RSPA’s POS Data Series, and Why You’re Missing Out

15 Nov

The RSPA – widely regarded as brick and mortar’s technology solutions trade association – has started a monthly webinar series to educate the industry about the commercial value in POS data syndication. The agenda for the series can be found in the Lunch and Learn section of RSPA’s Education page, and it’s free to all participants, including non-members.

rspa_certified_pos_provider

While I am biased because we have a hand in orchestrating the presenters and content, this is the only opportunity we’re aware of where those in brick and mortar can hear experts in their field discuss the no-bullshit commercial opportunities in POS data. Yes, we write about it all the time, but it’s still coming second-hand.

Well, here’s your opportunity to hear it first-hand, straight from someone who isn’t as ugly.

Now if you’re someone who refuses to acknowledge the value merchants will reap when their POS is connected to the outside ecosystem of ecommerce platforms, search engines, online ordering sites, and delivery services, just stop reading right now and run to the nearest rock so you can etch your commentary and send it to me via dodo bird next year.

For everyone else, the next session takes place this Friday at 1 Eastern (GMT – 5) and you can register for it here.

This session brings in metadata experts Kevin Hanna of Vendasta and Elaine Screnci of Acxiom to make clear how simple merchant data – name, address, phone – makes all of our digital experiences seamless, and how those with said data have easy commercial opportunities.

For merchants, correcting this data is worth tens of billions in missed revenue, so everyone should be paying attention.

Real Examples of Online Ordering Companies Screwing Merchants

15 Nov

Angelo’s House of Pizza is an Italian eatery on the outskirts of Boston. Run by a Greek family, they put in long hours and built a small enterprise on a labor of love. This summer, while the owners returned to Greece to spend time with family, something sketchy happened…

Angelo’s is a customer of Clickawaiter, an online ordering platform that allows restaurants to host their own online ordering on their restaurant website. As opposed to third party demand generation online ordering platforms like Grubhub – which takes large cuts of each order through their system – Clickawaiter charges a relatively small monthly fee for unlimited online ordering. In an effort to capture all potential customers though, Angelo’s also subscribes to Grubhub as well.

While Angelo’s owners were abroad, their restaurant employees noticed that orders stopped originating from Clickawaiter. In other words, online orders were originating from Grubhub as opposed to Angelo’s own website, thus costing Angelo’s substantially more money.

When the owners returned, they phoned their hosting provider GoDaddy and learned their domain had expired. Upon expiration their domain entered a public pool where anyone could buy it. But Angeloshouseofpizza.com is such an obscure domain none of the owners worried someone would happened upon it.

Yet sure enough, in the short time the domain had lapsed it had been claimed. But by whom?

 

Charlies Roast Beef of Middleton has been around for 25 years and Charlie has owned his domain for the last decade. When people sought Charlie’s roast beef in search engines, he would appear at the top of the results. Charlie is likewise a customer of Clickawaiter and his domain, Charliesroastbeefofmiddleton.com, was set to forward over to his online ordering portal hosted by Clickawaiter.

Since making this move, however, Charlie noticed that online ordering sales originating directly from his website have dropped by 80%…

 

When Clickawaiter went to investigate both instances, they found some shocking results.

First, Angelo’s domain was snatched up by a company called Kydia Inc.

unnamed

 

Kydia Inc is the parent company of BeyondMenu, a Grubhub clone in Illinois. When I reached out to Beyond Menu for information I only connected with an outsourced phone representative who had no way to pass me to their public relations team or founder, Leon Chen.

If you visit Angelo’s website today, you’ll notice another peculiarity: it’s now owned by Grubhub. The website footer says as much and the whois registration confirms it. I likewise reached out to Grubhub but have not heard a reply.

screen-shot-2016-10-28-at-8-52-49-am

screen-shot-2016-10-28-at-8-52-28-am

 

It seems the same ploy was initialized by Grubhub for Charlie’s. Grubhub purchased Charliesroastbeedandpizzeria.net. You can search the registration record or simply look at the website’s footer to find ownership.

screen-shot-2016-10-28-at-9-43-05-am

Grubhub used SEO techniques to ensure their .net domain beat out the restaurant’s own domain every time.CLICK TO TWEET

When Charlie asked his customers why they were using Grubhub as opposed to online ordering on his site, his customers said they didn’t know the .net domain was owned by Grubhub; they just assumed because of the high search listing and business name in the URL it was Charlie’s site. Here’s a Google search for Charlie’s roast beef:

screen-shot-2016-10-28-at-10-30-51-am

 

It would appear that online ordering companies are going to whatever lengths necessary to steer more traffic to their online ordering site, where orders cost restaurants substantially more. Online ordering companies claim that using their services help restaurants reach more customers, but then the restaurant can convert those new customers to the restaurant’s own ordering portal.

Instead online ordering companies are acting to the contrary:

They are taking advantage of the merchant’s unsophistication and buying domains to steer all search traffic to their online ordering portal where merchants pay substantially more.

I understand if you want to charge merchants to be ranked higher on your online ordering portal: that’s advertising. But to go off and buy similar domains and then use your SEO juice to steer customers to your portal where the merchant pays more? You can’t be doing that and telling merchants straight-faced that they will be able to turn customers on your portal into customers on theirs.

These online ordering companies sound a lot like Groupon: we’ll gouge you to deliver customers, and then…CLICK TO TWEET

What should merchants do?

It seems that merchants need to start taking a more proactive approach.

