants to bet me that Square gets acquired before this time in 2013, I’ll take that bet. Stakes? A steak, of course.
Noah Davis is a senior editor at Street Fight.