Are POS VARs Going Extinct?!

28 Jan

One of the niceties about being Switzerland in the worlds of Point of Sale (POS), Payments and data, is that we get to see a little bit of everything. Who’s working with who, who abhors who, and all other levels of gossip that would make a sorority girl ecstatic.

What’s become increasingly clear over the past six months is the rapid evolution – or regression, depending on your perspective – of the dealer network in the POS business. If you’ve found yourself reading this article without knowing what I’m talking about, I’ll provide a quick background.

When POS companies want to get their product into the hands of customers, they have traditionally established a channel of dealers or value added resellers (VARs). VARs are sometimes limited to specific territories or verticals; in other cases it’s the Wild West. The VARs earned their living selling pricey hardware and software – sometimes in the literal tens of thousands – upfront, and offering hourly services on the backend.

This is where things get interesting. For about $1,200 upfront and $50 per month, today’s merchant can acquire a new cloud POS system (note: I use the word “cloud” loosely because in reality the system may have a local data server and sync to the cloud to back up data; some people will get offended if I do not caveat this). Some in the industry will argue that cloud POS is immature and lacks necessary features to be a “real” POS. There is some truth to this, but I must be forgetting how incumbent POS systems had all the appropriate features on day one. Let’s all just admit that the feature issue will cease to be a legitimate problem in 12-18 months for competent cloud POS companies.

The new pricing model does not leave any room for a channel to earn money on the upfront hardware and software. In some cases we’ve even seen the hardware and software sold at a substantial loss to the POS company just to earn the merchant’s business. Whether this is sustainable after venture capital leaves the industry is up for debate. Moving on…

The service model VARs previously relied upon is also slowly eroding. Cloud systems are fundamentally easier to service. Did your tablet break? Run to Best Buy and pick up a new one. Software glitching? Let a support representative log in remotely and diagnose the problem. System crash? If the POS isn’t sending data to the cloud the support rep can get working on the issue before a traditional support rep would even know there was a problem.

Some readers will want to nuance the above scenarios to death. I get it: the new cloud model can’t solve EVERY problem remotely. But when it can’t, there are great third party service providers, like Boomtown, that are stepping in. Pricing is transparent, service convenient, and better yet, because Boomtown is operating across thousands of installations, they’re collecting data to uncover how to fix problems faster.

At this point it should be clear that a VAR’s traditional revenue stream is fading. With tens of thousands of VARs across the myriad of POS products in market, what does this mean?

Candidly it means that most VARs won’t survive. A 20+ year-old distribution model is being radically transformed. Businesses that were built on a model of expensive hardware and pricey support are not structured to thrive in a lean environment. As merchant demographics change in favor of younger, tech-savvy solutions, it’s more harrowing. Taking it one step further, the path to survival requires skills and knowledge that the majority of VARs neglected to acquire while they were gobbling (relatively) fat margins on their legacy business models: sales.

It sounds counterintuitive, that a dealer channel predicated on selling POS would be so bad at sales, but that is indeed the case. If there’s no margin peddling POS anymore, a VAR must learn to sell products that compliment the POS. This is not unlike the payments industry, where payments processors beat each other up selling a commoditized service to the detriment of margin for the entire industry (Square and First Data, anyone?). Now they’ve expanded into data services andacquired POS businesses seeking growth.

VARs must become knowledgeable on the industry as a whole and apply what that means to the end merchants. This entails understanding and selling mobile and ecommerce; data and analytics; guest management and loyalty. VARs that can do this successfully need not worry about their POS overlord selling these products directly to the end customer. Those that can’t? Godspeed.