We’ve seen a massive exodus sweeping through the ranks of POS dealers. Picture, if you would, a giant tsunami wave, ripping through an oceanfront villa. Playing in the sand are resellers serving the smaller merchants – the ones that earn less than a million in annual revenue. Lounging by the pool is the reseller who manages large independents and chain accounts. He may lavish a few extra minutes of enjoyment, but make no mistake: the tsunami will not stop at the beach.
Resellers that are selling systems like Aldelo and Dinerware – relatively lightweight restaurant solutions – are really feeling the pinch. Aldelo, for instance, has started going direct, slowly alienating its reseller channel. After the Heartland rollup of Dinerware, many Dinerware resellers are looking at the proposed business model and likewise reading the writing on the wall.
What we’re seeing is cloud slowly taking over the long tail of the market. Poynt. Clover. Talech. Shopkeep. Lightspeed. Square. These companies rely on payment processor referrals, inside direct efforts, and SEO. In fact, if you search for “pos” on Google, no legacy systems make the front pages: Revel, Shopkeep and Shopify own organic search results.
It might seem trivial that Micros and Aloha aren’t showing up, but you can ask Blockbuster how trivial it was that people started looking for movie rentals online.
We believe POS will almost exclusively be sold online in 10 years, and not just in the long tail. Pitching a merchant hardware and software will lead the merchant to search Amazon for the same products to see if there’s a deal to be had. Bye-bye reseller margins.
If resellers aren’t selling POS systems, how are they making money?
To come up with some answers, I’ve asked Tony Ventre, founder of BizGrower Technologies. A veteran POS provider and former Heartland exec, Tony has been working on developing a long-term business model for Heartland’s resellers.
First, Tony disagrees that resellers won’t be selling POS in the future. “There will be parts of the market that rely on online discovery, but there will still be a market for merchants needing local consultative sales and service,” he attests.
“In my view, virtually all POS systems will be sold on a SaaS license. The more mature POS products will start under $200 per month and come with a 36-month contract that includes hardware and local support.” He expanded further, noting that this model assumes POS developers can pony up the cost of the hardware and amortize it – thus reducing the friction of the upfront investment.
“After the 36-month period there would be automatic annual renewals. This could be more affordable than leasing today’s POS system from a reseller. And as long as the reseller delivers on the promise of good local service, client attrition will almost certainly be reduced.”
Tony and I share the view that, absent major changes in mobile payment adoption, payment processors (merchant acquirers) will be around for a long while. Accordingly, there will be payment residuals for the POS resellers who refer the payment processing business.
“Assuming lower client attrition,” Tony says, “resellers will be able to build a steady income stream without price-gouging their clients using shady, thinly-veiled payment processing schemes like ‘free POS’. This is a sea-change from the old model of sporadically selling big-ticket systems and dealing with cash flow that looks like an EKG. That stability buys the reseller the ability to retain quality sales and service professionals who in turn will appreciate a steady income.” It also, of course, results in a built-in exit strategy – something the baby boomer resellers lack today.
Even though today’s cloud POS systems program their applications for free, Tony thinks there will be a one-time implementation cost for higher-end, full-featured systems like Digital Dining. “Most small business owners don’t have the time or skill set needed to set up secure networks, assemble and program integrated POS systems, and then train their staff. The cost of white-glove implementation will include application programming, installation, on-site training and wiring (when required).”
It follows that the sticker price could range between $1,500 and $3,000, depending on system size and complexity. Tony jests, “If an operator can’t afford that, run – don’t walk – away!”
We both believe there is significant value in a reseller’s ability to move additional products on top of – or outside of – the POS. This should become easier as all POS systems transition to cloud (i.e. make POS data available) for more integrated solutions like automated marketing and analytics.
Another revenue stream that cannot be discounted is the evolution of the reseller into a business advisor. As the ROI from many of the bolt-on solutions becomes clearer, the resellers will find themselves in a better position to coach their clients into maximizing the value of the bolt-on itself.
For instance, let’s assume a bolt-on costs an additional $100/mo but creates $500/mo in either cost savings or revenue generation. There’s still a net value of $400 being produced, but maybe that’s only produced if the client uses the product appropriately. The reseller can now justify charging clients $100/hour to ensure they are maximizing the value. Assuming the client pays less than the ROI he gets, it’s a win-win.
Obviously the ability to sell the bolt-on and consult on top of it are big “ifs”. Very few resellers care to be that involved with their accounts and instead have grown comfortable with pricey one-and-done systems, service maintenance agreements and 75% credit card residuals. The idea of becoming a business advisor is more than they signed up for, and coupled with the eroding margin on the skill sets they have, it’s high time they exit the business.
Truthfully 80% of resellers will find themselves in this position. They’re going to be displaced by the self-discovery of online solutions or lack the skills needed to survive in the changing landscape. And that’s not necessarily a bad thing: it means those who are left really want to be here.
For those resellers who want to be around in five years, heed Tony’s advice:
- Serve established businesses with more than $1M in annual revenues and leave the marginal operations to the entry-level tablet solution providers. SEO will come to dominate this market. If the small operators prosper, they will need more robust solutions and seek out competent local resellers who can deliver!
- Learn to sell additional SaaS products alongside the POS. As more POS systems move to SaaS pricing, learning to sell other SaaS products will substantially increase your monthly revenues
- Build a consulting skill set, or partner with someone who has one. POS prices will keep falling, but the value of an expert won’t. Data tools are making it easier to show clients ROI and prove your worth
- Treat clients like partners, not pay checks. The days of one-and-done are over – get used to it!
Tony can be reached at: Tony [at] BizGrowerTech [dot] com or