  1. Charge more to customers that want to use a third party solution. If Grubhub is going to charge you an additional 15% for each order originating on their portal, pass that cost along to customers.
  2. Have your own online ordering solution on your website. As cloud POS matures, you’ll find that many POS companies will offer online ordering and start syndicating your ordering in places where consumers go: Google, Bing, Yelp, etc.
  3. Do the math! You should learn how many repeat customers are actually now using your online ordering solution. If many customers are using a third party source to find and order from you, you’re going to get upside down on the economics very quickly. How do you do it? You should require email and contact information from people that order on your site. Use an email marketing tool (most are free if you send less than a few thousands emails per month) to ask your customers if they previously ordered from you from another source. You could also ask Grubhub but I doubt they would release such information because it undermines their sales claims.

Don’t be sucked into the foolish math that doomed many of Groupon’s merchants. If you cannot make the numbers work, DO NOT use a third party ordering provider. Would you rather pay for these services only to be out of business in a year?

Be rational, and use data.

POSitouch is Going to “Cloud”. Did It Make the Right Move?

15 Nov

85_transparent-logo0012

Late last week POSitouch and Omnivore announced a business partnership that was three quarters in the making. POSitouch (POSi) would open up Omnivore’s cloud architecture to its merchants via POSi’s distributor channel, and all three would share revenue by bringing the “cloud” and and its benefits to merchants.

We’ve been asked for our thoughts, and I think it’s important that merchants AND their service providers pay attention.

The most obvious question is this:

If POSitouch is a software company, why did it just outsource a major component of its software architecture…CLICK TO TWEET

POSi is obviously a legacy point of sale (POS) company. However, there have been several legacy POS companies in the US hospitality market that are making investments to stay relevant and go to cloud.

So why did POSi not invest in its own business architecture to go to cloud? If they’re partnering with Omnivore, they’re obviously admitting that connectivity and data portability is the future of the POS business. Is it that POSi has only realized this lately?

Well first, POSi had a very expensive ($1500) back office product prior to this. It was so outrageous that CBS went off and built their own solution. At some level this new Omnivore cloud functionality can replace that legacy reporting product and turn it into a recurring revenue business.

But we think the reason for the partnership is much more financially driven than that.

For Omnivore to bring merchants the value of cloud POS, Omnivore must deploy a piece of software to establish bidirectional communication. Once that piece of software has been enabled, the merchant’s data can now be used by third party applications for a host of solutions, and because it’s bidirectional, products like mobile payments can write directly to the POS database seamlessly.

However, POSi doesn’t own the merchants: its dealers do. And to get the agent deployed at merchants – plus presumably cover Omnivore’s nut to install and support their agent – there must be an associated fee.

So POSi charges merchants $50/mo to have a cloud system enabled. Keep in mind that for $50/mo merchants can turn to a number of cloud POS providers and get a brand new POS.

Once the Omnivore agent is deployed and the cloud system is live, merchants can browse third party apps (though in reality they won’t) or the POSi dealer can introduce apps accordingly. If such an app is purchased by the merchant, the app developer, the dealer, POSi and Omnivore take a share of the revenue.

That’s a lot of mouths to feed.

But that’s not POSi’s problem: that’s the merchant’s problem. The POSi merchant is going to pay an increased cost for goods and services because POSi didn’t want to invest in its own product and customer base.

How much? We’ve calculated the average merchant product to cost $30/mo per location across the industry. That’s an average from loyalty, analytics, marketing and a host of other solutions in the space.

What POSi has just done is increase the cost of that $30/mo product nearly 4x. Here’s our math to get there.

  1. A POSi merchant must pay $50/mo to have cloud enabled
  2. The third party developer can no longer afford to sell the product for $30/mo if the dealer, POSi and Omnivore take a cut. I think we can fairly assume they would need to double the price to maintain their original revenues. So that $30/mo product goes to $60/mo
  3. We add the expense from number 1 to the expense from number 2: $50 + $60 = $110/mo. Let’s now calculate the percent increase: $110 / $30 = 367% (note: I am calculating the absolute increase from the merchant’s perspective, not the percentage increase over $30 – which would be 267%).

Wowsers. And here’s how POSi likely justifies it.

POSi purports to have 30,000 restaurant customers. Below I’m whipping up a table that shows potential revenue outcomes for POSi based on conversion rate to Omnivore’s cloud offering. I’m going to throw in varying revenue share on that $50/mo figure too. I’m excluding the potential revenue share on additional applications, which undoubtedly only sweetens the pot for POSi.

screen-shot-2016-11-02-at-9-16-03-am

Therefore we argue that POSi believed it would make more money off this partnership with Omnivore than if it invested in its own business model of going to cloud – totally at the expense of their merchants.

We know legacy POS companies that have built “cloud” (data replication) for $20,000, so it’s not like we’re talking about millions of dollars of investment here. The hardest part, rather, is deploying the replication, and POSi doesn’t even need to foot the bill for that since they have dealers.

Good on POSi for recognizing the move needed to be made, though I think it says a lot about the state of their software business, capabilities and view of their customers that they needed a third party to bridge the gap. POSi says they’re working on their own cloud, but it’s five years away. Maybe.

This move feels much more like patchwork than an ideal solution for a “software company”. That’s not to say Omnivore isn’t a great platform, but POS companies need to own something if they want to call themselves software providers. And per usual, the hapless merchant foots the bill for the POS company’s experiments.

Apple Kills Its Auto Ambitions, But POS & Payments Still Think They’ll Build Everything

15 Nov

Project Titan, as Apple furtively referred to it, was the tech giant’s foray into owning the automobile. After all, Apple has been creating new platforms for over 10 years; why stop now?

url

Apple is a juggernaut of a company if for no other reason than it holds over $200B in cash. For context, that’s more than the market capitalizations of General Motors, Ford and Fiat-Chrysler combined.

With all this money Apple could surely build it’s own next-generation car, right?

Apple didn’t think so.

