We’ve firmly held our position that point of sale (POS) has traditionally been a low margin business that takes decades to scale. Some POS software manufacturers – called ISVs – have interpreted the torpidity of the market to mean that they should be the ones building everything on top of the POS. We’ve likewise said this is a fool’s errand. As if the road to bolt-on hell isn’t already littered with the corpses of feeble ISV bolt-ons, we found a still-breathing example to use as a case study.
NCR Pulse is NCR Aloha’s mobile reporting tool. It grabs real-time information from the POS and puts it into a mobile application restaurant owners can use to… well, look at. With the exception of theft reporting (sold separately as Restaurant Guard), none of the Pulse data is actionable. As we’ve shared earlier, this is just par for the course in a stagnating industry, so you can’t be too hard on NCR.
But this is where the problem starts.
NCR Pulse, which is not particularly useful aside from the real-time alerts for voids and comps (which must still be purchased as a separate solution to really understand if it’s theft), is $125 per month. Think about this for a second: $125/mo for a mobile app that cloud POS companies include in their services for free. For $125/mo it’s even possible to get an entirely new cloud POS software!
Of that $125, 30% goes to a reseller and the rest goes to NCR. NCR then employs salesmen, engineers and product managers to work on Pulse. Since NCR’s margin isn’t terribly high – and the company trades at a revenue discount, actually – it’s likely that NCR is spending their 70% fully.
NCR Pulse is but one of many products in NCR’s Hosted Solutions portfolio. All hosted products were either built or bought by NCR and, like Pulse, have difficulty standing up on their own in an open market (i.e. if integrating to Aloha POS were easier their bolt-ons may not exist). One can look to CimpleBox, a fledgling back office solution NCR purchased a few years back, that has now become NCR Console:
If NCR were to offer a more relevant product – either by building, buying, or partnering – what happens to Pulse? Or what happens to any of their hosted solutions that struggle against third parties who focus on one or two things all day, every day? NCR has ultimately left itself little wiggle room because its own products are much more expensive than their industry counterparts. Avero, for example, offers a comparable Pulse product for $50 per month.
As with most large companies, budgets are drawn from the top down. The people with P&L responsibility aren’t in the weeds dealing with accounts or sales reps. They’re not overly aware of market conditions and trends. They’re focused on their bonus, and if their boss says that bonus comes by meeting a particular milestone, they’re finding a way to meet that milestone come hell or high water. This thinking is precisely what Clayton Christensen witnessed as he followed the path of (mostly large) companies who failed to invest in the next iteration of market solutions to defend their withering market positions.
As it relates to NCR’s Pulse, NCR would need to invest a significant sum of money to redesign and reengineer Pulse, but that would now just be table stakes. Even if NCR retooled their solutions to be competitive in today’s market, NCR wouldn’t be able to charge any more for Pulse to recoup their costs; NCR would need to write off the entire operation as an investment, which is hard for the market to stomach when you’re a public company.
Partnering, as opposed to buying or building, would be the cheaper of the three options for NCR, but what revenues is a partner to expect? The reseller will still want 30% and NCR will undoubtedly need something equivalent to $87.50 per month (70% of $125/mo) if the P&L owner is to keep their bonus. The only remaining option, which NCR has embraced in the past, is to pass along costs to the customer. If NCR honestly believes merchants will pay 2-3x more for the same solution they can get from another POS provider just because NCR has put their logo on it, they’re in more trouble than we thought.
NCR, by building their own bolt-ons, has just proven the hard truth we’ve been consistently laying down in this industry:
Trying to be everything to everyone in a low margin business will bite you in the ass.
Nobody in brick and mortar is Google, a true software-DNA innovator throwing off expendable free cash to invent Maps and Gmail. Sales cycles are too long, customers too cheap, and the market too unsophisticated to pull it off. Most venture capitalists who thought this was the case are second guessing their decisions.
POS companies that believe the rules don’t apply to them will find themselves in NCR’s position, with overpriced products inferior to market alternatives. That’s assuming their bolt-ons aren’t dead already.
Add comment