Archive | June, 2016

How POS Achieves its Potential

29 Jun

If you’ve followed any of my earlier writings you’ll know I’m a massive proponent of highly creative business models. Google, for instance, showed consumers could use awesome products for free in exchange for sharing their data. Zenefits showed you can give away HR SaaS products and make money on insurance brokerage fees.

Novel business models disrupt incumbents and put new – and often better – leaders at the top. As a great exercise, imagine if your car was free assuming GM could track your driving habits (we’ll just pretend that GM is earning the same amount of money selling your driving data to insurance companies as it was selling you the car). How is that not great for consumers?

Though in reality, GM has so much invested in its current business model they couldn’t make this transition. But that’s precisely how new, creative entrepreneurs take over entire categories out of nowhere: recalcitrant management at incumbents refuse to make long-term strategy decisions in favor of optimizing next quarter’s performance and thus their salary. Such is the innovator’s dilemma.

As I’ve explained recently, I expect POS (point of sale) to capitalize on its opportunity to radically change its business model for the better, yielding increased revenues for itself and superior value for its customers. In fact you can already see how part of the model has played out in grocery.

But in order for POS companies to fully transform their business, they will need to solve the tricky issue of market share - THE big differentiator between grocery and restaurant/retail. Yes, there’s already plenty of co-op marketing dollars allocated to support POS’s new business model, but independently no POS company has enough market share to tap the money.

For instance, Walmart independently represents 25% of the US grocery market, and the top six grocers represent 60%. A decent business development person can acquire enough data from grocers to have a highly confident model for what consumers are buying. Contrast this with restaurant and retail, which is infinitely fragmented.

Micros had 60,000 US installs but that market share is a fraction of what it was as they alienate their reseller channel. NCR has about the same number of installs, but the POS market falls off quickly after that. POSitouch has around 30,000 installs, Digital Dining around 25,000 and so on. A lot of POS ISV boast “licenses” sold but that doesn’t translate to active accounts. I’ve created a chart of restaurant POS market share with help from colleagues in the industry, though I will discuss a few caveats.

The chart presumes that Micros has 60,000 installs and the universe of potential US restaurants is 600,000. But there are issues with this logic. Many of these POS companies have installations in cruise ships, hotels and corporate kitchens, all of which serve food but are not truly restaurants. Some of these establishments are included in NRA’s restaurant count, which assumes there are 990,000 food-serving establishments in the US.

Adjust the denominator accordingly and we end up with the pie chart below.

To further appreciate the fragmentation, the good folks at POS Advice track restaurant POS software and count the number of software providers at 180. Subtracting the 12 large software providers, that remaining 71% of market share is owned by 168 providers, meaning each additional POS company only has 0.4% of the market on average.

Most POS companies also have resellers. If we assume each POS company averages 25 resellers, there are 180*25 = 4,500 parties that comprise the restaurant market, with each representing but a fraction of the restaurant industry’s performance. Suffice it to say this is a total one-eighty from the grocery industry where confident insights can be developed from three or four phone calls.

To be fair, POS companies are consolidating their dealer networks as they realize the direct model is becoming more profitable, especially when merchants start doing more self-discovery and buy their POS online. And with access to POS data there are a myriad of opportunities to sell things directly to the merchant. Therefore the total list of channel partners is slowly dwindling.

However, even if the dealer network disappears, we’re still left with a majority of POS companies owning less than 1% of the market. Suppliers and distributors appropriating those co-op marketing dollars are not going to chase down thousands of POS companies across multiple verticals. Nor are consumer platforms like Google or connected car companies going to strike deals with each POS company. It’s just too much work. Period.

As low margin and competitive as POS is, the industry will have to pull together if it wants to make it to the next level. Operating as a quasi-cooperative, where a summing of the parts yields a whole that exerts more leverage, POS companies will find the benefits in doing so far outweigh the negatives.

It’s not a novel idea: we’ve implicitly touched on the idea of data cooperatives with Nielsen and IRI’s efforts to pool POS data in grocery to maximize grocer revenues. But there are many more instances of co-op value: Kantar’s ShopcomiBehaviorEpsilon’s Abacus. The list is long.