Let’s skip past the part where auto manufacturers trade at a revenue discount, meaning that the value of their corporations is less than the annual revenue they generate. GM recorded revenues of $152.4 billion in 2015 but trades at a market cap of ~$50B. Apple, by contrast, is trading at 3x 2015 revenues.

As Bloomberg reported recently, hundreds of the 1,000-person Titanteam have departed over the past months. Changes in vision, direction and leadership undoubtedly contributed to self-doubt within the ranks. Pivots in their scope rendered countless employees useless yet required scores of new ones. By fall of 2017 a more cohesive plan is expected to emerge.

But one thing is clear:

Apple is no longer interested in building automobiles

Why would a company with a seemingly endless war chest step away?

Because it’s not their core.

Apple rationalized that they were not suited to be in the business of building cars, but rather to power the technology platforms behind them. Call it a self-awareness of culture or company DNA, but we have to give someone at Apple credit for drawing a line in the sand and defining core competency.

Saying no can be just as powerful as saying yes.CLICK TO TWEET

If a company with tens of billions in profits and hundreds of billions in cash can step away from non-core activities, why can’t profit-poor POS and payments companies?

In a continual series of bizarre moves, POS and payments companies are expanding offerings in product directions that make no sense. Why is Heartland/Global trying to build a portfolio of bolt-on products for their POS products when they’re struggling to get POS right? Why do POS companies like Micros and Aloha build reporting tools that perform relatively terribly and cost much more than third party analogues?

It’s not so much that the thought of toeing non-core activities is bad, but rather it’s the execution. Swallowing third parties to serve as bolt-on providers can be incredibly dangerous when you consider the acquirers are drowning the acquirees in non-product culture. This layers on bureaucracy and misaligns performance.

I’m going to guess these third parties were sought out because they weren’t the worst performers in their categories. If they were executing so well why now change their marching orders? If you want to buy them, don’t fold them into your non-product culture. Have you seen how far Facebook has distanced WhatsApp and Oculus?

Please, take a note from Apple before you continue down your current paths.

Will Heartland’s Upcoming Cloud POS Flop?

15 Nov

Before being scooped up by Global Payments earlier this year, Heartland operated along an aggressive strategy to roll up a number of legacy point of sale (POS) systems. The maneuver was mostly focused on the hospitality vertical – where Heartland has a large presence.

And it was smart. Bob Carr, Heartland’s founder and then-CEO, knew that payments was a high churn business. If the processor could own the POS asset, it would be much harder for the merchant to leave… something pioneered by Harbortouch, even though they catch flack for it to this day.

Further, Bob Carr saw what many in the field did not: that new, cloud POS entrants were raising tens of millions of dollars on the promise of democratizing data and building platforms that would forever change the local merchant. What these Silicon Valley folk did not understand was the cost of distribution. If a cloud POS was raising so much money on top of a few hundred installs, there was surely an arbitrage in taking a POS system with a larger footprint and converting it to cloud.

This became Heartland Commerce: a consolidated play where payments, POS and merchant add-ons could be offered from one portal. The rub, of course, was truly bringing those legacy POS systems into the cloud and making the data available.

What started out as a sure-thing quickly fizzled as the Global Payments acquisition leaned on the organization. Diligence into the poor database design and extraction schemas looked more daunting. It was then decided that a fresh $25MM should be appropriated to build a new, cloud POS.

And from the ashes shall rise a phoenix

The strategy behind Heartland’s new cloud POS – Zingo – was threefold.

1) In absorbing several disparate legacy POS systems, the new cloud system could pick and choose from a repository of robust, market-hardened features that most cloud POS systems would lack

2) Because the foundation of the new cloud POS would be from legacy POS systems across multiple verticals, the new cloud POS would serve many markets

3) Having a massive direct sales force of payments professionals, in addition to dealer channels from the acquired POS companies, could combine for an enviable distribution network

On paper it looks great. But it’s also uncharted territory.

There are solid POS systems that have been built for two or three million dollars – isn’t $25MM overkill? Most successful POS systems serve one – and only one – vertical because building relevant features for multiple segments even within a vertical can be daunting. I can’t imagine the complexity in building a POS for all segments across multiple verticals. In fact it’s why Micros has abandoned parts of the market after its Oracle acquisition: there was not enough potential growth in certain segments.

And what is this about leveraging the Heartland channel? When Heartland purchased its legacy POS systems the dealers for those systems became property of Heartland. Heartland put some pretty aggressive agreements in front of the dealers, and the provisions are not the most dealer-friendly.

First, dealers have a quota. To maintain dealer status, a dealer must maintain $48,000 in annual sales. That’s high relative to other POS companies we know.

Second, Heartland has the right to purchase a dealer without the dealer being able to refuse the acquisition.

Third, Heartland will directly sell POS any merchant account with more than 100 locations.

Fourth, Heartland can sell products to merchants around the dealer so long as that merchant contacts Heartland directly. This is a huge deal, especially since we must acknowledge that merchants are increasingly either finding solutions via SEO or from payment provider referrals.

In effect, Heartland has engineered its dealer agreements with a realistic look towards the future

But none of this may be as critical as the financial realities in being a dealer under the new Heartland banner, and that’s encapsulated with this statement:

Dealers cannot refuse Heartland payment reps access to their merchants.

Basically, Heartland has the right to jettison existing dealer payment agreements and replace them with their own, even if that earns the dealer substantially less money.

I worked with several dealers to juxtapose old business models to new business models under Heartland rule. The results are surprising.

It’s quickly evident that software margins are far less under the Heartland (HPY) system than independent POS dealers had previously. Credit card processing residuals – where most dealers make a large portion of their income – is also down. I need to add some text formatting here because this is a huge deal!

