We earlier authored an article about the four horsemen of US hospitality POS. For reasons that haven’t been clear to us, the US restaurant industry, while behind in every possible business facet, has seen blazing evolution in its POS ranks. Retail has not seen such technology consolidations beyond Oracle/Micros and international POS markets are even further behind.
One could argue international markets are a few steps back due to older infrastructure, though we’re more likely to believe the lack of financial incentives in the payments industry has substantially slowed innovation. Money motivates people? Shocker.
The four horsemen we identified were
- Global/Heartland
- Micros
- NCR
- Shift4/Lighthouse/Harbortouch
Like all of us, none of the horsemen are without problems.
Global/Heartland rolled up a number of legacy POS systems in 2015. The strategy, while brilliant, has a hole. The POS systems Heartland purchased were outdated. User interfaces looked aged and none offer the benefits of cloud-connected POS systems. Heartland needs to eventually move merchants off these legacy systems and onto their newer cloud POS, Xenial, to keep their merchants competitive (yes, newer POS systems come with better merchant tools via API integrations).
The problem here is that merchants have very short memories. By that we mean merchants are likely to blame their current POS system for their troubles and forget that all POS systems have their shortcomings. So if given an opportunity to move systems, merchants currently using a Heartland POS – and there’s about 100,000 of them – might be reminded of their problems and choose a non-Heartland system. Better the devil you know, we say.
Micros has given up on the restaurant market with the exception of the largest enterprise accounts. We’ve heard they’re expanding territories for a select few of their dealers (which might explain why Postec ditched Toast), but what market-relevant products do they have? Oracle is pushing Simphony, an expensive cloud solution that continues to have walled gardens out the wazoo.
NCR, like Micros, was one of the original market leaders through its purchase of Radiant Systems. But NCR has not invested much into its Aloha POS, offering little more than the same system absent updates in user interfaces, features, or core architecture like cloud enablement. Merchants on NCR will lament that even basic tools cost an arm and a leg relative to cloud competitors who give similar tools away for free. NCR hasn’t even mentioned Aloha or restaurants in earnings calls for years, leading one to believe they have focus elsewhere.
If Aloha hasn’t captured the merchants that Micros is losing it’s because NCR has a serious product problem. Think about it: few systems are as mature and trusted in US hospitality as Micros and NCR, and the merchants choosing these systems skew larger. If Aloha hasn’t made strides with Micros pulling back this will only get worse without significant investments from NCR.
Shift4 has only recently completed its acquisitions of three legacy POS companies. This puts it a few years behind Heartland in figuring out what to do. Our guess is that Shift4 will file an S-1 either later this year or next to go public, giving Searchlight Capital, its main investor, a nice liquidity event. Between then and now Shift4 will be intently focused on rolling out its payments platform to meet financial goals for an IPO.
But eventually, like Heartland before it, Shift4 will need to confront the product reality in what it purchased. Its legacy POS systems need a major overhaul to stay relevant and sometimes its easier to take what’s worked and copy it into an entirely new product, much has Heartland has done with Xenial. Again, this migration might come with a lot of merchant turnover.
That’s a long way of saying aside from Micros, who has intentionally hacked off it’s own nose to spite its face, the marketshare of the three POS horsemen is theirs to lose.
If they do lose marketshare, who will take it? Will it go to a disparate group of cloud POS companies, each with their own geographic footprint? The cost of building a POS is so low that this is possible…
Yet we don’t believe this will be the case.
It takes a certain amount of scale to get to the next evolution of POS. That is, POS companies that have enough transaction data will totally reinvent the model of POS and suppress prices across the industry, making the POS moat both wide and deep. Just like Google offers a number of very competitive products for free (maps, email, search, etc.), POS companies will soon realize how to offer value to merchants that make it very, very difficult for new entrants to compete without a larger data strategy – and no, it’s not commoditized payments.
Who might be joining the ranks of the horsemen? These are the necessary traits, at least in our opinion.
The system must support chain accounts. You cannot expect to dominate this market if you only focus on merchants doing less than $1M a year in annual revenues. Not only do smaller merchants churn at higher rates, they require a disproportionate amount of support. Smaller merchants also have much less to spend on ancillary tools – think analytics, marketing, etc. – and can sink the revenue stack for a POS provider pretty quickly.
The system must be payments agnostic. We think there are benefits to have both POS and payments data combined, but not enough to offset the risk of SMOPP. The two data feeds can be combined easily enough in some APIs anyhow. POS companies can have their own payment offering, and mitigating distribution costs by bundling those two services makes economic sense, but the risk of being tied to one processor who also happens to own your POS is a non-starter for sophisticated merchants. At least it should be.
The system must have an open and free API endpoint. No more walled gardens and no fees for integration. These are barriers to entry that keep merchants from getting best-of-breeds or innovative new products. If you only know how to make money by charging a toll on innovators you’re not smart enough to survive. Put on your big boy pants and figure out how to add real value.
The system must support merchants from all vertical segments. If you’re in retail you need to support a wide array of retailer types. If you’re in restaurants you need to support full service and quick service merchants. Being exposed to multiple types of merchants reduces risk and gives the POS company insight to market trends that might be occurring in only one segment of the vertical; having a broad industry view will be immensely helpful in creating new products.
So what does that mean for the restaurant market? Only time will tell how the current horsemen play their hands. But with all the dollars coming into the industry there are some heavy bettors on disrupting the status quo.
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