By Gerry Shih
SAN FRANCISCO (Reuters) - Since 2010, Square Inc's matchbox-sized card readers have steadily supplanted credit card machines in coffee shops and corner stores across the United States.
Now, the company, one of Silicon Valley's most highly valued private firms, is diving into a market as expansive the internet itself.
Square launched a shopping website this week called Square Market to serve as an online storefront and payment processor for small businesses, a move that pits the closely held company, valued at $3.25 billion, against popular e-commerce destinations such as eBay Inc, Amazon.com Inc and Etsy.
After spending years tackling offline transactions with his card reader and in-store software package, Square founder Jack Dorsey sees his online market as the company's capstone product. Mom-and-pop retailers that use Square to accept credit cards and digitally manage inventory can now take their business online as well, he said.
"We want to make every commercial transaction easier," Dorsey told Reuters. "What you're seeing here is the completion of that picture."
Square, which makes money by taking a 2.75 percent cut of every payment it processes, has raised the competitive ante, especially with eBay, the Web bazaar whose PayPal subsidiary is one of the dominant online payment operators.
However, there are countless other competitors in an U.S. online retail market, which is expected to reach $278.9 billion by 2015, according to Forrester Research.
Dorsey conceded that Square Market would be dwarfed by e-commerce companies such eBay and Amazon, at least initially. But in an age of Facebook Inc and Twitter, Square's merchants can now reach millions.
"I don't know if a buyer is thinking: "Should I go to Ebay, or should I go to Etsy, or Square?" Dorsey said. "In the end, it's about what the merchant is selling. If you can present excitement around an item, and that item goes viral, it becomes huge."
Dorsey, the 36-year old entrepreneur who invented Twitter in 2006, wants to seamlessly integrate Square Market with Twitter, Facebook and Pinterest. Because Square keeps credit card information on file, a shopper who clicks on a tweet that links to a Square Market product needs only to click once more to purchase the item.
Merchants who use Square's iPad software to process payments and track sales can quickly upload their inventory for free to a Web page, which automatically displays the products in a grid format.
"Flip a switch and suddenly you're online," Dorsey said.
Unlike Amazon, which was launched in 1995 as a humble bookseller, Square's catalog is decidedly urban-chic. Merchants that have participated so far include a few dozen fashion boutiques, an indie rock band, a bakery in Park Slope, Brooklyn and a purveyor of designer hand axes.
Square Market has also signed up some small service providers, from lawn mowers to massage therapists, said Square product director Ajit Varma.
Rick Oglesby, a mobile payments analyst at AITE Group, said Square could tap into a large market that includes neighborhood bakeries and ice cream parlors with no Web presence. Nearly 67 percent of small businesses do not have an e-commerce presence, Oglesby added, citing his own survey.
"There's a very big opportunity to help these businesses create an online channel for the first time," he said. "This is a neat solution for the small guys."
At a time when the company is facing competitive pressure from all sides, Square is hoping to raise its profile with shoppers, both online and offline, to entice merchants to adopt its service.
"Ultimately, they need to get more consumer eyeballs so that they're more and more attractive to merchants," Oglesby said.
Cory Verellen, the owner of a boutique shop in Seattle that sells and repairs Polaroid cameras, said he keeps an independent website that uses PayPal. He is not ready to abandon his website for Square Market yet, but is pleased it was already sending him new customers as of late Wednesday, the first day it opened.
"Even today, I've had so many people get a hold of me and say: ‘I can't believe a store like this exists,'" Verellen said. "So the biggest benefit to me is advertising. Square's building its own small business ecosystem and I think we could be seeing something big."
(Reporting by Gerry Shih. Editing by Andre Grenon)