As a dealer, you can only refer credit card business to Heartland. If Heartland successfully enrolls the merchant in their processing then the dealer earns $20 per month and $0.02 per transaction. If the dealer chooses NOT to refer payments to Heartland – in other words, because the dealer makes way more money under its existing processor arrangement – Heartland can approach the merchant and sell its processing directly, which means the dealer will see nothing (technically it’s $20/mo, but that’s trivial in comparison).

To put that into tangible numbers, for a merchant processing $1MM annually, that processing contract is the difference between annually earning $2,760 (non-Heartland processing) and $789 (Heartland processing).

Unfortunately, the end merchant is also paying more for POS products under the Heartland umbrella. Here’s a chart of the same services before and after Heartland involvement. As can be seen, software is now more expensive (because Heartland charges a perpetual 10% annual fee for software updates and bug reporting) and credit card processing could be made twice as expensive if it’s NOT Heartland processing.

The same costs are reflected on the dealer’s balance sheet as well. Dealers under Heartland are now paying more for their POS software and could be paying twice as much if they choose not to refer Heartland’s payments processing.

Heartland believes its dealers can make up lost revenue selling add-ons: additional products in Heartland Commerce. Heartland visualizes this as a flower and petals analogy.

It’s not a bad strategy assuming each of the add-ons could stand as a solution on its own. Unfortunately, I’ve seen far too many POS companies – which are much closer to product companies than Heartland, a payments company – consistently screw up any product that wasn’t POS.

An expensive price tag, broad ambitions, and upside-down channel economics make Heartland’s new POS tough to assess. Add to that the historical difficulty with integrating to Heartland’s flagship POS product – XPient – and it could spell trouble.

As much as Bob Carr was a visionary and guiding force for the payments industry, his departure might signal a cultural change that only works in one party’s favor. Without an ecosystem that wins – including the customer and the channel – this could be more than Heartland – err, Global – can stomach.

These Are The Features That Matter for Tomorrow’s POS

15 Nov

We’re not going to spend time talking about boring features like splitting a check or recording voids. These are the basic POS features needed to be relevant, and despite what legacy POS companies argue, they are finite in number and will be in every legitimate cloud POS over the next year.

Debate over.

We’re instead focusing on the “future-proofing” features of POS: the features that will position the POS as a strategic asset and hub for tomorrow’s commerce. These are the features forward-thinking POS companies are pondering already, so let’s lend a bit more thought to the efforts.

First we must paint the future. Without understanding what tomorrow looks like, we can’t begin evaluating what to do today.

Tomorrow’s customer will want everything to happen fast and conveniently. If they want to order a burrito in the jungle, they’re going to get a burrito in the jungle. This means commerce will take place on the go, from any number of devices across any number of platforms.

The POS providers of tomorrow need to think about how they are best-suited to meet consumer expectations of convenience. This is the classic buy, build, partner mindset that smart companies have had to ruminate for ages.

Online Ordering

It’s no secret that online ordering is taking off. There are a number of objective ways to measure this, whether it’s the amount of investor money pouring into the space, or the number of reported online merchant orders.

The above chart seems to best crystallize the trends. We know that 30% of the restaurant business is carry out, and before the internet those orders were, by definition, 100% offline. Now it looks very much like all of the carry out volume will be handled via online orders – mobile phone or otherwise.

How does the POS play a part?

Noah Glass, the founder of olo and unquestioned expert in the space, recently shared potential pitfalls with moving too quickly. Noah’s argument is that most POS companies neglect the details really needed to make online ordering successful through the POS.

I’d add some clarifications. POS companies have access to real-time merchant data. This can be inventory in retail, or menus in restaurants. Legacy POS systems did not pay much attention to content management of the merchant’s data, but newer POS companies can more easily make database changes to menu organization for online ordering, or merchandise organization for ecommerce. Therefore content management, while previously more involved, is less material than it used to be. Noah made great strides for the industry by developing an online ordering standard that shows precisely how POS companies should organize the data.

Payments security and PCI compliance only become an issue if the POS companies want to process payments directly. In most cases, third parties (like Yelp, Google or others) will handle payments on their own, simply passing back relevant, sanitized data to the POS. In fact, this is how the POS systems of today work: they avoid storing any of the payments data to be out of PCI scope (which, I’ll remind, is not a law but a guidance). That’s generally a foolish move for data reasons, and it’s something we’ve already discussed.

The biggest adjustment POS companies will need to make is the operational impact of online ordering syndication. If a consumer wants to order something online from Bing, how will it impact the kitchen or the retail associate? Conventional ordering platforms usually provide a tablet for the operator to input when the order will be ready, somewhat controlling business operations and managing customer expectations. This will need to be solved.

Should the POS company build, buy or partner for online ordering? I’d answer it like this: if the POS company sets up properly, they can serve as a gateway and earn revenue from each online order passing through their system. This is best facilitated by having the right data setup, and being open to third party partners. Building an online ordering system beyond the standard established by Noah is a massive distraction, but you don’t want third parties cutting you out of the revenue opportunities either.

Commerce Syndication

Much like online ordering for restaurants, there’s steady growth in ecommerce.

Riding these trends are newer POS companies that create ecommerce channels for brick and mortar retailers. VolusionShopifyBigCommerceare such stand-alone systems. Even others have started extending the conventional brick and mortar POS into ecommerce: see Lightspeedand Bindo as examples of two cloud POS companies heading this way.

Creating an ecommerce store for the merchant is a natural extension of the POS’s capabilities. As discussed above, a good POS will already have inventory and pricing in its databases, and more people are buying online.

