Should Jack Dorsey combine Twitter and Square?

OR A MAN of creative genius, monkish calm and austere wabi sabi aesthetic, Jack Dorsey is remarkably good at making investors mad. Scott Galloway, a podcaster and business-school professor, has raged on air to have him sacked from Twitter, which Mr Dorsey co-founded and runs, and in which Mr Galloway owns shares. Wall Street showed similar apoplexy on March 4th when Square, his other co-creation, offered almost $300m to buy a weak music-streaming service founded by Jay-Z, the rapper who is one of Mr Dorsey’s buddies. In one day Square’s value plunged by over $7bn. As Vox, an online news site, put it: “WTF?”

And yet, like Elon Musk, another of his friends whom Wall Street loves to hate, Mr Dorsey has done rather well for his investors of late. A year ago, with activists such as Elliott Management (and Mr Galloway) baying for his blood at Twitter, the man dubbed a “part-time CEO” got stuck in. Since then the value of the social-media site has doubled to more than $50bn. That of Square, a digital-payments firm, has tripled to more than $100bn. (The chairman of The Economist’s parent company is a director of Square.) Moreover, the two companies have exemplified a powerful trend: that of Silicon Valley’s second-tier firms (think, as well, of Snap, Pinterest and PayPal) winning momentum back from the tech giants. All in all, it has not been a bad 12 months for Mr Dorsey, considering he once planned to spend half the year on a tour of Africa.

Less-big tech’s rocketing values have subsided in recent weeks amid rising bond yields and tech fatigue as the covid-19 pandemic ebbs. But these firms continue to show promise, few more so than Twitter and Square. That is partly because Mr Dorsey’s feet are still being put to the fire. It is also because, individually, each of his two firms has plenty of room to grow. And whispers can be heard in the Twittersphere of an even more tantalising prospect: merging the two to create a WeChat-like super-app. It would not be a perfect fit, and Mr Dorsey might have to step aside if the combination is to be pulled off. Then again, imperfection and transience are two of the hallmarks of wabi sabi.

Twitter and Square have different attractions. With 192m users compared with Facebook’s 1.8bn, Twitter punches below its weight in social media. It courts controversy; Mr Galloway chides it as an alliance between the elite and the mob. Its shares have serially underperformed those of tech rivals. Yet its name has global resonance. And it is at last building new services (such as Spaces, a digital venue for audio gabfests) and buying others (like Revue for long-form writing) that appeal to both users and investors.

Square started life as a cheap, white credit-card reader attached to mobile phones (one is exhibited in New York’s Museum of Modern Art). It has brought millions of small merchants into the payments system. Its Cash App business, enabling person-to-person cash transfers, as well as share and bitcoin trading, did the same for individuals; it now has 36m users. Though not a household name, Square’s share price has outperformed Twitter’s by ten times since its initial public offering in 2015. If the challenge for Twitter is to transform low expectations, for Square it is, if anything, to live up to sky-high ones.

One way of doing that in a single stroke would be to use Square’s highly valued shares to buy Twitter’s cheaper ones. The aim would be to create a supermarket-style platform of digital services. Twitter offers global name recognition, entertainment and engagement, a direct-messaging service (albeit not the best out there) and a roster of big brands that advertise on it. Square has minimal international presence, but offers cash payments and financial services, a customer base of small and medium-sized firms, and skill at tapping the unbanked that could extend to billions of the world’s poor.

Even Tidal, Jay-Z’s music-streaming service, could fit—at a push. As @JohnStCapital, a mysterious but astute financial pundit who has called for Twitter and Square to merge since 2019, put it on March 4th, imagine a monthly subscription service that encapsulates music streaming, share and cryptocurrency trading, personal-finance tools, newsletters, podcasts and Twitter—all without ads. “If @Jack tucks in $TWTR…it could be a real game changer,” @JohnStCapital tweeted.

Investors in both Square and Twitter may well recoil at the idea. A similar marriage of convenience between Mr Musk’s electric-car company, Tesla, and his energy company, SolarCity, did not inspire confidence, because it was seen as a bail-out of the latter. Square and Twitter do not necessarily need one another. Square is already morphing into a financial super-app, with or without Twitter. Twitter’s immediate priority is to complete its transformation into a company that reliably increases revenues. Mr Dorsey’s dedication to the boring minutiae of running companies has long been open to question. Investors might not be wholly confident in his ability to oversee such a transaction, even with so much of his own wealth at stake.

Still, do not count it out. Already both his companies are making complementary moves. If Twitter delves deeper into e-commerce, as it hopes to, a payments arm like Square would be useful. Furthermore, Twitter plans to launch an innovative service called Super Follows, in which users pay for premium content from members of the Twitterati with particularly large followings. Tidal could offer something similar to musicians via Square.

Squaring up for a fight

Whatever may be in the back of Mr Dorsey’s mind, the prospect of mergers and acquisitions among Silicon Valley’s challenger firms is worth considering anyway. So far they have done bolt-on takeovers. But if they really want to generate scale, they should do transformative ones. The heightened competition would be a big test for the tech giants. For Mr Dorsey it would be a big test of his naming skills: Squitter? Squatter? Twitcoin, anyone?

This article appeared in the Business section of the print edition under the headline “Jack Dorsey’s split personality”