What POS Companies Can Learn from Eat24’s $280MM Exit


Eat24, an online ordering service for restaurants, was started in early 2008. It bootstrapped its way to 20,000 restaurant doors over seven years, selling to Yelp for a cool $134MM in 2015. Two years later, Yelp is spinning out Eat24 to Grubhub for $287.5MM, complete with 40,000 restaurant locations.

What can we learn here?

As we’ve observed before, product in brick and mortar is mostly irrelevant. There are numerous antiquated, insufficient tools widely used by merchants despite remarkable improvements in other industries. But merchants don’t objectively choose products: they choose relationships.

Merchants are very busy creatures. They have little spare time given the operating hours and drudgery in running a storefront. Therefore they hand off some level of responsibility to trusted partners. In years past, a POS reseller was a perfect partner: the reseller would handle much of the technical needs, and in many cases would consult the merchant on best-practices. The busy merchant, therefore, would accept recommendations from their trusted partner without so much as a second opinion. (Though merchants have probably been too trusting in their relationships, as exhibited by accepted, yet deceptive, payments practices).

What’s important to remember is that this merchant relationship, what we call distribution, trumps all.

In its seven year span since founding, Eat24 was adding roughly 2,850 restaurants annually (20,000 divided by 7). In reality it was probably a little over 3,300 restaurants once you account for 25% of these locations going under yearly, but still a decent number.

Post Yelp acquisition, Eat24 was adding 10,000 restaurants annually (or 12,500 if you account for churn). That’s a 4x growth increase seemingly overnight. How did Yelp achieve such tremendous growth?

There are a few hypotheses of note.

First, Yelp improved the product in such a way that sales cycles shortened and the product was more appealing, driving overall conversion metrics. Yelp did improve the mobile app, but the core product stayed mostly the same. So this is not materially true: the product was more or less similar.

Second, there’s an idea that merchants became more responsive to the idea of online ordering as time progressed. There’s an undoubted nugget of truth in this. Look at the growth in online ordering in the chart below

Growth appears up and to the right. But is it really organic? Look at the amount of money being pumped into the online ordering space in the graph below. Which one follows which?

We’re wont to conclude that it’s the merchant growth following the investor dollars. We say that with ample evidence from POS app stores that prove merchants don’t do self-discovery. Between being short on time and lacking much sophistication, it’s a very reasonable position for merchant behavior.

Third, Eat24 experienced such tremendous growth because Yelp had great distribution. This, we’ll conclude, is accurate. Yelp maintained relationships, many commercial, with tens of thousands of restaurants. These restaurants had Yelp account representatives who would contact them with new opportunities. Since a trusted relationship was already formed, and the merchant was familiar with the purchase and support process, it was relatively easy for a merchant to field a Yelp communication, say, “Yea, this makes sense,” and sign up through a customary channel. If any support issues crept up, they could reach out to an existing partner through a known mechanism to resolve the issue.

We frequently observe that merchants reach for what’s closest to them. They will often sacrifice the quality of a best-of-breed for convenience, which coincidentally involves leveraging an existing relationship. Some have called this “one throat to choke” and it’s a plausible explanation for back office providers cobbling together as many features as possible under one umbrella. Either way, POS companies can learn much from Eat24 in this regard.

As POS becomes the central hub for everything – since it’s the point of integration to useful transaction data – POS companies can leverage their sticky merchant relationships to offer other services. This is only remotely possible with solid APIs, but will become a windfall for POS companies in time. Even better, POS companies do not need to sacrifice the quality of additional solutions, as is often the case when companies attempt non-core things. Instead, POS companies can partner with best-of-breeds in their respective categories and white label solutions. This gives the POS company a bulletproof offering while allowing them to take advantage of their merchant relationships. Some solutions can even show ROI to prospective customers ahead of time, which is a known problem for brick and mortar merchants, only increasing merchant adoption (attach rates).

Yelp and Eat24 have quietly proved that merchant distribution, not product, is king. That’s a rewarding lesson if POS companies care to pay attention.