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 Shopcom. iBehavior. Epsilon’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.