WhatsBusy, serving as that neutral data party in brick and mortar, recognizes the opportunity for POS providers. From years of conversations (and good relationships) with parties in the data ecosystem, we know the magnitude of the potential for POS companies who take the next steps. No genius needed to follow it all: you can look at industries that have gone through similar transitions to understand exactly what’s happening.

And it’s also because we work with POS companies, resellers and payment providers that we’re astutely aware of the limitations the industry has created for itself. Antiquated technology choices. Reluctance to make requisite investments. Hubris of market domination. Fragmentation and competition.

I’d sum up everything accordingly:

There is nothing keeping POS companies from executing on their potential but the leadership at the POS companies themselves.

The integration technology already exists. The data ecosystem has appropriated budgets. POS data co-op networks have been created. Merchants are wont for increasing value.

As an industry leader in brick and mortar data, I feel comfortable telling POS management that your business’ future is in your hands; we, and many others, are already waiting for you.

Continued Evidence that Brick and Mortar is Far Behind

29 Jun

“Said another way, despite online delivery being around for 15+ years (Seamless started in 1999), online food delivery has 1/5th the penetration of e- commerce and [approximately] 1/20th(!) the penetration of online travel,” say analysts.

It’s bad when reporters are starting to see the problems. Then again, I suppose that’s the opportunity.

Do Restaurant and Retail Back Office Go the Way of the Dodo?

24 Jun

Anyone fortune enough to sit through a third grade geography class knows that the continents were once fused together as Pangea. 175 million years ago the tectonic plates shifted and the continents went their own way.

In restaurant and retail verticals, back office* providers have been the Pangeal cohesion over the past 20 years: they provided streamlined and consolidated data to merchants across their many POS systems.

*I’m taking an aside to offer a definition of back office. A back office provider started with one core technology: it might have been accounting, business intelligence reporting, food costing and inventory control, labor management, or general logbook management. Today, as customers have demanded working with only one service provider for all the above solutions, back office providers have cloned each other to offer the same value. Thus, at least in my book, “back office” has become a catch-all for any of these legacy services that integrate to the POS to provide their value.

However, back office providers don’t thrive: they exist. By that I mean a very small percentage of merchants use their services. Given that there are 900,000 food establishments in the US, and many of the back office providers have international accounts or simply share customers with other back office competitors (long story), as few as single digit percentages of US food service establishments capitalize on the value back office providers create. On the left is a list of installations by independent provider – we’ve removed those that were acquired and those that serve fewer than 1,000 locations.

That’s not an indictment on the value of back office services; it’s an indictment of the sophistication of potential merchants. But to be fair to merchants, it’s entirely possible that back office pricing is beyond the reach of anyone who isn’t a large franchise group or public company. (Prices are inflated becausebrick and mortar distribution costs are outrageously high - i.e. long sales cycles, low contract value).

Traditionally, the value of back office providers has been two-fold:

1) Up until the last three years, the only POS options were legacy systems. These companies loved their walled gardens: by restricting outsiders from accessing a merchant’s data, a POS company would create an effective monopoly around any product or service on top of said POS data. And as it is with most monopolies, the products legacy POS companies produced were subpar and overpriced. Back office providers pierced the walled garden and liberated a merchant’s data, delivering higher quality – and cheaper – merchant solutions. Because legacy POS systems are so hard to deal with, there is a considerable amount of IP (intellectual property) in integrating to such systems.

2) Franchise groups, and even corporate stores, often find themselves owning multiple brands of POS software across their properties; it’s really hard to grasp a consolidated view of your operations because legacy POS companies make accessing your own data really, really difficult or really, really expensive. Back office providers developed the IP to integrate across disparate POS systems and could provide merchants with a consolidated view for finance, operations etc..

However, as it is with all things in life, times change.

The value that back office providers wrought from the antiquated world of legacy POS is being upended with the shift to cloud - a world that will be prevalent on API communication.

