Editor’s note: In this two-part post, I try to unpack exactly what “Cash App is culture” really means and why it’s critical to Square’s consumer banking ambitions.
Part 1 (which can be read here) provided an overview and history of Cash App and an argument for why it is less of a consumer banking juggernaut than it may appear.
Part 2 explains how investments in culture can provide sustainable differentiation where technology may not.
Become HBO Faster than HBO can Become us
When Netflix got into video streaming back in 2007, it marked a big transition for the company. Up until then, content was a relatively minor expense for the company compared to other areas like shipping.1 With the introduction of streaming, licensing deals for streaming content from movie and TV studios became much more expensive, an outcome that Reed Hastings was fully anticipating:
In the long-term, as we license more and more content for streaming and as consumers use streaming more, that enormous and growing postal expense will start to flow to content owners and we will become one of the studios' and networks' largest customers
What studio executives failed to understand, as they were laughing all the way to the bank, was that they were the ones getting ripped off.
Powered by popular TV shows like Friends and Breaking Bad, Netflix’s streaming business took off like a rocket ship, growing from a minority of Netflix’s 7+ million customers in 2007 (most of whom only watched DVDs) to the vast majority of Netflix’s 200+ million customers today.2
As the studios realized how much they had underestimated streaming, they tried to adapt. First by asking for bigger checks:
Are Netflix and “Friends” on a break? The answer is no — for now … The company will pay around $100 million to continue licensing the program from its owner, WarnerMedia … That’s a significant jump from the $30 million a year that Netflix had paid previously to stream the show.
And eventually by pulling their IP off Netflix entirely in order to populate their own competitive streaming services:
The Friends move from Netflix was expected after the streaming giant paid producers Warners $80 million to $100 million to continue to have the former NBC hit for all of 2019. The show will move to HBO Max when that deal expires at the start of 2020.
This was possible because the technology necessary to reliably steam video had matured so much since Netflix’s pivot to streaming in 2007 that HBO, after briefly flirting with building it themselves, opted to outsource it:
HBO will license the technology underpinning the standalone streaming service it plans to offer in 2015. The company has killed a project called “Maui” that would build the new streaming service in-house
The technology that had differentiated Netflix became, in less than a decade, a commodity.
And agin, Reed Hastings saw it coming:
we knew that while we were adding a lot of value to “Breaking Bad,” AMC had created it. And that in principle, if AMC had a way to monetize the catalog of prior seasons, that would be great for AMC. And they didn’t, so this was the best alternative. In the long term, the producer/developer was going to be the distributor. We’ve understood that for a long time.
So Netflix pivoted to creating original content that it would own and fully profit off of in perpetuity, spending more than $17 billion on original content in 2020 and a (projected) $19 billion in 2021.
But what’s most interesting is the lengths that Netflix has gone to not only create original content, but to create original content that’s good enough to win awards:
[Netflix is] pushing the limits of an Oscar campaign with an estimated $30 million best picture crusade for Roma, an artsy Spanish-language drama centered on the life of a maid in Mexico City. That’s nearly twice what Netflix paid to acquire the film in the first place and more than double what other studios typically spend on Best Picture campaigns.
To retain those subscribers—and attract new ones— Netflix needs to entice Hollywood A-listers to create amazing content … “It just bolsters their ability to go after pedigree filmmakers, to say, ‘Look, you don’t have to work for a major studio to win a Best Picture. You can come work for us,” says Chris Aronson, president of domestic distribution for Twentieth Century Fox.
This is straight out of the HBO playbook — create an unconstrained environment where the most creative people can come to create content that dominates the culture, gets people talking, and wins awards:
He [Richard Plepler, then co-president of HBO] compares the role of HBO to that of a gallerist. “Great artists want to be with a gallery owner who gets them, and with whom they have a shared vision … We are only as good as the painters.”
Which is why Ted Sarandos, Netflix’s Chief Content Officer, summed up the company’s strategy in 2013 this way — “to become HBO faster than HBO can become us.”
Culture Can’t be Commoditized
Cash App has embraced a similar playbook.
It started in 2017 with #CashAppFriday, a viral marketing campaign in which Twitter users would retweet Cash App’s post with their $Cashtags and Square’s marketing team would select a group of users and send them money, no questions asked.
But it reached a new level when Cash App started collaborating with celebrities and influencers, especially rappers and hip-hop artists.
Now, of course, Cash App isn’t the only fintech company successfully employing influencer marketing tactics to drive customer acquisition and retention.3 Current, among others, has leveraged social influencers on platforms like TikTok to great effect.
But what Cash App seems to understand, better than most, is that you can’t build a culturally-relevant brand simply by throwing money at the problem.
Artists shape culture, but artists are a funny bunch. They value things beyond money. For the writers and directors that Netflix and HBO are fighting to attract, the draw is creative freedom and the prestige of winning awards. For musicians, who Square has clearly settled on as its primary influencers, it’s a feeling of collaboration and ownership.
In a 2018 interview, Lil B explained exactly why he enjoyed partnering with Cash App:
Once I got a chance to download Cash App and see how fun and functional it was, I just became addicted to it. Now I’m a lifelong supporter and I’m just trying to give a couple of ideas of what I think to continue to grow Cash App.
I just want to make people happy. I just want to give people money. I love that.
But beyond being a fan of the app and of giving people money, Lil B genuinely feels a connection with Square and the people who work there:
We had a dinner in San Francisco, [and] they told me about blockchain and Bitcoin, because you can buy Bitcoin on Cash App. I actually got a chance to meet one of the engineers who works on blockchain. It was really inspiring because the lady that was working on blockchain and Bitcoin, she actually went to one of my lectures. I had a lecture at MIT a couple of years ago and she was there.