But there’s a further step that needs to be considered. If I’m looking for a pair of skis, do I go directly to a local merchant’s website to find it? That seems very unlikely. I’m going on Amazon, or Google, or a number of large ecommerce platforms where I can search many products.

There are now a growing number of companies who do just that: take a retailer’s inventory and syndicate it to numerous, and well-trafficked, ecommerce sites. However, these providers are mostly focused on larger, enterprise retailers.

POS companies can extend the online presence of their merchants by becoming a point of data syndication. POS companies can give their customers – who would otherwise pay hefty sums to service providers if they weren’t altogether ignored – wider exposure for their products. Following similar data standardizations, POS companies can work within ecosystems for syndication, capturing a portion of new revenue each time an order is placed. Using geolocation, POS companies can start fulfilling local commerce so customers wouldn’t even have to wait for shipping.

There is nothing for POS companies to buy and very little to build here. POS companies need only make make some small tweaks to start participating in these opportunities. As with online ordering for restaurants, however, there will be some required training on behalf of the merchant: you don’t want to be selling merchandise on eBay and have a merchant forget to ship it to the customer. But we see no reason this can’t be figured out.

Delivery

It’s been reported that the US saw $2.3B in food tech investment in 2015, but we need to caveat that heavily to show where the money is really going. Included in these numbers are grocery startups, at-home meal kit startups, and a slew of others that we normally wouldn’t consider “food tech”; I think of things like loyalty, analytics and marketing services as those that directly help merchants. However, most merchants cannot rationalize these solutions so the money goes into services that benefit the consumer by working around the merchant.

Of the $2.3B, Rosenhiem Advisors calculates that 44% went to last-mile/convenience services. As followers in the space we’d estimate that $50MM – $100MM of that $2.3B went into traditional merchant tech products – so less than 5%. Until merchants wisen up this will continue to be the case.

It’s often theorized that all this venture money in last-mile services is subsidizing convenience at the investors’ behalf. In other words, the true cost of delivering a cheeseburger is $15, but venture capital is eating $10 so the remaining $5 is palatable to the customer. This is in line with a larger effort to achieve critical scale and reach true economics of $5 for cheeseburger delivery.

I’d argue how well this is working since Uber is likely the largest on-demand delivery fleet (they’ve at least raised the most capital) and they charge restaurants a 30% commission in addition to a separate fee for the consumer. When we worked through our own math we couldn’t understand how delivery would ever be reasonable to a middle-income family.

But none of these concerns should be had by POS companies. If anything, the glut of investor money in this space has only increased consumer appetite for such concierge experiences. At some point entrepreneurs will figure out how to make it economic and POS companies should be prepared to benefit.

What does that mean?

POS companies should create APIs and data structures that enable delivery services to seamlessly connect with their merchants, likely earning a residual. POS companies have no business trying to create their own delivery services: they’re too expensive. I’d argue restaurants should also defer to third parties for delivery, unless they’re a fine dining establishment and need superior quality control of their food.

POS companies have an opportunity to become a vehicle of distribution for these next societal shifts. Developing the right strategies now will pay massive dividends as these markets continue to gain steam. POS can very much be the hub for all merchant value going forward, but they need to do the right things. If they don’t think about these features today, then they really won’t have the right features tomorrow.

Another Nail in the POS Dealer Coffin

13 Oct

We’ve talked before about cloud POS and its disruption to the conventional POS sales channel. In fact, we argued that if cloud POS wanted resellers it would need to change it’s model to accommodate such relationships.

I’ve heard mixed results from dealers reselling cloud POS today. Some have said they need cloud in their portfolio to remain relevant, though more admit they aren’t making much on each sale. The model for cloud is still early, which leads me to believe the tale has not yet been told.

Last week Revel, a cloud POS company, announced something that many cloud POS providers have been working on for some time. And it’s critical to understanding the future of the POS dealer.

Let’s first re-hash discussion from an earlier post.

A reseller has four revenue streams.

1) Hardware. In the old days this was thousands of dollars in revenue share on $10,000+ hardware.

2) Software. In addition to that pricey chunk of hardware, the reseller would make a revenue share on that pricey software. This could be a few thousand as well.

3) Services. This included initial setup (i.e. menu/inventory programming), training, break/fix repair, software updates, added features and possibly consulting.

4) Credit card residualsMercury upended the model when they started sharing 50% of the processing “profits” with the POS reseller. Since then the payments market has continued to beat itself down on pricing.

We’ve talked how cloud POS – really the Internet - has materially disrupted each one of these revenue streams.

Cloud has virtually eliminated hardware margins. Commoditized hardware can now be searched for and purchased online, driving down prices. On average, a new hardware setup costs $1,300. Of that, maybe $300 is margin. Split between the reseller and ISV (independent software vendor), that’s slim pickings.

Cloud has dropped software prices steeply. The Internet has enabled collaboration and sharing to make software faster and cheaper to develop. At $50/mo, or $600/year, cloud POS software is far less than the $3,000-$5,000 sticker price of legacy software. Additionally, cloud software is providing features for free that legacy software put an additional price on: reporting, marketing, etc.

Cloud is slashing service revenues. While services were 2/3rds of POS revenues in the past, cloud is making conventional service revenues obsolete. Here’s how.

POS installation has become trivial. When was the last time you paid someone $200/hour to setup your iPod or laptop? Cloud POS is leveraging advances in technology to make setup frictionless, with clear diagrams and instructions even the most naive can follow. Let’s be honest: many legacy POS providers even drop shipped POS and let the merchant set it up themselves; it’s not that complicated anymore.

The initial menu/inventory programming is typically free, viewed as a cost of doing business. Training is handled remotely and comes with a library of tutorial videos merchants can peruse at their own convenience, so missing a tip from a training representative can be relearned later. Better interface design has also cut down on the need for prolonged training periods, and software updates are free for life.

