Block co-founder Jim McKelvey.
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BARCELONA – In 2014, Amazon launched a product that sounded strikingly similar to something already offered by Twitter co-founder Jack Dorsey Square’s payment company, now known as Block.
It’s called the Amazon Register and will allow small businesses to accept credit card payments via smartphone or tablet, just like Block technology. However, there was one key difference: Amazon offered processing fees of just 1.75%, compared to 2.75% of Block.
“We were still a startup and Amazon was copying our product and undercutting our price,” said Jim McKelvey, who co-founded Block with Dorsey in 2009 during a discussion with CNBC at the Mobile World Congress technical show.
“When Amazon does this to a startup, the startup dies,” he added. “When Amazon did that in Square, we were horrified.
Blok was not unique in facing a possible “death from Amazon.” The e-commerce giant has entered several industries over the years, from cloud computing to television and film. A number of retailers have been forced to either adapt or close completely due to the so-called Amazon effect.
The difference with Block, McKelvey says, is that he survived.
“We didn’t have the things they had, so we couldn’t do what they did,” he said. “So we just kept doing what we were doing and we essentially ignored them. And it worked.
A year after Amazon launched Register, the service was discontinued, highlighting fierce competition in the digital payments industry. McKelvey says the company even sent Square card readers to its customers: “They were actually pretty cool about it.”
This is a fairy tale as old as time: a large technology company launches a function similar to that of a smaller competitor, and this company subsequently struggles to continue due to the level of pressure.
This happened last year with Clubhouse. The audio chat app has seen a huge jump in downloads in the wake of the coronavirus pandemic, before sinking into obscurity following the release of copy products from Facebook, Twitter and Spotify.
McKelvey said he had long been trying to figure out how Block had escaped the same fate as companies that failed under pressure from Internet giants like Amazon. According to the billionaire entrepreneur, copying a product is not enough.
“If you’re a normal business, you’re copying a model that already works,” he said. “Things that work for a normal business don’t work for an entrepreneur.”
“Innovation is very inconvenient,” McKelvey added. “People used to tell Jack and me when we started Square that we were idiots. I had payment managers who took me to dinner to tell me again the specific reasons why we are stupid and why we will fail.
“If you’re doing something that doesn’t copy the latest 5G nonsense they’re selling, where someone has built something no one has ever thought of before, they’re really scared because they don’t get the validation from the herd. You don’t get validation until years later until Amazon copies you. “
Since co-founding Block, McKelvey still sits on the company’s board, but is less involved in everyday life. According to Forbes, it costs $ 2.3 billion on paper. A glassblower by profession, McKelvey says he was inspired to create Square after losing a sale because he could not accept American Express cards.
McKelvey now runs Invisibly, a company that develops micropayment tools for news publishers, and has also ventured into venture capital.