For very defensible (and logical) reasons, POS companies are migrating to cloud. All merchant data will be available from one entry point, or API (application programmable interface) in development-speak. As POS companies navigate this natural evolution, the IP of integrating to legacy systems goes away. Poof.

With walled gardens disappearing**,  back office providers must compete on the merit of their solutions without their integration IP. Unfortunately for them, I read this as a massive unbundling, or death by 1,000 cuts.

For instance, none of the back office providers are especially strong on technology unless they are private labeling solutions from a market leader. Sure, relative to merchants, they’re more advanced. But back office companies are using very slow software and database structures, and virtually no data science. Thus a small startup that just focuses on using better analytical models for one solution – maybe forecasting inventory needs – will have much higher savings and ROI than a back office provider can demonstrate with their inventory solution.

To further this thought, POS companies have recognized (as have back office providers) that merchants prefer to buy solutions from one provider. Accordingly, POS companies are adding competitive features to become that one-stop shop, occasionally providing features for free – and most assuredly with faster, more flexible, and more pleasant user interfaces than back office providers.

Look at the differences (i.e.: usability and value) between the user interface of Avero, a current back office provider, and that of Square, a Cloud POS company. Can you guess which is which, even without looking at the logos?

To get a head start at becoming that one-stop shop, some POS companies have even started buying back office providers, as elicited with Vivonet’s acquisition of Syrus, andPanasonic’s majority purchase of Quick Service Software last year. Directionally-speaking, it would be foolish to believe smart POS companies do not cobble together enough of an ecosystem to compete with back office providers, especially as third parties are letting POS companies private label their wares, thus arming POS companies with superior solutions to any back office provider.

The silver lining for back office providers is that the best product, or highest ROI solutions, do not typically win in a short amount of time… at least not in brick and mortar verticals. That’s why merchants here are still 40 years behind other industries at adopting common-practice methods.

But, eventually, merchants’ shareholders will catch on and demand change. When that happens back office providers might find themselves stranded in the Arctic while POS companies have built better, faster and cheaper routes to merchants. Suffice it to say this Pangeal separation will bring an unpleasant change for those back office providers without the foresight to start rowing now.

**There is, of course, no reason to believe many legacy POS systems will open up their cloud APIs based on their past actions. So while Micros (Oracle) moves to Simphony, and Aloha (NCR) moves to CloudConnect, it’s doubtful that their merchants will be able to benefit from third party solutions and larger data platforms for many, many years. Good luck to merchants using those products!

Cloud POS’ only hope?

16 Jun

Cloud POS (point of sale) will be amazingly successful in 10 years. In fact I don’t think any POS system will exist that isn’t cloud – just like we don’t see horse and buggies on the roads today (minus the Amish). Why?

At some point a new generation of business owners emerges. This group of owners may be starting a business anew, or inheriting an existing business from a relative. And this new generation has grown up with technology, data, and an appreciation for the trade off between time and money. And only with the portability of their own data (analytics, marketing et. al.) can the new owners acquire the value they’re used to.

We’ll see generational change where operators are 100% comfortable buying their POS online with no hand-holding or sales reps needed. Just like consumers today can learn what laptop to buy without needing a sales rep to hound them, the owners of tomorrow will feel comfortable learning about POS solutions on their own time. And since POS systems are heading the way of payment processing – becoming a complete commodity – there will be no real differentiators (more on this in a coming post). When the customer is doing self-discovery, the need for sales changes from phone calls and emails to SEO.

But that’s 10 years out. Today’s Cloud POS companies are backed by “venture” capital, and “venture” capital doesn’t wait that long. So what does Cloud need to do today?

Cloud’s business model is predicated on acquiring merchants that can afford additional solutions (bolt-ons) on top of the POS. Remember, Cloud POS companies are not earning material margin on hardware, nor are they margin-positive on their $50/mo software. These fees cover their costs of doing business, and maybe not even that. Service and remote support are all 24/7 and free, so there’s no revenue from this value-add either.

The perfect Cloud POS customer is a multi-million dollar independent or a small chain; large chains demand custom solutions and are consistently laggard adopters. These ideal Cloud customers are conditioned to spending $20K per POS install, and Cloud offers them an instant savings of ~$18,000. The likelihood of Cloud tapping this $18,000 savings at a larger merchant is much more realistic than tapping it from a $150k/year bakery.

