POS will be FREE, and that Will Increase Merchant Revenues. Here’s Why…

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You tap your wrist and begin talking. “I’m looking for a red Polo sweater, men’s size medium.” The natural language processing built in to your smartwatch pulls up Google Shopping and begins searching hundreds of retailers.

“Sort by cost.” The sweater listings displayed on your virtual reality contact lens quickly sort themselves in ascending order. The cheapest listing is 20% less than all others. You ask Google to tell you more about it.

“This item comes from a retailer four kilometers from your home address,” the mechanized voice explains. “How fast can I get it?” you respond. “This item can be picked up immediately after purchase. Would you like to set a pick up appointment, or have Uber deliver it somewhere at a time that’s convenient?”

“Buy the sweater with my Amex. Have Uber drop it off at my office at 2 o’clock today.” You finish the knot on your shoe, tap your wrist once more, and scoot out the door to your autonomous car.

It might seem farfetched, or at least something for a future time: virtual reality contact lenses, perfect machine speech recognition, autonomous cars? But one concept is real, and has been used by grocers for decades.

When you found the cheapest sweater, didn’t it strike you as odd that it was 20% cheaper than any other listing? And wasn’t it awesome that you could locate the item locally without having to window shop at dozens of merchants?

All of this is possible with the use of data.

Grocers share inventory data with their suppliers and distributors constantly. Suppliers use the data to supply inventory just in time and keep perishables from spoiling. Now grocers are starting to work with parties like Instacart and Amazon to make their inventory transparent to new channels and increase the number of customers they can reach.

Similarly, grocers share their point of sale data with suppliers and distributors. Suppliers and distributors can fine tune marketing spend and help the grocer earn even more revenue and profit. Grocers have been doing this for decades; they leverage something called commercial income – monies from suppliers to stock and sell their wares – which can subsidize the end-cost to the consumer.

Now this is where it gets even more intriguing: this SAME value can be had by nearly all brick and mortar operators: their inventories can be made available through new channels to drive more purchases, and they can benefit from supplier subsidies that would lower costs to their customers, all without the retailer losing money on any price drops.

In fact, supplier dollars have already been allocated to help brick and mortar merchants with such endeavors. Numbers vary, but in the US it’s frequently reported that between $20B and $50B in co-op marketing dollars are available. This is money that’s already budgeted, appropriated, and approved. Translation: it’s low-hanging fruit!

So why the hell hasn’t this happened yet? The problem is two-fold.

First, retailers/restaurants lack scale or will. You cannot blame the small entrepreneur who’s struggling daily to keep her business afloat; she simply does not have the time nor purchase volume to negotiate contracts with InBev. But you can blame the executives of large retailers who prefer to maximize their compensation and tenure over doing what’s best for the business. Many executives are proud; there is a widespread “not invented here” mentality that keeps good things from getting done. Leadership worries it will be obvious that they didn’t know what they were doing so it’s preferable to keep a low profile and do nothing.

Second, POS providers are either shortsighted or completely blind. Most legacy (i.e. local-server) POS companies are not making the requisite investments so their customers can be plugged into the rest of the world. Their merchants can’t operate omnichannel, nor share their data with multiple consumer partners. Instead, a third party that could syndicate the data to increase commerce – like Audi via their connected car systems – would need to build integrations to literally tens of thousands of different POS systems. News flash: they won’t. Rather than facilitating this value for their customers, legacy POS companies are making it harder with their walled gardens.

Cloud POS companies suffer under a different delusion but to the same effect. While Cloud POS integration is easily done with an API, most cloud POS companies believe they will build car, the connected car technology, and all the apps therein. It’s frankly some of the most laughable hubris I have ever witnessed.

At some point the market will catch on, and the leading POS companies will transform POS to an open data platform, revolutionizing the POS industry as we know it. When this happens…

The POS will change from an operational tool to a necessary commerce and marketing tool.

 

There have now been multiple Yelp studies published, with one showing that simply listing your business (for free) on Yelp increases revenue by $8,000. Now imagine if choosing the wrong POS precludes you from connecting to Yelp in a more meaningful way. Or Facebook. Or Google. Or a literal hundred other platforms I could mention. Free or not, this is a huge deal, and most merchants are not yet aware of the dangers of tying themselves to the wrong POS solution.

Because if you do not have the right POS, you simply will not exist for tomorrow’s consumer. 

If a consumer searches any of these consumer, demand-generating platforms and your business does not show up, they assume you don’t exist. Consumers are demanding more and more convenience (a la rise of Uber and the on-demand economy) and they’re not going to look in a phonebook to find you. Today it’s a fairly manual process to load your business onto said consumer platform, but with data share this becomes automatic. Again, if your POS cannot plug you into the right places, you will not exist.

The forward-thinking POS companies will not just give their customers more extensibility and opportunity, they will also benefit from the aforementioned supplier co-op marketing and the commerce it creates. Grubhub charges a 13.5% fee for the commerce passing through it’s platform; why can’t POS companies earn basis points from each transaction by serving as the pipe to power the commerce platforms of the future? This only furthers to solidify the merging of POS and payments.

When these new revenue streams become proven reality, the cost of POS to the end customer drops even further, making it very difficult for laggard POS companies to compete. It’s almost as if POS is begging to be the commoditized loss-leader, and revenue will be earned elsewhere.

Here’s a graphic to illustrate the difference between a laggard POS business, and what we believe is the future business model of POS. We think it will take 2-3 years for the leading POS companies to realize this value and build unit economics that totally disrupt the industry.

By the same token, retailers that choose a leading POS will benefit from lower/zero upfront POS costs; increased customer discovery, marketing and new commerce opportunities through data syndication; better data analytics for continual business optimization; and subsidized customer purchases via supplier co-op marketing dollars.

POS companies that don’t ride this next wave of innovation will be in a world of pain. As the mobile platform wars laid bare, third parties do not want to be in an ecosystem with short-term thinking and limited upside. The self-fulfilling prophecy of an open POS that drives more value will start eroding the marketshare of POS companies that didn’t move in time. Sure, the laggards might move eventually, but that didn’t end well for Microsoft and Blackberry’s late attempts at a mobile platform either.

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