It was some time in early March when I received an early warning WhatsApp message from a friend saying “Square buying Tidal is some weird M&A”. I seemed to remember that Tidal was some form of music streaming business but felt that it is worth checking whether there is some other Tidal out there that is more closely linked to the payments industry. As it happens, there wasn’t, so yes, Tidal is the music and video streaming business owned by American rapper and businessman Jay Z. Similar to Spotify but with a tweak of being owned by some of the artists that will provide exclusive content to the platform. The result of that exclusivity was an above-average subscription fee. Although revenues have been steadily increasing to ~$170m by the end of the 2019 financial year, Tidal has not generated an annual profit yet. The Economist recently labelled it as “a weak music streaming service”.

So was this $300m acquisition really some weird M&A?

If you consider that Jack Dorsey, the founder of Square, also happens to be the founder and CEO of Twitter, one has to wonder whether a tie-up of these three businesses could create a new super-app.

• Square started by providing low-cost credit card readers bringing millions of smaller sized merchants into the payments industry. But it moved very quickly into the development of Cash App a P2P payment service that competes directly with Zelle and Venmo. In 2020, Square generated total profits or approx. $2.5bn with roughly 50% of those coming from the Cash App business. In addition to the ‘traditional’ P2P business, Cash App, which is used by 36 million customers, can now also be used for in-store payments (businesses pay 2.75% for accepting payments via Cash App) and Bitcoin and share trading. In other words, Square is a well-established payment processing business.
• Twitter is a micro-blogging and social messaging service that is used by 200-300 million users globally (depending on what definition of user number is being applied). Its revenue model is based on advertising for which it has signed up a vast number of businesses, especially bigger brands.
• Tidal, as described above, is a music streaming service that provides content. Plain and simple.

There is a lot of talk about super-apps these days. BlackBerry founder Mike Lazaridis defined it back in 2010 as “a closed ecosystem of many apps that people would use every day because they offer such a seamless, integrated, contextualized and efficient experience.” The Economist magazine refers to it as “a supermarket-style platform of digital services”. The most frequently referenced examples are the Chinese platforms such as WeChat or AliPay as well as Grab from Singapore. AliPay is an integrated set of services that are built around payment provision on Alibaba platforms, collecting and leveraging transaction data which Ant Financial then uses for its own credit-rating system to offer business and personal loans to its users (outside the traditional banking industry which is the reason for the stir it has recently caused with Chinese authorities). In addition to financial services, the AliPay app offers numerous services around everyday life (gaming, movies, ride-hailing, bike-sharing, donations, lottery, top-ups, utility bills, health care… you name it!). Grab which is very common across South-East Asian markets had its origins as a ride-hailing company but progressively expanded into delivery services and through acquisitions of OVO and DANA, two payment platforms from Indonesia moved into financial services and payments in particular.

What makes these super-apps successful is the fact that they address and solve life and business challenges. It becomes the entry point for consumers using digital services and as the apps collect data and learn more about the individual user, service propositions can be tailored more effectively, increasing the user stickiness to the app. In last month’s newsletter (read article here), I referenced a recent Mastercard study on payment acceptance which highlighted the growing relevance of in-app payments. Now if these super apps are owning the user relationship and integrate payments with all the other services, what is the chance for banking apps or individual retailer apps to succeed on a stand-alone basis?

Coming back to the Square/Tidal deal. Admittedly Square and Twitter are separate, publicly listed companies that happen to have the same CEO and founder, hence combining the two into one business might sound easier on paper than it is, however, one cannot deny the opportunity that such link-up would provide. Large access to SMEs as well as on the corporate side, access to millions of individuals, the ability to facilitate payments between all these end-users and music streaming as a first value-add service (by the way, Square could be used to handle Tidal subscription payments); all of this combined is more than an interesting proposition. Is this the beginning of the Dorsey super-app?

‍The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).