Today, these target customers are hard to reach. They have good relationships with their local reseller, and need to be educated on the value of Cloud. In all honesty these accounts are only going to be won on relationships – something that is really tough to accomplish with an outbound, inside sales rep.

So if Cloud needs resellers, then resellers need Cloud, otherwise it’s a lopsided relationship that won’t produce results. Under today’s Cloud model – especially those being advocated by “venture” capitalists – this feels impossible.

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.

What’s Cloud POS been up to?

Cloud has eliminated hardware margins. 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. At $50/mo, or $600/year, that’s far less than the $3,000-$5,000 sticker price of legacy software. Since the average SMB business is solvent for 2.5 years, that’s only $1,500 in expected software revenues over the life of the operator.

Service revenues have been axed to death too. On initial setup, the menu/inventory programming is typically free: it’s become a cost of doing business. Training is handled remotely and comes with a library of tutorial videos operators can peruse at their own convenience. Good interface design has also cut down on the need for in-depth training. If the POS goes down, the Cloud support team knows about it instantly and can remotely solve most issues. This support, plus any software updates, are free for life.

The only revenue stream that’s mostly stayed the same is the credit card processing residuals. How these are split between the Cloud ISV and the reseller are contract-specific, and it’s hard for me to lay out a categorical number.

With all the usual revenue streams drying up, the reseller must get creative to survive. As discussed in earlier posts, this requires the reseller to learn and sell additional products outside the POS. The funny thing about some Cloud companies, though, is that their investors believe the POS company will make and sell every bolt-on themselves.

Sooo how does a reseller make any money selling Cloud POS?

If you need resellers to be successful, but you find no way to earn them enough revenue to survive, how can the model work? Most Cloud POS companies are either delusional, wanting something for nothing from their reseller partners, or committing themselves to a very expensive direct sales model. Those that can tap the value of a reseller channel and provide a way for their resellers to make good money will make the upmarket transition while their competitors churn through VC money trying to figure it out. But as I see it today, that list is very short.

POS will be FREE, and that Will Increase Merchant Revenues. Here’s Why…

7 Jun

You tap your wrist and begin talking. “I’m looking for a red Polo sweater, men’s size medium.” The natural language processing built in to your smartwatch pulls up Google Shopping and begins searching hundreds of retailers.

“Sort by cost.” The sweater listings displayed on your virtual reality contact lens quickly sort themselves in ascending order. The cheapest listing is 20% less than all others. You ask Google to tell you more about it.

“This item comes from a retailer four kilometers from your home address,” the mechanized voice explains. “How fast can I get it?” you respond. “This item can be picked up immediately after purchase. Would you like to set a pick up appointment, or have Uber deliver it somewhere at a time that’s convenient?”

“Buy the sweater with my Amex. Have Uber drop it off at my office at 2 o’clock today.” You finish the knot on your shoe, tap your wrist once more, and scoot out the door to your autonomous car.

It might seem farfetched, or at least something for a future time: virtual reality contact lenses, perfect machine speech recognition, autonomous cars? But one concept is real, and has been used by grocers for decades.

When you found the cheapest sweater, didn’t it strike you as odd that it was 20% cheaper than any other listing? And wasn’t it awesome that you could locate the item locally without having to window shop at dozens of merchants?

All of this is possible with the use of data.

Grocers share inventory data with their suppliers and distributors constantly. Suppliers use the data to supply inventory just in time and keep perishables from spoiling. Now grocers are starting to work with parties like Instacart and Amazon to make their inventory transparent to new channels and increase the number of customers they can reach.

Similarly, grocers share their point of sale data with suppliers and distributors. Suppliers and distributors can fine tune marketing spend and help the grocer earn even more revenue and profit. Grocers have been doing this for decades; they leverage something called commercial income - monies from suppliers to stock and sell their wares – which can subsidize the end-cost to the consumer.

