Remember when we commented that we didn’t understand the value of companies like Omnivore in today’s market? Apparently we’re not the only ones. Grubhub recently announced changes that will make it harder for third party “integrators”.
What does this notice mean in plain English?
When an order is made by a consumer on Grubhub, Grubhub emails a confirmation of the order to the merchant. If the merchant is using a one of the aforementioned integrators, the merchant will route Grubhub’s email to the integrator by inputting the integrator’s email address into the Grubhub portal. In this way the integrator can parse Grubhub’s email and inject it into the POS system.
Grubhub will now use the merchant’s email on file (likely associated with billing or contact) and block any email domains that obviously emanate from one of the integrators.
Good, bad, why should you care?
Let’s talk about history, first.
Traditionally, POS companies have been very hard to work with. Hubris + incompetence is the best explanation we can think of. Many of the smaller POS companies would never return partner requests, and many of the large ones figured they could build it all themselves. Any student of the POS industry knows how detrimental this behavior was for merchants and general industry innovation.
Enter the integrators.
In a black market sort of fashion, the integrators promised merchants they could “integrate” third parties with their POS systems. Operationally this made a whole lot of sense: why suffer with manual input and expose yourself to risk of error entry when you could use an integrator and route a third party directly into your POS system?
Well, the POS industry has changed substantially. Cloud POS, with easy API endpoints for integration, are taking material market share. Those legacy companies that wouldn’t answer your call? They’re now owned by more professional management with larger balance sheets, some of which are willing to invest in API endpoints for integration.
This, plus the obvious pushback from the third parties themselves, mean that the integrators will find less and less market to work with. Yes, integrators can get around the Grubhub email “ban” today by spoofing an email address, but it’s not their only concern. As modern POS eats market share, the integrators will be cast aside as a needless expense. Square just showed exactly how this is transpiring: third parties working directly with the modernized POS companies to facilitate integrations.
In fairness to the integrators, there are some valid reasons why they can exist in some capacity.
The first reason is that the third party ordering/delivery companies don’t want them around is the risk they pose to their data business models; Omnivore raised money from Coca Cola on the premise that it would become a data company. Their first joint product is just that – a way to unify data so suppliers like Coca Cola know exactly what’s being ordered. (For the record we’re general proponents of this effort but believe it should come from the POS companies who are the defacto ordering hubs).
The third parties like Grubhub and Uber don’t want any entity getting in the way of this vision. This is even why companies like Grubhub forbid POS companies from sharing their data with the merchant or any third parties. You read that right: if you’re a Grubhub merchant you cannot ask your POS provider for a report of how much revenue Grubhub even produced. Undoubtedly this has something to do with the unsustainable math behind third party commissions, which these third parties know and we’ve been laying out for years.
The second reason is that menu management is hard. Ask Olo or Onosys and they’d tell you just how challenging this is. In fact it’s why Olo has preferred to stay upmarket: there’s little economy of scale when doing menu management for a one or two location group. The ordering and delivery partners don’t want to manage menus either, so a third party can, in theory, handle this nuance.
The last reason is that POS APIs generally suck. Yes, APIs should become a core competency of POS companies, but nearly all POS companies are not software companies. Some POS companies are now payments companies after being acquired (and payments companies almost categorically refuse to invest in R&D), while other POS companies were founded by barely-passable software “engineers” and couldn’t build a stable API if their lives depended on it. Integrators can overcome the API shortcomings and plug in the necessary holes.
Our take? Life as an integrator is only going to get harder. Menu management will become more automated as POS companies get smarter on standardizations, POS companies will eventually build stable APIs, and the third party ordering/delivery companies aren’t giving up on their data aspirations any time soon. With Grubhub buying the largest integrator (LevelUp) for a whopping $400M, maybe the integrators are secretly hoping for a soft landing.
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