Legacy POS Is Dead – It Just Doesn’t Know It Yet

12 Jul

You ever see those horror movies where a victim gets decapitated but still bobs from wall to wall like a gory game of Pong? Well the killer has already sliced the head off of legacy POS but the victim hasn’t quite realized it’s done for.

I’ll sum it up with a paraphrased but true story from a year ago.

A muli-hundred-unit restaurant chain asked it’s current POS provider (NCR) to access their data in a more useful and dynamic way. NCR would love to oblige, but for $50 per month per store. The restaurant concluded they could buy an entirely new POS system that would provide said data outputs for free, and summarily switched POS providers. “But we have a bazillion features!” NCR explained. “Who cares,” the merchant replied, “you don’t have the features that matter now.”

The end.

While POS companies love to evangelize their development prowess by counting features, as if the number of features is directionally proportional to the number of merchants queueing in line to buy your POS, this is going away. Hell, if a POS boasts 4,000 features, only 100 of them are actually ever used anyhow. Maybe one or two merchants want some obscure feature, and if you want to be in the POS business by building a custom product every time, good luck to you. But with all the hoopla about POS features being important it ends up being a pretty moot point in the scheme of things.

Indeed, you’ll start to see a winnowing of features as open POS platforms rely on other, third party providers to augment their POS offering, thus making the entire solution theoretically more complete. Clover, from First Data, has operated on this model for the past few years.

Now this isn’t without its caveats. Clover, for instance, lacks perhaps the basic 50 features needed to be relevant with restaurants/retailers that do more than $500k in annual revenue. And their app store (where I’ve publicly stated I’m no fan) is more window dressing than utility: it is a toolbox a payments provider, unfamiliar with selling POS, can point to and claim, “Yea, this app store has your solution for X.” Naturally, after a few weeks the merchant figures out they were sold a bill of goods.

But the ethos is what’s important here: Clover realized they could focus on a smaller nut and leave some of the more complicated development efforts to third parties who could build more complete features than Clover. Remember, POS is not some highly-profitable business with gratuitous funds for feature development. By letting someone else worry about building best-of-breed for X, POS companies can focus on the core product, merchant acquisition and support.

In fact, POS is going to follow the trails blazed by personal computers and mobile phones right into commoditization.

When you decide to buy a mobile phone, how do you decide what to buy? Are you buying an Apple phone because its camera is 0.5 megapixels higher than a Windows phone? Is it because the Windows phone lacks calling, email and text?

No.

Both devices are effectively the same, especially for the features that derive 99.5% of their value. The difference is the ecosystem and value that ecosystem provides the consumer. It’s the “features” that ecosystem is augmenting to that core product that make it so valuable. Apple doesn’t need to provide the best on-demand delivery service, it just needs to connect you to it. But Uber won’t bother making apps for phones that aren’t open, or show little willingness to cooperate.

Several “legacy” POS companies have started investing in the future of their business by making Cloud (the data connectivity functionality) their default solution and their most important feature. As discussed previously, Cloud is the THE commercial future of the POS industry, and if any feature is evangelized it should be this one. Here are some restaurant POS companies that deserve further notice.

Michael Paycher co-founded SoftTouch POS in 2000. By 2009, Mike realized he needed to develop cloud architecture. “If you want to deliver any multi-store product – loyalty, reporting, you name it – with a great experience you need cloud architecture. Building at the store-level limits functionality and hobbles your product.” Mike says. “Today,” Mike continues, “every operator we onboard is on our cloud system by default. This immediately increases my, and by extension my channel’s, ability to offer superior products that make our merchants more successful.” He further quips, “It doesn’t hurt that the future of our industry requires us to have data, either.”

Focus POS‘ COO, Mike Hamm, also shares the same vision. “Instead of going straight to cloud, where you lose the redundancy and stability of the local server,” he explains, “we’re taking Focus to cloud replication. The data still resides locally, which is what larger customers need, but we provide the opportunities Cloud POS does by copying local data to Azure in real-time. It’s the best of both worlds,” Mike attests. When asked how clients could access his new build-out, Mike said, “The cloud data replication is included in our SaaS pricing going-forward. For those customers who want to own their POS outright, we’re still figuring out how to best deliver the value of our Cloud replication.”

“Make no mistake about it,” Mike continues, “we’re going where the market is going. People want to order from Uber and we want to ensure we provide our restaurants that seamless flexibility through Cloud architecture.”

Lucky Thalas, EVP at SilverWare POS, is following suit. “We’ve found a great balance between traditional ‘client-server’ POS and ‘cloud’. The data resides at store-level but we communicate between the cloud and the store.” Lucky is taking it a step further. “All net new SaaS deployments of SilverWare POS include cloud real-time synchronization for reporting, alerts and analytics. The cloud also serves as a default backup.”  Silverware customers who prefer to purchase the system outright also have the option to add cloud functionality at a nominal fee for their benefit.

“Still”, he adds, “we recognized the need to make our POS ready for the next evolution, including integration to third party services and complimentary products that are hard to deliver without cloud data availability.”

The future of POS will be a commoditized product, just like your phone or computer is today. Ironically, as payments companies feel commoditization’s downward pressure on their own margins, they’ve dipped into POS to bolster revenues and decrease churn. Now they’re discovering that POS is becoming just as commoditized as the commoditized business they attempted to diversify.

At the end of it all, POS’ value will come from what it can connect you to, and how those connections can grow your business. POS companies that survive the next evolution will earn more money than they ever have before while doing less work by letting third parties augment their features – let not your heart be troubled. But the legacy POS companies that haven’t figured this out yet? They’ve been dead for a long time.