Now this is where it gets even more intriguing: this SAME value can be had by nearly all brick and mortar operators: their inventories can be made available through new channels to drive more purchases, and they can benefit from supplier subsidies that would lower costs to their customers, all without the retailer losing money on any price drops.

In fact, supplier dollars have already been allocated to help brick and mortar merchants with such endeavors. Numbers vary, but in the US it’s frequently reported that between $20B and $50B in co-op marketing dollars are available. This is money that’s already budgeted, appropriated, and approved. Translation: it’s low-hanging fruit!

So why the hell hasn’t this happened yet? The problem is two-fold.

First, retailers/restaurants lack scale or will. You cannot blame the small entrepreneur who’s struggling daily to keep her business afloat; she simply does not have the time nor purchase volume to negotiate contracts with InBev. But you can blame the executives of large retailers who prefer to maximize their compensation and tenure over doing what’s best for the business. Many executives are proud; there is a widespread “not invented here” mentality that keeps good things from getting done. Leadership worries it will be obvious that they didn’t know what they were doing so it’s preferable to keep a low profile and do nothing.

Second, POS providers are either shortsighted or completely blind. Most legacy (i.e. local-server) POS companies are not making the requisite investments so their customers can be plugged into the rest of the world. Their merchants can’t operate omnichannel, nor share their data with multiple consumer partners. Instead, a third party that could syndicate the data to increase commerce – like Audi via their connected car systems – would need to build integrations to literally tens of thousands of different POS systems. News flash: they won’t. Rather than facilitating this value for their customers, legacy POS companies are making it harder with their walled gardens.

Cloud POS companies suffer under a different delusion but to the same effect. While Cloud POS integration is easily done with an API, most cloud POS companies believe they will build car, the connected car technology, and all the apps therein. It’s frankly some of the most laughable hubris I have ever witnessed.

At some point the market will catch on, and the leading POS companies will transform POS to an open data platform, revolutionizing the POS industry as we know it. When this happens…

The POS will change from an operational tool to a necessary commerce and marketing tool.

 

There have now been multiple Yelp studies published, with one showing that simply listing your business (for free) on Yelp increases revenue by $8,000. Now imagine if choosing the wrong POS precludes you from connecting to Yelp in a more meaningful way. Or Facebook. Or Google. Or a literal hundred other platforms I could mention. Free or not, this is a huge deal, and most merchants are not yet aware of the dangers of tying themselves to the wrong POS solution.

Because if you do not have the right POS, you simply will not exist for tomorrow’s consumer. 

If a consumer searches any of these consumer, demand-generating platforms and your business does not show up, they assume you don’t exist. Consumers are demanding more and more convenience (a la rise of Uber and the on-demand economy) and they’re not going to look in a phonebook to find you. Today it’s a fairly manual process to load your business onto said consumer platform, but with data share this becomes automatic. Again, if your POS cannot plug you into the right places, you will not exist.

The forward-thinking POS companies will not just give their customers more extensibility and opportunity, they will also benefit from the aforementioned supplier co-op marketing and the commerce it creates. Grubhub charges a 13.5% fee for the commerce passing through it’s platform; why can’t POS companies earn basis points from each transaction by serving as the pipe to power the commerce platforms of the future? This only furthers to solidify the merging of POS and payments.

When these new revenue streams become proven reality, the cost of POS to the end customer drops even further, making it very difficult for laggard POS companies to compete. It’s almost as if POS is begging to be the commoditized loss-leader, and revenue will be earned elsewhere.

Here’s a graphic to illustrate the difference between a laggard POS business, and what we believe is the future business model of POS. We think it will take 2-3 years for the leading POS companies to realize this value and build unit economics that totally disrupt the industry.

By the same token, retailers that choose a leading POS will benefit from lower/zero upfront POS costs; increased customer discovery, marketing and new commerce opportunities through data syndication; better data analytics for continual business optimization; and subsidized customer purchases via supplier co-op marketing dollars.

