Square’s Acquisition of Weebly and The Battle for the Modern Merchant

The big news in SMB and local last week was Square’s purchase of Weebly for $365 million. This was Square’s largest acquisition to date. More importantly, it signals the beginning of a consolidation wave that we have been expecting at SurePath for some time.

Statistics from the LSA’s tech adoption index suggest that by 2025, most U.S. small businesses will be run by millennials. This has massive implications for technology adoption and gives some high-level context for the moves we are seeing the big players make to ready themselves for the impact of the millennial takeover.

Millennials, of course, are digital natives. They are always online. They bring that same approach to how they run their small businesses. They want and expect well-designed, mobile-first technology for every aspect of their businesses. No matter whether that business is online, like a web agency, or offline, like a restaurant.

We take for granted all the technology we have access to these days, but it’s worth taking a step back to appreciate the impact that the players in this battle have had already:

Square – Made it easy for the smallest of merchants to accept payments. Before Square, I needed a merchant account and needed to use clunky hardware. Square came in with a beautiful, simple payment solution that anyone could use.

Squarespace – Website builders have been around for almost as long as the internet itself. I would argue that Squarespace was the first builder with premium design capabilities. It was the first where you could get a site that looked like it was built by an agency.

Shopify – Created a movement in new online (and now offline) stores by making it simple to launch a store. Before Shopify, small merchants were relegated to eBay because it was just too hard and expensive to run your own online store. Shopify changed the game.

All three of these companies place a huge emphasis on design and user experience. This is no coincidence. This is a must for today’s discerning millennial business owner.

I have often fantasized about the ultimate SMB software company—the merger of Squarespace, Square, and Shopify. This combination would give merchants (almost) everything they need to start, run, and grow a successful small business. It would also create a clear, unbeatable market leader in the category. With Square buying Weebly, rather than Squarespace, the former is making moves to create that market leader.

The first thing aspiring business owners do as they hatch their plans to launch a business is buy a domain. This brings GoDaddy into the mix. Godaddy is very much a player in this battle as well. But I would argue that GoDaddy lacks the same emphasis on design and user experience and so caters to a different segment of the market.

Once I have a domain, I need a website. Even small, local merchants realize that they need a website. I’m not a millennial and I still look at a business online before I engage with it. Once I have site, I need traffic. In store or online. Once I have traffic, I need an easy way to get paid. Finally, once I have customers, I need some basic CRM capability so I can keep in touch with my customers and bring them back.

This flow creates a framework for thinking about possible consolidation. Here’s my assessment of where the players stand in terms of delivering this flow to their customers today:

The hardest part about running your own small business is getting new customers. Only Square offers some native customer acquisition functionality through its booking capabilities. However, in order to get a booking, a customer has to find you in the first place.

This is where Facebook and Google come in. Both have identified SMB as a target segment for a long time. Both are dominant in customer acquisition, and both have identified online commerce as an important vertical to serve. While they are important partners in this fight, they are also disruptors.

Google would prefer to be your business homepage. From a simple search, you read reviews, book, and pay for an appointment, without ever leaving Google. Facebook is the new AOL and also aspires to deliver everything without your departure.

Put all of this together, and you have an interesting upcoming battle, one for which these players are armed and ready. Shopify and Square, while tiny compared to Google and Facebook, have strong market caps and highly valuable public stock currency. Squarespace doesn’t have that yet, but it did recently hire a corporate development leader, a sign of more to come on the M&A front for them.

I expect to see more deal activity around core gaps: helping small businesses get more customers and helping them keep those customers by selling to them again. The key will be to refrain from trying to take on Google and Facebook directly. That’s a losing proposition. Instead, recognize areas where consumers are shopping that don’t involve Google and Facebook.

One example is marketplaces. Young shoppers are increasingly turning to marketplaces to discover new, small brands. Owning that funnel would give these players unique access to shoppers and merchants and enable them to offer merchants not just a storefront or website, but one with built-in traffic.

The battle is on. While much is unknown, two things are for sure: Expect more deal activity, and expect merchants to have more and better options for growing their businesses in the near future.

Mark MacLeod is the Founder of SurePath Capital Partners, the leading strategic financial advisory firm to the global SMB software market. Follow him at @startupcfo.