Reforming Retail

Just Eat Acquires POS Asset. POS, Payments Industries: Wake The F*ck Up

Not long ago we mentioned that the online ordering and delivery companies (those with demand generation, anyway) were quietly subsuming the entire merchant technology stack. Grubhub acquired LevelUp to deepen access to customer data and SKU insights and their CEO has publicly stated that they intend to only further their investment efforts. (Note: if you don’t know why SKU data is the most valuable data in the entire marketing ecosystem, read our primer.) Uber launched analytics tools for merchants and is doubling down on these efforts according to sources.

If those canaries weren’t dead enough, Just Eat, a food delivery company headquartered in London, England, announced its acquisition of POS company Practi. This comes after Just Eat acquired Flyt, a POS integration hub similar to Chowly and Omnivore in the US.

Why would a company like Just Eat acquire a POS? Isn’t POS a really hard business to be in?

Yes.

But POS is getting easier.

Find any reseller who sold a legacy POS system like Micros and Aloha and who also carries a cloud POS product. Then ask them their support costs for each of their systems. You’ll hear that the support costs/times for the legacy systems are 3-5x as much. In some instances we’ve even heard that cloud POS support time was 10% of legacy POS support time. And by the way, this number is only trending further in cloud’s favor as internet infrastructure gets more stable, cloud POS companies build out more monitoring features, and the market becomes more familiar with cloud POS (i.e. your drunk employee stumbling into and breaking your router is not the fault of your cloud POS provider).

In addition to becoming easier, POS is growing more lucrative.

For starters, there is no difference between POS and payments anymore. In some cases this is a good trend (by making available POS to merchants who otherwise couldn’t afford the upfront price), but on the macro it’s probably bad for the industry (since payments processing is a free rider on the truly valuable and business-critical system that is POS). Now that POS companies have a taste for how easy and how lucrative payments processing is, the two will be intertwined for years to come.

The net result is that the business model of POS, through payments processing, is earning relatively more money now than it has in the history of its existence. (Note: while POS companies were making more money on hardware and software in the 90’s, it was perpetual license, one-time revenues and thus today’s recurring revenue streams have made POS businesses more valuable).

Payments processors are mostly too short-sighted to understand the real value in acquiring the POS, and that is the item-level transaction data. The POS is the hub of the merchant nervous system. It has tons of useful information, and if plumbed correctly holds immense value across a number of merchant applications. And even merchants will pay something for value.

We can start with integrations. Companies like Just Eat know how hard it is to connect into POS systems. Legacy providers have walled gardens while many of the new cloud upstarts are hell bent on not just replacing legacy POS, but the entire business ecosystem around brick and mortar categorically – which includes the online ordering and delivery. Since the ordering companies are already distributing and maintaining ordering tablets, how much more work can maintaining the POS become? By owning their own POS they can at least make integrations to their own online ordering and delivery easy… and if they follow a page from the book of payments processors, the ordering company who owns the POS asset can charge tolls to competitors.

From there we move into the obvious operational insights the data can usher. From staffing and labor optimization to pricing and inventory, analyzing the data on the POS can help the merchant improve many practices in their business. POS companies, for the most part, have tried to monopolize this value on their own, in some instances making third party integrations nearly impossible (and financially deleterious for merchants).

Ordering companies are generally richer, with more performant software and data cultures. This doesn’t mean that the ordering companies should try to monopolize the product stack, but they’re objectively in a better position to try it than their POS counterparts. We remain convinced that the best outcome for the customer and POS provider alike is an integration partnership model that delivers the highest quality solution for the merchant with the highest profit outcome for the POS. All roads eventually lead to this truth, even if egos and capital become collateral damage.

Lastly there’s the opportunity of converting the data on the POS into a DSP, or marketing platform that will shortly prove to be much more lucrative than any of the aforementioned business models. This takes material scale and data know-how that ordering companies like Grubhub and Uber undoubtedly understand. If anything, this is the real value these companies see in the POS business, and why then can justify getting in now.

Just Eat recognized that all of the above are possible.

The hope is that [the POS acquisition] will strengthen Just Eat’s hold on restaurant partners on its platform, either by deploying new tablets with new restaurants or by incorporating Practi’s software on Just Eat’s Orderpads. By using the Orderpads Just Eat will effectively ‘lock in’ these restaurants because it incorporates POS, cash and card payment handling, inventory management, kitchen operations, and employee management systems, all within a single software package across multiple devices.

Techcrunch article

We anticipate further encroachment into brick and mortar by well-funded, “outside” innovators like Just Eats. Capital is cheap, high caliber engineering and data science talent is already on ordering company payrolls, and existing POS providers are squabbling over how to ratchet processing rates instead of making long-term investments.

POS and payments companies are not competing against POS and payments companies anymore. They seem to discount this reality, and it will be the death of them.

We’re tired of being right all the time.

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