As we write this there are large companies shooting themselves in the foot with their POS strategies. Part of this can be blamed on their lack of software or data cultures, but most of it can be blamed on hubris. Remember, even IBM did a cultural 180 when the right leadership was brought in to force the company to act rationally.
POS is going to “cloud” in the sense that data will be moved above store and accessible remotely. The POS will be connected to the Internet, for a lack of better explanation. And since consumers use the internet to interact with businesses (curate businesses by reviews and proximity, make reservations, order online, order delivery, etc.) being online is something every merchant should adopt with open arms.
The question for the POS company owner is how to best do this.
Unfortunately there are still POS companies who cannot get past their walled gardens. These are companies with APIs for POS integration who charge anyone who uses their API a fee. Even worse, they demand that integration partners not disclose these fees to end customers. In other words, POS companies expect third parties to eat the cost of their tax!
This is patently ridiculous. If you create an integration tax you may as well flash a bat sign that says not only can you not innovate, but you enjoy destroying progress too. Does Google charge for Gmail, Search, and Maps or did they develop a business model that intelligently earns revenue elsewhere?
It’s not your customers’ fault of you’re not smart enough to build a workable business model so don’t make them pay for it.
The truth is that API integration is now table stakes in POS. We said this 10 months ago and the market only continues to march forward. You cannot charge for integrations anymore. It’s an investment you must make to keep your POS relevant, and customers integrated with solutions that help their businesses. When we buy a car we don’t pay for “bonuses” like a steering wheel that turns, or a gas tank that can be refilled.
Assuming we’re all on the same page with this critical issue, we can discuss how the POS API should be managed as part of the POS company’s strategy.
There are two types of API integrations being made to the POS:
- Strategic
- Transactional
Let us explain the difference.
Strategic integrations are ones that the POS company needs to be actively sourcing. These can be integrations with third parties that help the POS company create more defensibility in its offering, or provide the POS company with clear pathways for new revenue/EBITDA opportunities. An example would be if a POS company had its own online ordering module and sought a syndication relationship that embeds their online ordering on Google Maps (we’re not going to curse the quality of a homegrown POS online ordering product in this post but you already know where we stand on these issues).
Transactional integrations are the catch-all bucket for everything else. An example might be if a merchant, or one of the POS company’s resellers, has a loyalty solution they’re fond of using and they ask the POS company for integration support. This category of integrations is always overflowing as there is no end to the number of loyalty, marketing, analytics, or other third party tools used by merchants: every time one of them disappears, two more crop up in its place.
The difference between the two integration approaches must be the time the POS company dedicates to the integrations. It’s obvious that the strategic integrations will take a healthy amount of work. There’s sourcing, diligence, engineering involvement and, in many cases, the technical needs of the strategic partner are ad-hoc in nature; no partnership is exactly the same. The type of data Google may need is different than what Microsoft might ask for. Transactional integrations are easier in theory, but there are lots of them.
Therefore, transactional integrations cannot be given the same attention due to their disproportionate volume. If a POS company makes this mistake they will never find the time for the strategic integrations even though these types of integrations will be the ones driving nearly all the upside. Pareto tells us to be cognizant of 80/20 optimality and it goes doubly here. When it comes to POS integrations 99% of the integration requests will be transactional while the remaining 1% are those the POS company must be mindful of for future survival.
All of this is great, but what’s our proposed solution?
Glad you asked. There are a few POS companies that have this process figured out already, and it looks like this.
The POS company has an open API. Not just open in the sense that there’s no tariff for using the API, but open in that literally anyone can access the API documentation online to build their integration. You no longer need to pay $50,000 for documentation and can instead access everything you need online, for free, at your own convenience.
Once you’ve built the integration you need access to the merchant’s data to read, write, or both. The way this happens is just how it happens on Facebook Connect: every user, in this case merchant, controls who may access their data. The merchant (or their dealer) grants permission to your incoming integration request from their own API management portal.
Setting up the transactional integration model to be one of self-service allows the POS company to spend more time focusing on the strategic integrations. Yes, it takes a more thoughtful and time consuming approach to build things this way but it’s massively scalable.
But don’t take our word for it. Here’s what Josh Elman, the now-partner at Greylock Partners who built Facebook Connect, shares about his experience.
You couldn’t go to Facebook without being inundated with a hundred request of your friend— play this game, give them a gift, hit them with a reward, and get some points. Facebook itself stopped being fun.
Facebook Connect solved this problem and paved the way for consumer companies like Twitter, LinkedIn, and Google to look at distribution and growth in new way. If it’s good enough for multi-billion dollar software startups maybe it’s good enough for kludgey POS companies. Then again, why bother thinking about the future when you can just put up a tax today.
Woe is the merchant using such a POS provider.
There will be POS companies with withering market share who act surprised this is happening to them. “But we’ve always done it this way.” Good luck with that.
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