Our last article predicting the decline of NCR’s channel was left open: we needed more data to conclude our final prognosis. What data were we waiting on?
In the month of March NCR held a roadshow with three regional meetings for their channel partners. To accentuate – or affectate – importance, NCR’s CEO and COO were in attendance. These meetings laid out NCR’s vision for their channel along with product offerings and high-level economics the channel could expect. These meetings were intended to be come to Jesus moments where the channel would realign on NCR’s new strategy now that NCR had acquired JetPay with new leadership firmly at the helm.
Now that the meetings are over with, have we changed our opinion?
The theme of the roadshows was clear:
NCR resellers need to be exclusive to NCR. Exclusive to NCR software, hardware, and now payments processing. In doing so, NCR resellers have the potential to earn more money than they do today, at least with respect to selling Aloha.
Unfortunately for NCR, they’re not winning loyalty from their channel (or customers, for that matter) simply because they mandate it. If NCR wants their channel (and customers) to be loyal, they need products and pricing that win in the market. If NCR had relevant products then this entire exercise would be gratuitous and we wouldn’t even be writing this article.
But alas, NCR continues to be woefully behind on innovation, and instead of providing a clear path forward they put their foot down and refuse to admit their failures.
NCR, it’s okay. We fail too. We write about it. We’re human. Humans empathize. But humans are turned off by supercilious organizations where any problem is someone else’s failing by default.
Before we get too far into it we will say this: there was one single silver lining in NCR’s entire dealer roadshow. Now that NCR has found another revenue stream in payments processing, they’re using their balance sheet to assist their channel in transitioning to a SaaS/recurring revenue model.
As we’ve discussed previously, making the transition to SaaS is very costly for dealers (and borderline impossible for small resellers). However, there is no future for POS or the channel that is not SaaS-based. Yes, NCR is once again late to the party (Shift4 and Heartland have been doing this for their channels for years) but being late is better than not coming at all.
We’re going to start with one image that shows you, without equivocation, the reason for most of NCR’s problems.
Ready?
What you’re looking at is a breadth of solutions that NCR offers under its Hospitality portfolio. The other thing these solutions have in common? They’re none of them market-relevant.
- POS Hardware and Software. Um, hate to say it, but Aloha isn’t even cloud. Oh, and your hardware is still expensive relative to non-proprietary Android devices. Hardware margins were very 1990’s.
- Your on-premise ordering kiosks don’t work as designed. No doubt this stems from the cobbled architecture in Aloha, which gets us to the next point.
- Off-premise ordering. Did you know that if you make a change to your online ordering menu in Aloha it takes 1-2 days to propagate the changes to your Aloha online ordering? But don’t worry, because if you want to use a market-leading solution like Olo that doesn’t have this issue you still need to pay NCR for the “value” they bring in that integration. Sounds fair, right?
- Secure/Integrated payments. Might as well have called this category Big Foot, Chupacabra, or Holy Grail. Connected Payments doesn’t work well enough for anyone to trust it. Several of NCR’s own Aloha Customer Advisory Board members told us as much, which is really damning.
- Consumer marketing. Yes, because NCR is better than loyalty providers Punchh with all their… what? They don’t use AI for targeting? Aloha Loyalty doesn’t even work on Aloha version 15 or newer? Whoops, never mind.
- Mobile Alerts and reporting. Surely these are the same free analytics given with any cloud POS company? Oh, they’re not…
- Back Office Inventory/Labor Management. These solutions look the same as the day they were acquired by Radiant.
Now that we have this overarching context, the following points will be much easier to dissect.
NCR wants their channel to update merchants to a common version of Aloha
This makes sense. There are currently 15 versions of Aloha (though it’s not that simple because there are multiple versions of each version). If NCR can get merchants to a common version then support costs, in theory, decrease dramatically. This is one of the myriad benefits of cloud POS: every merchant is on the same version and when you find a bug the POS company can push that fix down to all sites instantaneously.
Unfortunately for NCR the uptake on new versions of Aloha is low. Why? Bad engineering. When NCR bought Radiant they acquired a company that merged many disparate solutions together. This makes the backend spaghetti code for all intents and purposes. So when you upgrade an Aloha site all sorts of stuff breaks. And because each merchant has different NCR bolt-ons, and each of those bolt-ons interact differently with each version of Aloha, it’s a very sloppy mess.
