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Square and GoDaddy Forge a Crucial Partnership: What Investors Need to Know

In Square Inc.'s (NYSE: SQ) third-quarter conference call, CEO Jack Dorsey made it clear that the company's open-platform strategy, which allows Square to be embedded in other business systems, was a significant factor in the company's success. Dorsey said the payments generated from its integration into others' platforms contributed nearly 20% to Square's third-quarter gross payment volume (GPV). He concluded, "These integrations are more important than ever, as online and offline commerce emerge and sellers need to provide a seamless omnichannel experience for their customers."

Embedding Square's payment processing capabilities into other platforms will probably continue to gain importance in the quarters ahead. In the past few months, Square has struck deals with the popular live-event planning platform Eventbrite, and SAP SE's Business One software platform, which provides small and medium-sized retailers with a variety of back-office business services. More recently, Square announced another partnership, this time with GoDaddy Inc. (NYSE: GDDY), a provider of tools that individuals and small businesses need to build professional-looking and fully functional websites.

Square has expanded its capabilities and services exponentially since starting off as a mobile card reader that attached to a smartphone. Image source: Square Inc.

According to the press release about the deal, GoDaddy will integrate Square into GoCentral, its mobile-optimized website builder. This will allow merchants to use Square for their online sales and appointment booking. In the near future, sellers will have "the ability to book client appointments online, sync calendars using GoCentral, and get paid using Square. Payment transactions can be processed online, in-person or both without switching accounts."

In the press release, GoDaddy's vice president of e-commerce products, Greg Goldfarb, said: "Teaming up with Square will simplify the path to success for a wide range of small businesses from clothing and apparel makers to fitness trainers. We're solving everyday problems for millions of ventures that need to operate both online and offline so they can realize their potential with customers."

What's in it for Square

As in its other recent partnerships, Square gains access to GoDaddy's customer base. GoDaddy currently boasts 17 million customers across the world, operating nearly 73 million domain names. GoDaddy's management did not give exact figures on its third-quarter conference call, but said that users of GoCentral are a mix of existing and new customers. Not only will Square gain access to new customers for its payment processing services, but the arrangement will also give it a foot in the door, allowing it to introduce those customers to its entire ecosystem of products like Square Capital and Caviar.

In the press release, Square's partnerships lead Pankaj Bengani echoed Dorsey's conference-call comments about the need for omnichannel business payment solutions. Bengani said: "Increasingly, businesses need powerful, integrated tools to grow an omni-channel business. By working with GoDaddy we're making it even easier for businesses to simplify their operations and manage all the ways they sell and get paid."

What's in it for GoDaddy

When GoDaddy introduced its GoCentral platform earlier this year, the company promised "a new era" of website design, one focused on its customers' results, ease of use, and simplicity. On GoCentral's next evolutionary step, CFO Raymond Winborne said, "It's really driving toward service commerce, and all the capabilities to be terrific at deep service commerce for hundreds of verticals."

GoDaddy will now be able to offer payment solutions to its individual and business customers. Image source: GoDaddy Inc.

This partnership accomplishes that goal for GoDaddy. Now that it can seamlessly integrate Square's payment processing into its platform, GoDaddy will be able to walk its customers through one last crucial step in building an online presence for their businesses. It also makes GoDaddy's toolbox that much more competitive with the offerings of other providers like Wix.com.

Winner winner, chicken dinner

The payments industry is moving toward partnerships and consolidation. For payment processing companies, this often involves deals that vertically establish the company in existing business platforms. For Square, this has meant establishing partnerships in marketplaces such as Eventbrite, and software platforms like SAP's Business One and GoDaddy's GoCentral.

For business platforms like those offered by GoDaddy, it makes sense to secure a deal that will make an existing platform that much more attractive to potential customers. For entrepreneurs with lots on their plates, a platform that offers everything they need in one stop has to look better than alternatives that leave crucial components of e-commerce out of the picture.

The deal is an opportunity for both companies to grow their core businesses and attract new customers. In that sense, both are winners. Year to date, both companies have crushed the market: Square is up an amazing 224%, while GoDaddy still more than laps the S&P 500 with a gain of over 41%. With deals like this likely to act as a future catalyst, however, I wouldn't bet against either company.

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Matthew Cochrane owns shares of Square. The Motley Fool owns shares of Square. The Motley Fool has a disclosure policy.

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