And per Revel’s announcement of RevelGuard, if the POS system needs support, it can be remotely diagnosed and repaired with the Internet, often before the merchant ever knows it needs attention.

Remote support tools like RevelGuard are automatically configured on setup. The ISV has secure access to configure interfaces on printers, routers and more, all from the convenience of their home office with the speed the Internet delivers.

No more travel or in-person maintenance is required, cutting support costs by an estimated 75%.

Harbortouch, a cloud payments and POS provider, has had similar remote support systems in place for a long time and they’re constantly being upgraded. Brendan Lauber, Heartland’s co-founder and CTO, tells us that Harbortouch first launched their Heartbeat feature which allows Harbortouch to monitor POS up-time, automatically alerting the company’s technical support department if a POS experiences any issues in the field. “This feature enables the company to proactively resolve issues, in some cases before the merchant is even aware of the problem to determine if the POS was online.”

As remote support has evolved, Brendan says they’re testing 4G failover, a service that automatically connects support to 4G networks in the event the Internet goes down. “The 4G failover sits between the POS and merchant’s router to detect if the Internet Service Provider (ISP) is working,” Brendan says. “If the merchant’s Internet is dead, the 4G failover kicks in within 10 seconds and provides monitoring reports at the software level. In some cases we’ve seen the 4G failover switched on 15 times a day: a true indication that the merchant should really change ISPs and not blame hardware or software providers for their troubles.”

Contrast this with what a POS dealer must charge to stay in business. Dealers need an office, full time employees, equipment, and other necessities. This means those costs are passed through to the customer. If we assume that 75% of support can be handled remotely by the ISV, there’s not much left for the local dealer.

In the most extreme cases sure, on-site support is needed. But that comes at a premium. And it’s still cheaper to contract a local expert on-demand than it is to employ them full time. Companies like Boomtown have created such support platforms so local experts can be contracted on-demand, amortizing their costs across numerous merchants.

We no longer scribble letters as our main method of communication, and we don’t need to be in the same location to provide feedback on business diagrams. There will be countless dealers who hem and haw about remote support, but we will one day look back and question why merchants spent tens of thousands on support that could be handled remotely with great diagnostic capabilities.

The Internet: how amazing.

When Resellers are Building Features to Keep Their POS Relevant, There’s A Big F*cking Problem

11 Oct

Distribution channels are many companies’ solution to expediently moving product. Not everyone is fortunate enough to have mountains of investor cash for a 100% direct sales operation on day one. The tradeoff is a slower growth trajectory and revenue share in place of the overhead for direct sales employees. Pre-venture capital this was the only way to do it.

Many POS companies were started pre-venture. That, or they didn’t have a model that satiated venture: rapidly growing markets with tens of billions in potential opportunity. Brick and mortar, as you should know if you follow our posts, is the least capital efficient market to apply your craft.

The implicit arrangement in manufacturer-dealer agreements is that the product manufacturer focuses on making a good product, and the reseller does what’s needed to sell it. It’s very much a symbiotic relationship: the manufacturer relies on resellers for customer feedback and ideas for product enhancements, and the resellers rely on the manufacturer to continue delivering a product worthy of their portfolio.

But we’ve seen this model breaking down repeatedly in POS over the past few years.

Most legacy POS companies are fat, happy or indifferent. All this in the face of the largest change to hit the industry since the cash register went digital. Legacy POS companies are poster children for the innovator’s dilemma. That’s why their resellers have started doing things that would make any sane analyst worried about the viability of legacy POS as a whole.

Look at POS Partners. They’ve sold Future POS, a legacy POS product, but Future has not made investments to offer customers the flexibility of data portability on their software. So POS Partners, as a Future reseller with a duty to stay relevant to customers, built their own backend and APIs.

Similarly CBS undertook the same efforts on top of POSitouch. POSitouch, a legacy POS, lacked an above store reporting suite that met CBS’ needs. CBS went ahead and built a solution in the absence of movement from POSitouch. When their customers started asking for cloud and POSitouch couldn’t deliver, CBS even started work on theirown cloud POS.

And it’s happened in retail too. RITENew West, and Systems Solutions are all resellers of Microsoft RMS software. However, RMS did not offer the needed features to keep its resellers actively producing new accounts. So the resellers took it upon themselves to make the software more relevant for the market.

Juxtapose this with mobile devices. When I go to an AT&T store to buy an iPhone, do I expect AT&T to have written their own modifications to Apple’s iOS software so it can support third party applications? When I go to Best Buy to purchase a Chromebook, do I want a tech in khaki pants and a blue polo to put his touches on Google’s Android software?

That’s entirely farcical. One is that Apple and Google are not so shortsighted, but two is that most distribution channels are NOT inherently software companies. Finagling the software can, and should be, a very dangerous proposition.

But POS resellers have been put between a rock and a hard place. They’ve invested years – sometimes decades – into a POS software product. Before 2010 that relationship served them well. Now that the POS market is being disrupted resellers are losing support from what was their closest ally: the POS manufacturer.

Even though resellers are providing market feedback to the mothership, the mothership ain’t listening. Those at the helm are not taking hits to their paycheck to reinvest in their product. In fact they’re doing the opposite: completely ignoring the customer and hoping the problem goes away. I’m going to go out on a limb and say that’s not a great customer support strategy…

For all the wrong legacy POS companies are doing, there’s little alternative for resellers. Sure, cloud POS companies are building “future-proof” and market-relevant software, but they haven’t shown a way for dealers to make money carrying their product: 20% of $49/month is barely enough to feed a dog. Unless the reseller has thousands of installs or has figured out a consulting business, moving to cloud isn’t solving a reseller’s woes either.