I had a chance to go to the Cash App office in San Francisco. That was one of the biggest offices I’ve ever been to. It was just really exciting to be there, just seeing the people, seeing the vibes, and seeing that Cash App does care about people and finances.
And an immense amount of respect for Square’s CEO:
Cash App, Square, Twitter: Anything that Jack gets behind, I’m behind. I’m behind Jack Dorsey 100 percent. … I respect who respects me and who reaches out to me. I got a chance to see all the great stuff that they’re doing, and now they got a lifelong fan.
I respect who respects me. That’s how you get to a place where your product is name-checked in literally dozens of songs, for free.
And how you start talking about ideas for future collaborations that would seem outlandish to any other financial services company. Here’s Lil B again:
It only makes sense for us to team up long-term, so that’s what we’ve been talking about. We have a lot of different ideas, but [what] I have been really wanting [to do] is start Cash App Music.
Wow. The BasedGod nailed it4:
Jack Dorsey goes on in his thread to answer his own question, talking about creating new ways for artists to monetize their work and building new tools for creators, and yes, sure, that’s all probably true.
But the bigger picture is that Square is spending $297 million on a failed music streaming service in order to send a crystal clear message to every artist, the same message that Jack delivered to Lil B back in 2018 — I respect you.
Square understands that, in an environment where digital technology innovations can be copied and improved upon almost overnight, culture is one of the only durable competitive advantages. A business model built around cross-sell will succeed not because it’s convenient for the customer, but because the company doing the cross-selling is cool.
Cash App’s surging profitability over the last 18 months has even caught Square by surprise, with Square’s CFO, admitting that the company should have been doing more to reinvest excess profits back into the product.
That’s not a mistake they are planning to perpetuate:
we want to lean in further to grow the networks of both of these businesses while continuing to work with existing customers, bringing them more value through additional products. We will, as I mentioned, be investing.
From my perspective, these investments will fall into two buckets:
Utility — Much as Netflix continues to invest in streaming technology and the experience of using its service, Square won’t neglect investments in the core functionality of the Cash App. Expect a slew of new banking and banking-adjacent services that give users more reasons to open the app, including:
Salary Advance — Introduced in 2020, employees whose employers are using Square for payroll have the option to get 50% of their earned wages (up to $200 per pay period) instantly, for free in the Cash App.5
Tax Preparation — We know this is coming, based on Square’s acquisition of Credit Karma Tax in 2020. Around 2 million taxpayers used Credit Karma to file their returns and in 2020 the average tax refund for self-filers was $2,000.
Small Dollar Loans — Square tested out a lending product with a small number of Cash App users in 2020, which enabled them to borrow up to $200 over a four week term. This could be an interesting payday loan alternative for Square’s predominately un/underbanked customer base.
BNPL — Square used to offer a split pay product to their merchants through Square Capital. The product was discontinued, but it wouldn’t surprise me (given the recent growth in BNPL) for it to reappear in a more integrated fashion, within the Cash App.
Automated Savings and Joint Deposit Accounts — Jack Dorsey recently said that “expand[ing] our deposit capabilities” is a key priority for the Cash App in 2021. Building on Square’s newly opened industrial bank, Square Financial Services, I could see these new deposit capabilities including automated savings functionality (à la Digit or Acorns) and a joint deposit account for couples (which would benefit from similar network effects to what they see with P2P).
Culture — Square will also continue to invest in features, products, and acquisitions that cement its status as a cultural touchstone, including:
Tidal — Discussed above.
Cash by Cash App — Cash App introduced its own clothing line in 2020 and it is a gloriously insane (but, by no means, ill-fated) attempt to strengthen the brand’s cultural cachet.
Bitcoin — While the ability to buy and sell Bitcoin is a banking feature with a lot of utility (and popularity with Cash App’s users), it’s also a culture play. Bitcoin is one of the few areas where financial services has significantly overlapped with popular culture (NFL player Russell Okung receiving half of his $13 million NFL salary in Bitcoin is just one example).
NFTs — Jack Dorsey selling his first tweet is just the tip of the iceberg. Lex Sokolin wrote a great overview of how NFTs are already transforming music royalties and ownership (and how that also helps explain Square’s Tidal acquisition):
Today, most value is sitting with the storefronts. This is the thing that will potentially change. Much more value could be sitting with the artists, who increasingly have a direct relationship with their fans through social media.
Putting the royalty economics on-chain, and turning those into a liquid market connected into Decentralized Finance is a pretty large paradigm shift. You could own the royalty stream. You could collateralize it to take out a loan. You could stake it as an object that allows you some governance rights. You could create a portfolio or basket of various creative objects, and turn them into an index that generates dividends. You could lever up that index and buy downside protection. And so on.
Merging Twitter and Square — While Twitter has never been the most profitable social network, it has long been the most culturally relevant one. As Twitter continues to roll out new tools for creators on its platform (Revue, Spaces, Super Followers), it becomes easier to envision a slow collision with Jack Dorsey’s other creator-centric business, as Marc Rubinstein and Packy McCormick recently wrote:
maybe there’s even the potential for the two companies to work more closely together, to combine the two ecosystems they’ve built to make it easy for Square’s small businesses to reach customers on Twitter, and for Twitter users to pay their favorite Creators with Cash App.
Alex Johnson is a Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies.
Go back and read Netflix’s Annual Report from 2007. It’s absolutely wild. They spend just as much time talking about the risk of pricing increases from the USPS as they do the risks of content acquisition.
For more insights into influencer marketing in fintech, check out this podcast interview with Frank Rotman at QED Investors.
This is one of the first (but likely not last) integrations between Square’s merchant business and its consumer business, which represents another strategy for building a durable, multi-sided network.