POS companies that don’t ride this next wave of innovation will be in a world of pain. As the mobile platform wars laid bare, third parties do not want to be in an ecosystem with short-term thinking and limited upside. The self-fulfilling prophecy of an open POS that drives more value will start eroding the marketshare of POS companies that didn’t move in time. Sure, the laggards might move eventually, but that didn’t end well for Microsoft and Blackberry’s late attempts at a mobile platform either.

If you’ve found this article useful, please share it to educate others.

Hospitality Cloud POS & The Market Segments They Serve

7 Jun

Working in conjunction with Bob Frazier at POS Advice, we’ve compiled a graphic that shows what segment (quick service/full service) and size merchant (mom & pop/enterprise) today’s restaurant Cloud POS companies aim to serve.

We culled the data from the POS ISVs (independent software vendors) that were above a certain install footprint. Inevitably several of these providers will go under, be acquired, or change their product to serve new verticals and/or hospitality segments – so please consider this list fluid. Regardless, given the number of inbounds we receive asking if XYZ POS serves their market, we thought this would expediently answer any such questions for now.

Please share with those who would find utility in the information.

Thanks!

What AmazonFresh Should Teach Entrepreneurs Targeting Brick-and-Mortar

7 Jun

I read a great analysis of AmazonFresh recently. The author astutely pointed out that AmazonFresh is rarely talked about – which is something of an oddity in the world of technology.

By comparison, the author explains, AmazonPrime was started in 2005, and Amazon AWS in 2006. Both have become billion-dollar business units on their own and are frequently courted in the press.

But AmazonFresh continues to languish. Nine years in, Amazon has barely penetrated the US grocery market, with 0.8% of representative marketshare. What’s the issue?

For anyone who has lived in brick and mortar, we already know the answer: there’s no gas pedal to step on. The laws of scale simply do not apply here. AmazonPrime is a last-mile service that leverages existing parcel delivery companies tied to Amazon’s ecommerce engine. AWS is a cloud service that well-educated software engineers and IT managers know they need.

Contrast this with AmazonFresh, a company that must transact with brick and mortar establishments, establish its own delivery service for perishables, and keep goods fresh. Three strikes, you’re out!

Brick and mortar is a long slog. The incumbents are hard to deal with and as a result have inexplicably long sales cycles to even do what’s best for their own business. Sure, it’s great news if you make it: the moat is wide and deep. But it comes at a massive opportunity cost, and it’s why few investors will back companies serving brick and mortar operators. I wouldn’t be surprised if Amazon abandons Fresh to work on its next AWS – where it can make more money, faster.

80% of POS Resellers are Done For. Here’s How One Survives

7 Jun

We’ve seen a massive exodus sweeping through the ranks of POS dealers. Picture, if you would, a giant tsunami wave, ripping through an oceanfront villa. Playing in the sand are resellers serving the smaller merchants – the ones that earn less than a million in annual revenue. Lounging by the pool is the reseller who manages large independents and chain accounts. He may lavish a few extra minutes of enjoyment, but make no mistake: the tsunami will not stop at the beach.

Resellers that are selling systems like Aldelo and Dinerware – relatively lightweight restaurant solutions – are really feeling the pinch. Aldelo, for instance, has started going direct, slowly alienating its reseller channel. After the Heartland rollup of Dinerware, many Dinerware resellers are looking at the proposed business model and likewise reading the writing on the wall.

What we’re seeing is cloud slowly taking over the long tail of the market. Poynt. Clover. Talech. Shopkeep. Lightspeed. Square. These companies rely on payment processor referrals, inside direct efforts, and SEO. In fact, if you search for “pos” on Google, no legacy systems make the front pages: Revel, Shopkeep and Shopify own organic search results.

It might seem trivial that Micros and Aloha aren’t showing up, but you can ask Blockbuster how trivial it was that people started looking for movie rentals online.

We believe POS will almost exclusively be sold online in 10 years, and not just in the long tail. Pitching a merchant hardware and software will lead the merchant to search Amazon for the same products to see if there’s a deal to be had. Bye-bye reseller margins.

If resellers aren’t selling POS systems, how are they making money?

To come up with some answers, I’ve asked Tony Ventre, founder of BizGrower Technologies. A veteran POS provider and former Heartland exec, Tony has been working on developing a long-term business model for Heartland’s resellers.