Between building legacy POS features to satisfy today’s clients and staring down the inevitable low-cost cloud replacement, it’s a tough time to be a POS dealer.

Crap in, Crap out: The Importance of Clean Data and Why Legacy POS Has None

4 Oct

“You can’t manage what you can’t measure” is an old business adage. I’ve seen some attribution to the late Peter Drucker, who said, “If you can’t measure it, you can’t manage it.” Drucker’s comment is intended to mean that absent an objective view of truth, it’s hard to determine what actions will change an outcome. And since business is about changing outcomes – higher revenues, higher profits, lower costs, etc. – it can be a company’s death knell.

In the world of legacy point of sale (POS), this neglect for accurate measurement comes in more than one flavor.

The first is the absence of any data. POS systems capture sales, discounts, promotions, voids, labor expenses: most everything juicy. Sadly, the overwhelming majority of legacy systems have no way to communicate this information outside of the local environment without an extra chunk of cash coming from the hapless owner’s pocket. A restaurant owner must go on-site and spend hours pulling this data into reports, putting it into a consolidated view, and taking a stab at corrective actions. Staggeringly there are well-known POS systems that even dump information. What if I told you that you could spend $20K on a Micros 3700 only to have your data wiped every 14 days. Does that sound like it’s going to help with objective business measurements?

The second is convoluted data that may even crease worse outcomes. The problem is that many merchants will use fields in the POS database and assume the fields are accurate. In reality there are all sorts of adjustments and modifications being made to the data (with no published explanation) by the legacy POS software, leading the poor business owner into a false sense of assurance. Imagine the frustrations shared by accounting firms trying to reconcile business sales when the “sales” field in a POS database doesn’t match the tender, credit card and check payments.

There’s a very easy explanation for all of this: legacy POS software is hardly ever developed by software engineers or data scientists. Here’s the honest, typical progression of a POS company that nobody talks about.

A person owns a restaurant. The restaurant fails. Then they work as a POS reseller. They perform poorly. But they get the idea that the POS company is making all the money. And the POS sucks: that’s why their performance stalled. So they build a POS. New cycle begins.

Let’s take a view at NCR’s Aloha POS to prove this point. Aloha is rivaled only by Micros in hospitality market share. Here’s a page from their “documentation” about the data Aloha captures.

Visiting any number of the DBF files will make it instantly clear that the Aloha software is capturing the same data in a number of disparate formats and timestamps. This adds confusion and duplication for no justifiable reason.

Worse, the introductory paragraph misleads the reader into thinking that the publication of a grind DBF file is final, and “third party program can safely assume that the data is ready and represents the complete day.”

Wrong.

You can edit data in the grind files retroactively. Further, if Aloha updates its version and if a file folder needs to accessed for audit or reprinting, the DBF files will be overwritten from the Trans.log. In other words, any changes made would be replaced with the original information!

Legacy POS companies make it hard on themselves by refusing to publish documentation that helps their customers, or third parties service said customers. We conjecture the reason is two-fold.

First, legacy POS companies love their walled gardens. Sharing any information makes it “easier” for third parties to build solutions the POS company would rather screw up themselves. It’s no secret that companies maniacally focused on one thing do it better than companies with multiple distractions. POS is no different.

Second, many legacy POS companies are not technical in nature; don’t let the fact that they build software confuse you. They wrongfully believe that documentation is “secret sauce” and creates competitive disadvantages. If legacy POS companies weren’t so insecure about their technical abilities this wouldn’t happen.

Contrast this with cloud POS companies that openly publish documentation and make integration easier for third parties. Cloud companies know that third party integrations only make their product stronger, and stickier. And by spending a little time publishing APIs and documentation you have no justifiable reason to ask third parties to pay $50,000. Further, if integration becomes easy, the cost of supporting “hacked” integrations goes away – an oft-cited reason for legacy POS integrations being closed.

Here’s the developer page for Revel.

One for Kounta.

Another for Square.

And for Vivonet.

Nearly every cloud POS company has such a page.

Perhaps the real boon in the API is that operators are able to get an updated version of the truth: a constant measurement that can then be managed. If a field is updated or changed, it’s reflected in the API. Armed with the API documentation, anyone who accesses the API will know what each field means, how it’s being calculated and why it’s being changed.

Without such published documentation it’s as if you’re given a map, see a big red X, and drive eagerly towards it… except X marks a land mine, not buried treasure. That’s the importance of context, consistency and clean data: it gives you measurements you can manage.

Yet for some reason legacy POS companies are in no hurry to give their operators more of it. Maybe they don’t want their customers managing their businesses better; maybe the customer might discover why their legacy POS provider was keeping them in the dark all along…

97% of People are Useless. Here’s How Not to be One of Them

4 Oct

This is an epically clickbait title, but it underscores something that is not talked about enough: professional courtesy. I thought this would be perfect for a Friday read and weekend rumination.

At our company, professional courtesy is the most important attribute we look for in candidates. You can do everything right but if you’re a jerk the rest is useless. As Warren Buffet is credited with noting, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Yet some people haven’t figured this out.

I often hear that the reason most people treat others so poorly is that they’re busy. I’m not exactly sure what they’re busy doing. I can count the number of people I know who work consistent 80-hour weeks (sorry finance friends).

If anything life is less busy than it’s ever been. Technology has made it so we no longer spend every waking minute worrying about what we’ll eat, or if that ominous thundering means we’ll be shivering in a cave all night. We don’t have to worry about dying from a scraped knee, nor run and hide from creatures with sharp teeth. Getting around doesn’t require weeks of planning, packing and preparation either.