NCR has tried this upgrade idea before. What works on one version of 6.7 is not compatible with another version of 6.7. A barebones upgrade of 6.7 to 15 would work but NCR has had so many shortcomings as of late customers have added lots of features to plug the holes and these would be lost in any update.
Aloha resellers
NCR wants to fix their connectivity (interoperability) to make it easier for their channel to be relevant
Everybody with a pulse knows that NCR has massive connectivity problems. It starts with poor engineering (i.e. NCR is a hardware company, not a software company). To make matters worse NCR has piled on interface after interface to connect even their own products… and failed in doing so. Connected Payments, anyone?
NCR wishes to eliminate their EDC (electronic data capture), ATG (Aloha Transaction Gateway) and APS (Aloha Payment Services) in favor of a common API. This is a noble goal, but where was this 5 years ago?
Our biggest gripe seems to be the outright deception in what was presented to their resellers, however.
NCR is telling their channel that they’re investing in APIs because, “it makes it easier to integrate 3rd party add-ons.”
Sorry, let us pull the quote from NCR’s CEO during their 2018 Investor Day:
NCR should own EVERY piece of technology at the restaurant… To the extent that we can sell bundles that include NCR-developed product and software that will increase our margin.
Mike Hayford, NCR CEO
And here’s the quote from NCR’s CFO on their Q4 2018 earnings call.
And I think as Mike said, we need a broader software portfolio to rely less on third-party.
Andre Fernandez, NCR CFO
NCR does not want any third parties if they can help it. Their new channel pricing model only reaffirms this point.
NCR wants their channel to bundle NCR solutions in a SaaS pricing model without the benefits of SaaS
Why do customers pay for SaaS? For starters, there are very real accounting benefits. But most importantly it’s because SaaS delivers more responsive products (i.e. fixes and updates are delivered frequently) at a much lower cost of maintenance.
For SaaS providers, markets give a much better economic multiple. Businesses that sell perpetual licenses only earn a 1x multiple of annual revenue. Mostly, this is the current business model supported by NCR. SaaS businesses, on the other hand, trade at ~8-10x annual revenue. So it’s obvious why NCR wants to grow a SaaS model.
But if merchants are paying SaaS pricing, shouldn’t they receive the benefit of SaaS?
NCR doesn’t seem to think so.
Included in NCR’s newly-marketed channel SaaS bundle are both fee-based products that are otherwise free with competitive POS systems, and products that are staggeringly long in the tooth which, candidly, are risky for NCR to put into broader production. All on top of an outdated POS software at the core.
Another major issue with their SaaS pricing model is that every new agreement is a 3-year agreement, where early termination “results in the billing of remaining monthly fees due within the contract period.” Yes, for all the heat we gave Toast over their early termination fees, it looks like NCR can’t wait to join the game.
Any person with an IQ over 80 is going to ask why they would not only overpay for outdated NCR software today, but be committed to paying for outdated software for 3 more years. It’s not exactly like NCR has been in any hurry with innovation (hint: NCR still doesn’t have a production-ready cloud POS despite the shift happening a literal decade ago).
Why would someone want to tether themselves to a product that looks like this:
When they can get an experience that looks like this with a modern, cloud POS for free?
And by the way, at their current rate NCR might not even have POS assets in 3 years, so it’s simply a dumb business decision for any potential customer to make.
NCR wants their channel to forget everything they know about payments and accept NCR’s payments approach
If a channel partner is loyal to NCR, they’re entitled to “50% of net payments margins”. NCR seeks to make this compelling by juxtaposing what an NCR reseller currently makes with Worldpay, NCR’s preferred payments partner. Over a 5-year period, NCR shows the dealer that they would make $244,000 more, assuming they onboarded 75 merchants to JetPay annually.
Yet this doesn’t explain why Aloha resellers, many of whom are now their own ISOs, will make substantially less money referring JetPay than they’d make selling their own payments.
The payments plan NCR is pitching us is more akin to 25% payments margins. NCR seems to believe that none of us lived through the Mercury Payments ‘50% profit share’ that was found to be nothing more than a big scam. Who calculates costs and ‘margin’ for JetPay? Certainly not us resellers…
Under the Worldpay relationship I was just referring payments and Worldpay had reps do everything else. NCR wants me to actively do more work now. In theory I make more money, but my COGS are also a lot higher. I’m not actually convinced I net out with more margin under NCR’s proposal.
