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.