These Are The Features That Matter for Tomorrow’s POS

15 Nov

We’re not going to spend time talking about boring features like splitting a check or recording voids. These are the basic POS features needed to be relevant, and despite what legacy POS companies argue, they are finite in number and will be in every legitimate cloud POS over the next year.

Debate over.

We’re instead focusing on the “future-proofing” features of POS: the features that will position the POS as a strategic asset and hub for tomorrow’s commerce. These are the features forward-thinking POS companies are pondering already, so let’s lend a bit more thought to the efforts.

First we must paint the future. Without understanding what tomorrow looks like, we can’t begin evaluating what to do today.

Tomorrow’s customer will want everything to happen fast and conveniently. If they want to order a burrito in the jungle, they’re going to get a burrito in the jungle. This means commerce will take place on the go, from any number of devices across any number of platforms.

The POS providers of tomorrow need to think about how they are best-suited to meet consumer expectations of convenience. This is the classic buy, build, partner mindset that smart companies have had to ruminate for ages.

Online Ordering

It’s no secret that online ordering is taking off. There are a number of objective ways to measure this, whether it’s the amount of investor money pouring into the space, or the number of reported online merchant orders.

The above chart seems to best crystallize the trends. We know that 30% of the restaurant business is carry out, and before the internet those orders were, by definition, 100% offline. Now it looks very much like all of the carry out volume will be handled via online orders – mobile phone or otherwise.

How does the POS play a part?

Noah Glass, the founder of olo and unquestioned expert in the space, recently shared potential pitfalls with moving too quickly. Noah’s argument is that most POS companies neglect the details really needed to make online ordering successful through the POS.

I’d add some clarifications. POS companies have access to real-time merchant data. This can be inventory in retail, or menus in restaurants. Legacy POS systems did not pay much attention to content management of the merchant’s data, but newer POS companies can more easily make database changes to menu organization for online ordering, or merchandise organization for ecommerce. Therefore content management, while previously more involved, is less material than it used to be. Noah made great strides for the industry by developing an online ordering standard that shows precisely how POS companies should organize the data.

Payments security and PCI compliance only become an issue if the POS companies want to process payments directly. In most cases, third parties (like Yelp, Google or others) will handle payments on their own, simply passing back relevant, sanitized data to the POS. In fact, this is how the POS systems of today work: they avoid storing any of the payments data to be out of PCI scope (which, I’ll remind, is not a law but a guidance). That’s generally a foolish move for data reasons, and it’s something we’ve already discussed.

The biggest adjustment POS companies will need to make is the operational impact of online ordering syndication. If a consumer wants to order something online from Bing, how will it impact the kitchen or the retail associate? Conventional ordering platforms usually provide a tablet for the operator to input when the order will be ready, somewhat controlling business operations and managing customer expectations. This will need to be solved.

Should the POS company build, buy or partner for online ordering? I’d answer it like this: if the POS company sets up properly, they can serve as a gateway and earn revenue from each online order passing through their system. This is best facilitated by having the right data setup, and being open to third party partners. Building an online ordering system beyond the standard established by Noah is a massive distraction, but you don’t want third parties cutting you out of the revenue opportunities either.

Commerce Syndication

Much like online ordering for restaurants, there’s steady growth in ecommerce.

Riding these trends are newer POS companies that create ecommerce channels for brick and mortar retailers. VolusionShopifyBigCommerceare such stand-alone systems. Even others have started extending the conventional brick and mortar POS into ecommerce: see Lightspeedand Bindo as examples of two cloud POS companies heading this way.

Creating an ecommerce store for the merchant is a natural extension of the POS’s capabilities. As discussed above, a good POS will already have inventory and pricing in its databases, and more people are buying online.

But there’s a further step that needs to be considered. If I’m looking for a pair of skis, do I go directly to a local merchant’s website to find it? That seems very unlikely. I’m going on Amazon, or Google, or a number of large ecommerce platforms where I can search many products.

There are now a growing number of companies who do just that: take a retailer’s inventory and syndicate it to numerous, and well-trafficked, ecommerce sites. However, these providers are mostly focused on larger, enterprise retailers.

POS companies can extend the online presence of their merchants by becoming a point of data syndication. POS companies can give their customers – who would otherwise pay hefty sums to service providers if they weren’t altogether ignored – wider exposure for their products. Following similar data standardizations, POS companies can work within ecosystems for syndication, capturing a portion of new revenue each time an order is placed. Using geolocation, POS companies can start fulfilling local commerce so customers wouldn’t even have to wait for shipping.

There is nothing for POS companies to buy and very little to build here. POS companies need only make make some small tweaks to start participating in these opportunities. As with online ordering for restaurants, however, there will be some required training on behalf of the merchant: you don’t want to be selling merchandise on eBay and have a merchant forget to ship it to the customer. But we see no reason this can’t be figured out.

Delivery

It’s been reported that the US saw $2.3B in food tech investment in 2015, but we need to caveat that heavily to show where the money is really going. Included in these numbers are grocery startups, at-home meal kit startups, and a slew of others that we normally wouldn’t consider “food tech”; I think of things like loyalty, analytics and marketing services as those that directly help merchants. However, most merchants cannot rationalize these solutions so the money goes into services that benefit the consumer by working around the merchant.

Of the $2.3B, Rosenhiem Advisors calculates that 44% went to last-mile/convenience services. As followers in the space we’d estimate that $50MM – $100MM of that $2.3B went into traditional merchant tech products – so less than 5%. Until merchants wisen up this will continue to be the case.

It’s often theorized that all this venture money in last-mile services is subsidizing convenience at the investors’ behalf. In other words, the true cost of delivering a cheeseburger is $15, but venture capital is eating $10 so the remaining $5 is palatable to the customer. This is in line with a larger effort to achieve critical scale and reach true economics of $5 for cheeseburger delivery.

I’d argue how well this is working since Uber is likely the largest on-demand delivery fleet (they’ve at least raised the most capital) and they charge restaurants a 30% commission in addition to a separate fee for the consumer. When we worked through our own math we couldn’t understand how delivery would ever be reasonable to a middle-income family.

But none of these concerns should be had by POS companies. If anything, the glut of investor money in this space has only increased consumer appetite for such concierge experiences. At some point entrepreneurs will figure out how to make it economic and POS companies should be prepared to benefit.

What does that mean?

POS companies should create APIs and data structures that enable delivery services to seamlessly connect with their merchants, likely earning a residual. POS companies have no business trying to create their own delivery services: they’re too expensive. I’d argue restaurants should also defer to third parties for delivery, unless they’re a fine dining establishment and need superior quality control of their food.

POS companies have an opportunity to become a vehicle of distribution for these next societal shifts. Developing the right strategies now will pay massive dividends as these markets continue to gain steam. POS can very much be the hub for all merchant value going forward, but they need to do the right things. If they don’t think about these features today, then they really won’t have the right features tomorrow.