We don’t own the processing book under NCR’s new payments model. That’s ridiculous. My book is worth 30-32x monthly recurring revenue in today’s market. Under NCR’s proposal I’m giving NCR that value by writing it all on their paper.
NCR Aloha resellers
By the way, the same reality hits home for all the ISOs that were reselling MobileBytes: now that MobileBytes is owned by Global, only Heartland Resellers in good standing (i.e. those that refer payments to Global) can sell MobileBytes. Current MobileBytes dealers and ISOs have shared that the math only works if they get more leads from Heartland. The jury is still out, but at least Heartland has an active sales network to provide leads to their resellers. Will NCR reciprocate?
NCR wants resellers to hand over more of the customer relationship
In an ideal world for channel partners the channel bills the customer. This allows the channel to vary their margin by account to win deals. It also gives the channel more confidence around cash flow since they’re handling their own receivables and a middleman like NCR can’t do what they allegedly did with Hosted Solutions and retroactively claw back revenue.
NCR would like to start billing customers directly for help desk. Some dealers are viewing this as problematic as the money now has to flow through NCR. Historically, if a reseller had a balance due in their NCR account NCR would withhold their portion before remitting what was remaining – and often only if the dealer requested it repeatedly. Help desk and hardware service monies have been the domain of the reseller and is part of their lights, payroll, and overhead.
NCR is treating me like an agent, not a reseller. As soon as NCR does all the billing for my customer, it’s no longer my customer: it’s NCR’s.
NCR Aloha reseller
We’re reading the tea leaves the same way: this move gives NCR more direct ownership over the merchant and will make cutting ties with the reseller channel even easier.
NCR isn’t giving their channel much confidence in their financial futures
Given that NCR’s Aloha resellers have filed a class action lawsuit against NCR for allegedly clawing back Hosted Solutions revenues, NCR wants to provide their channel some dependability in their revenue streams under the new pricing model. As you’ve probably already observed in this article, NCR’s entire theme is to move to SaaS pricing to help their public multiples, not to provide their customers with a better product experience. Under a SaaS model, all recurring revenues flow through NCR first.
NCR sought to assuage some of these concerns by promising “revenue for the life of a customer but ONLY if the dealer is in good standing“. What does good standing even mean, and how will that be defined? Can those goalposts be moved when convenient to NCR?
Miscellaneous items that are still confusing to the channel
There were a few items that were commonly confusing to the resellers we spoke with.
NCR mentions that they’re white labeling a loyalty solution. Why would NCR stop there? Shouldn’t NCR white label everything?
Considering NCR doesn’t even have a market-relevant POS anymore, the short answer is yes. NCR should axe everything that isn’t POS and fix its core problems first. Find best-of-breeds to partner with and only when they find their feet again should they consider deeper relationships. Remember, NCR got here by going way too broad and stretching themselves out so thinly that they don’t even have a core offering (i.e. POS) that’s worth talking about.
NCR still provided us no timelines for their cloud version of Aloha. Isn’t that odd?
It’s odd in the real world where you must deliver to timelines. We’re shocked that NCR hasn’t provided any market guidance on the future of their POS direction. Producing a screenshot of your “new user interface” can be done in Photoshop in about an hour. Producing a real product is much harder.
NCR mentioned some future “actionable insights” product. What is it?
Does it matter? What was the last product NCR produced that was anywhere near competitive with a third party offering? The answer is that innovation in niches happens much faster than any large company can possibly follow. As it relates to the merchant stack there are probably 20 or 30 niches; NCR cannot have relevant solutions for all of these.
We do feel horribly for NCR’s channel as they’re going through this turmoil. Fortunately most of NCR’s larger, more performant resellers have picked up competitive POS products over the past 2-3 years (to stay relevant) and they’re not dumping those offerings in favor of exclusivity to the sinking ship that is NCR at the moment. These resellers will likely be fine with or without NCR.
NCR’s smaller resellers don’t have the scale or business acumen to find other products, and in reality they’ll be phased out of the market over the next five years as the internet makes their businesses unsustainable.
Our verdict? 50% of NCR’s resellers representing 75% of the channel volume aren’t signing the refreshed NCR channel agreement. If they were clever they’d create a co-op and dictate terms to NCR. But NCR is always the smartest person in the room, so what’s the point?
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