First, Tony disagrees that resellers won’t be selling POS in the future. “There will be parts of the market that rely on online discovery, but there will still be a market for merchants needing local consultative sales and service,” he attests.

“In my view, virtually all POS systems will be sold on a SaaS license. The more mature POS products will start under $200 per month and come with a 36-month contract that includes hardware and local support.” He expanded further, noting that this model assumes POS developers can pony up the cost of the hardware and amortize it – thus reducing the friction of the upfront investment.

“After the 36-month period there would be automatic annual renewals. This could be more affordable than leasing today’s POS system from a reseller. And as long as the reseller delivers on the promise of good local service, client attrition will almost certainly be reduced.”

Tony and I share the view that, absent major changes in mobile payment adoption, payment processors (merchant acquirers) will be around for a long while. Accordingly, there will be payment residuals for the POS resellers who refer the payment processing business.

“Assuming lower client attrition,” Tony says, “resellers will be able to build a steady income stream without price-gouging their clients using shady, thinly-veiled payment processing schemes like ‘free POS’. This is a sea-change from the old model of sporadically selling big-ticket systems and dealing with cash flow that looks like an EKG. That stability buys the reseller the ability to retain quality sales and service professionals who in turn will appreciate a steady income.” It also, of course, results in a built-in exit strategy – something the baby boomer resellers lack today.

Even though today’s cloud POS systems program their applications for free, Tony thinks there will be a one-time implementation cost for higher-end, full-featured systems like Digital Dining. “Most small business owners don’t have the time or skill set needed to set up secure networks, assemble and program integrated POS systems, and then train their staff. The cost of white-glove implementation will include application programming, installation, on-site training and wiring (when required).”

It follows that the sticker price could range between $1,500 and $3,000, depending on system size and complexity. Tony jests, “If an operator can’t afford that, run – don’t walk – away!”

We both believe there is significant value in a reseller’s ability to move additional products on top of – or outside of – the POS. This should become easier as all POS systems transition to cloud (i.e. make POS data available) for more integrated solutions like automated marketing and analytics.

Another revenue stream that cannot be discounted is the evolution of the reseller into a business advisor. As the ROI from many of the bolt-on solutions becomes clearer, the resellers will find themselves in a better position to coach their clients into maximizing the value of the bolt-on itself.

For instance, let’s assume a bolt-on costs an additional $100/mo but creates $500/mo in either cost savings or revenue generation. There’s still a net value of $400 being produced, but maybe that’s only produced if the client uses the product appropriately. The reseller can now justify charging clients $100/hour to ensure they are maximizing the value. Assuming the client pays less than the ROI he gets, it’s a win-win.

Obviously the ability to sell the bolt-on and consult on top of it are big “ifs”. Very few resellers care to be that involved with their accounts and instead have grown comfortable with pricey one-and-done systems, service maintenance agreements and 75% credit card residuals. The idea of becoming a business advisor is more than they signed up for, and coupled with the eroding margin on the skill sets they have, it’s high time they exit the business.

Truthfully 80% of resellers will find themselves in this position. They’re going to be displaced by the self-discovery of online solutions or lack the skills needed to survive in the changing landscape. And that’s not necessarily a bad thing: it means those who are left really want to be here.

For those resellers who want to be around in five years, heed Tony’s advice:

  • Serve established businesses with more than $1M in annual revenues and leave the marginal operations to the entry-level tablet solution providers. SEO will come to dominate this market. If the small operators prosper, they will need more robust solutions and seek out competent local resellers who can deliver!
  • Learn to sell additional SaaS products alongside the POS. As more POS systems move to SaaS pricing, learning to sell other SaaS products will substantially increase your monthly revenues
  • Build a consulting skill set, or partner with someone who has one. POS prices will keep falling, but the value of an expert won’t. Data tools are making it easier to show clients ROI and prove your worth
  • Treat clients like partners, not pay checks. The days of one-and-done are over – get used to it!

 

Tony can be reached at: Tony [at] BizGrowerTech [dot] com or

888.870.5385 x101