Technology has given us more time than ever.

But that’s not what the average person would lead you to believe. You’ll have unreturned calls and emails. You’ll have people tell you they’ll do something and months later never see any progress. You’ll have people who schedule meetings and don’t bother showing up. All the while these people are finding time to post pictures of their lunch on social media…

It’s unfortunate that there’s not an objective system to tell you who’s unprofessional. Internally, you obviously can have much more control over the characteristics you value. At our company we’ve implemented a system that creates fake inbounds across all departments and all levels – sales, data and engineering. We email solicitations from random accounts and monitor open and response rates. Around here, everyone must explain why something is or isn’t a fit, or pass it along to the person who can.

Big brother? Not hardly.

The goal of a company is to produce value for shareholders. These are your investors, your employees and your customers. If employees are unable to determine how value is created, they should not be employees at all. It does lead one to wonder what kind of company hires people that don’t return phone calls.

Every touch is an opportunity to make a positive impression; you never know where an interaction might lead. Malcolm Forbes once said, “You can easily judge the character of a man by how he treats those who can do nothing for him.” I’d likewise say you can judge a lot from how people handle inbound email from strangers.

Employees who are prioritizing pancake pictures to professional courtesy are casting a bat signal that they don’t give a rip about the company. Worse, outsiders take notice: is this a company I would want to work for? Perhaps unsurprisingly these traits manifest themselves in certain industries more than others.

We’ve always had a good system to track emails. So if you’re someone who doesn’t reply to emails you had better believe any decent company can all see when you’re opening them. Over the course of several years (and 10,000 emails) we curated some interesting results. Ready?

Mailchimp publishes benchmarks for email open and click through rates. To find email reply rates, I really like the information published by Yesware, who give awesome tips for improving email efficacy. I’m juxtaposing these published averages with figures for the finance and restaurant industries we’ve curated. The wide range for average open rate exists because small businesses manage their email more poorly than larger enterprises, who see email as a powerful tool.

As a further caveat, the emails we send are not spam in a giant mail merge from a CRM. Because we are very surgical with our approaches, we have a finite list of outbounds. For restaurants, these were all emails to chain operators.

Perhaps those employed in finance are relatively more successful because they are receptive to information and ideas. Instead of ignoring things they inquisitively listen. What a novel idea…

Restauranteurs and retailers, who run far more customer-oriented businesses than those in finance, should be aware that every inbound email is a direct reflection of their brand. If someone has a bad experience in the initial stages of communication, they’re going to associate that feeling with your whole organization. And it’s not as if there are a limited number of choices when choosing where to spend dollars either.

Maybe you’ve had horrible bosses that never created aspirational corporate culture, or you’re so early in your career you’ve missed training on professional courtesy. Or maybe worse, your parents didn’t teach you the basics of good manners.

Whatever the reason, here are some simple things we should all be doing.

Respond to every email within two days. Two days is generally accepted as the professional business norm: it takes into account travel and meetings. Obviously responding as soon as possible is preferred, and senders will wonder why you opened their email three minutes after receiving it but haven’t replied. Something as simple as acknowledging the email and processing next steps is fine.

For instance, if someone seeks the person handling X, write them a quick note saying who might handle X, and tell them you’ll confirm it. Let the sender know it’s okay to ping you in a week if you’ve forgotten. Maybe this person has something revolutionary for your company; would you want to be responsible for passing that up?

Sam Walton thought two days was too long and instituted the sundown rule. Why put off to tomorrow what can be done today? Sam wanted his culture to be responsive to everyone. After all, everyone could be a Walmart customer – why give them a reason to shop somewhere else?

Honor your commitments. This includes agreeing to getting things done by a certain date, or showing up to a meeting. I’ll share a brief story.

A mutual friend set up a meeting with one of his colleagues at his offices – three hours from ours. I confirmed the meeting with the colleague, received a calendar placeholder, and arrived on-time the day-of. 30-minutes into waiting, the other party had still not appeared. It took my friend calling his colleague’s secretary to find out his colleague decided not to show up. I never received an apology or further outreach.

If you can’t make a meeting, let the person know ahead of time and suggest another time that works. We understand flights get delayed, or other things pop up. These are not excuses to treat others poorly.

Learn to say no. If something is not reasonable, nor a fit, say no. The worst offenders are investors, who never provide a definitive answer because they want to preserve their optionality. What if you’re suddenly offered a billion-dollar buyout? You can be sure the investor will want to know about that, and by telling you no you wouldn’t have shared that opportunity.

Avoiding definitive conclusions does two things. First, it clogs up your email and voicemail with someone thinking they have a chance. Second, it wastes the other party’s time. Do you feel that much better than someone that you will let them spend hours dwelling on you?

Here’s how we handle inbounds that are not a fit. Feel free to copy-paste as needed.

Hi John (using their name shows you read the email),

Thanks for reaching out (acknowledges you understand the difficulty in outbound sales). From the sound of it, it doesn’t seem like there’s a fit here; we don’t outsource development (gives sender confidence that you understand their value proposition and have related it to your business). Let me know if I missed something (in the event you misinterpreted something, or they didn’t do a good job explaining the opportunity clearly). Best of luck!

Why do so many people lack these basic skills?

In a word: self-preservation. Most people are not wanting to inject any risk into their everyday lives. The risk that the company looks at an opportunity and it doesn’t pan out. The risk that the opportunity works and puts them out of a job. The risk that replying to people means less time for flapjack-Friday photoshoots.

The same people, however, will complain they didn’t get a raise, and chastise people for being more successful. “It’s nothing they did” they’ll grumble over their dripping pancake stacks.

If you ask me, it’s the rise of machines that’s looking pretty appetizing now.