Admittedly we’re a little behind on this data; apparently Capterra published its findings in March of 2016. But that doesn’t mean the data isn’t worth examining today!
In 2016 we prognosticated that the majority (50%) of POS systems on the market would be cloud within five years. Capterra’s survey seems to prove this trend might even be happening faster.
First, the survey was based on 400 responses. It’s not a ton, but it’s not nothing either. Capterra did a decent job segmenting responders into categories and cohorts. There are behavioral biases based on how questions are presented, and since I was not the one crafting the survey questions I cannot confirm that some form of chuting wasn’t employed.
But it’s better than nothing, so here we go.
First, as much as Micros and NCR love to beat their chests about owning the POS software market, only the latter showed up as a meaningful result. Even more surprising was that Square commanded higher responses than NCR. Sure, the merchants that Square serves are mostly the farmer’s market variety, but realizing that Square was founded only six years ago and has possibly eclipsed NCR’s footprint is very impressive.
Capterra also asked if merchants preferred on-premise server systems to cloud systems. While the scales tipped in favor of the former – 57% to 43% on the aggregate – that’s not telling the whole story.
The average merchant is in business for 30 months (2.5 years). Every year 25% of merchants fail, which means, within reason, these new merchants are in the market for new POS systems.
If we examine the trend of respondents we find that newer merchants are preferring cloud systems to the on-premise variety by 62% to 38%.
If we acknowledge that 25% of the market comprises new entrants annually due to churn of previous merchants, and 62% of them prefer cloud, every year 15.5% of the POS market is being moved to cloud. Over 5 years that 15.5% * 5 = 77.5%.
Yes, some of these new entrants will undoubtedly be part of that 25% than go out of business, and still others will inherit legacy systems, but even if we conservatively account for that degradation factor we’re still above 50% of the market. Examining the failure rates of chain restaurants versus independents reveals that even established businesses are no more immune to failure in this vertical.
At any rate, the cloud POS adoption curve far surpasses the 15% market penetration needed to ensure new ideas become mainstream as laid out in the law of diffusion of innovation.
Further supporting this math is a nod to market upheaval: 88% of merchants have owned their POS for no more than five years while a full 63% have been with their current POS for less than two.
This is to be expected as larger companies – which are less prone to going under than a small operator – have much invested in their current POS architecture. It is the brain stem for all their operations, marketing and accounting, and to further worsen matters there are multiple layers of bureaucratic politics that keep existing tools entrenched.
It’s intriguing, though, to examine how merchants are making POS purchasing decisions.
The first point of consideration was POS features. What do you think happens when the features that matter are those of connectivity: enabling the merchant to sell goods online; letting merchants choose delivery services, update menus, inventory and pricing; and connecting merchants with best-of-breed third party services? And what happens when legacy POS systems cannot provide these connections without clunky middleware that costs more than a new POS system would? If you need to pay an extra $50 per month just to connect your local POS server to services where customers can find you, it starts paying to get a new POS system quickly.
Second on the list were customer support issues. For most legacy POS providers, this local support was provided by an army of resellers, many whose genius was to enroll merchants in a particular POS to collect payment residuals and never talk to them again. Cloud POS, as we’ve mentioned, is able to handle much of the support remotely since there are regular system updates feeding into headquarters.
Third, merchants thought POS systems were too expensive. We’ve talked about that too, and cloud POS is dropping hardware, software and services prices across the board, making POS affordable for small merchants who previously shunned the upgrade.
Fourth is a POS no longer being supported. Sounds a lot like Micros customers that have been abandoned as Oracle focuses on enterprise accounts. Looking at the same data I’m sure it won’t be too long before NCR does the same thing.
Even more damning to the legacy business model is a growing number of merchants that are directly buying their POS online without a demo. This is likely following consumer trends where 25% of consumer electronics are being purchased directly online.
Lastly, the purchasing considerations merchants gave were not good news to large incumbents with big name brands. Following the chart we posted earlier, newer technologies have a big leg up on the incumbents. Easy of use (new user interface design from cloud companies), functionality (the functionality of connectivity will trump all), and price (cloud POS is cheaper) accounted for 75% of the weight of a purchase decision.
Customer support (which can improve drastically with cloud) and implementation training (which is less important as the software becomes easier to use and libraries of online tutorials exist) further account for another ~11%, leaving cloud the advantage in all but 15% of the categories that matter.
In a final coup de gras, Intuit published its own findings with help from a report by GrowthPraxis.
A report by GrowthPraxis revealed that the mPOS market is growing in the U.S. at a rate of 9.2%, while conventional POS sales are shrinking at a rate of -2.5%. By 2018, the installed base for mPOS is forecasted to be larger than the installed base of POS terminals worldwide.
You can add to this HospitalityTechnology’s findings that 52% of merchants are considering cloud POS for their next upgrade, up from 38% in 2012 and Business Intelligence’s report showing that mPOS devices will triple to 27.7 million deployments through 2021.
This continues to be tough news for legacy providers who refuse to make the necessary investments in their businesses to stay relevant. 2017 will prove to be a sobering lesson in market forces for many who have been too content for too long.