Part 1: Omnivore Docs Show Compounded Integration Costs by Strong-Arm POS Companies

This is Part 1 of a 2-Part series regarding POS integration fees.

We never quite understood Omnivore. Don’t get us wrong, integrating into POS companies is an absolute nightmare. But paying $30/mo just for middleware? That straw can easily break any camel’s back.

Omnivore, we assume, tried to bring reprieve in a tiered pricing model. Still, it’s really, really expensive if you ask us (and even if you don’t ask us). We would bet that most of Omnivore’s customers are large restaurant chains who suffer under the weight of collapsing legacy POS companies (like NCR). In fact we know of several very large Aloha customers who use Omnivore specifically because NCR has, in the customers’ own words, “A totally unworkable API program”.

But what about cloud POS companies? It’s easy to understand how Omnivore can integrate with a legacy POS company – drop an agent on site locally and suck up the database to the cloud – but what happens when you need cooperation from the POS company to grant you an API key?

If you’ll notice in the below list of partners Omnivore is just the beginning of your integration expenses. As an “approved” integrator, the POS companies decided they want to get in on the integration payday and charge their own fees for integration. For NCR you need a separate partnership, which as we’re told is $10,000, 30% of ongoing revenues, and takes 18 months to complete. Naturally NCR wouldn’t comment on the matter.

Micros and POSitouch require a transaction service license too, and Toast and Northstar, being cloud, have final say in the matter (don’t think Toast is going to miss out on that 30% tariff gravy train – it’s Christmas every day).

At some point the math is totally unsustainable. Let’s take Homebase as an example.

Homebase is a staffing tool that should naturally integrate into the POS to pull relevant data. Homebase runs $40/mo per location at its most expensive tier. Let’s assume Homebase decided to use Omnivore and integrate into NCR’s Aloha POS.

Homebase wouldn’t need to write data to the POS so it would get a read-only license from Omnivore. Out of the gate it’s hard to know which pricing tier Homebase would choose but let’s say they have a lot of confidence in their tool and opt for the Enterprise package and prepay for an unknown number of active locations. This gets Homebase to an additional $15 per month per location charge for Omnivore’s middleware on top of the $2,500 monthly licensing fee.

Now Homebase has to deal with NCR. We’re going to make what might amount to quite possibly the largest assumption in the world and assume that Homebase gets NCR’s integration approval instantaneously. Homebase, however, must hand NCR $10,000 for the integration privilege and NCR dictates that Homebase owes NCR 30% of whatever Homebase charges the customer. We’ll say that Homebase tries its best to maintain a reasonable price for merchants and therefore keeps the pricing at $40 per location per month.

Let’s go ahead and compute the economic situation for Homebase. On every product sale of $40, Homebase owes 37.5% (or $15) to Omnivore and 30% (or $12) to NCR. So poor little Homebase is still footing the cost of R&D, still footing the cost of S&M (merchants don’t do self-discovery and none of these “partners”, despite having their hands in Homebase’s pockets, is going out of their way to help Homebase market), and still has G&A, only their revenue is now a paltry 32.5% of that $40 – a meager $13 per location per month. The below graphic shows what the revenue and cash position of Homebase looks like relative to NCR and Omnivore assuming zero churn and 50 new customers per month.

We also made a massive, massive assumption here: we didn’t subtract any of Homebase’s operating expenses from their cash position. In other words, NCR and Omnivore do nothing and get paid. Homebase, meanwhile, has to support product R&D, S&M, and G&A. We didn’t include that in the above graphic, but we should.

If you change the assumptions to match reality – that Homebase might only have 20% EBITDA margins – it becomes clear that Homebase will go out of business in a hurry: they’re never going to make any money.

Since losing money at absurd levels is not a viable business model Homebase needs to increase pricing materially. We’d again need to make some assumptions, but let’s say it costs Homebase $32 to make, sell, and support their product, and that at $40/mo/store they have 20% EBITDA margins ($8). Well, to recapture those economics here’s what Homebase would need to do in the face of these integration fees from Omnivore and NCR:

1. Add a $15/mo/store fee to cover Omnivore’s per-location fee
2. If we assume Homebase adds 50 stores per month with zero churn then we need to amortize Omnivore’s $2,500 monthly fee across those locations too, so we’d add another $50/mo/store for the first month, then $25/mo/store for the second month, etc. Over the course of a year this gets us to a blended additional fee of $13/mo/store
3. Now we have to do a bit of interpolation since NCR demands a 30% tariff, but effectively we’d need to add another $29/mo/store on a blended basis to ensure NCR gets theirs

Simply fucking amazing. Here’s the table to show you our math on a per-store basis as we move along the 12-month period.

If you’re a merchant and you wonder why the costs of your SaaS tools keep going up you need to find out exactly how much your POS company is charging for the integration. As this Homebase example demonstrates, the SaaS provider might be making far less than the POS company or any associated middleware. In the case of Homebase, here’s exactly how that $97/mo/store pricing would break down with Omnivore and NCR Aloha as the intermediaries.

If this looks absurd you’re absolutely right. Thus we think this whole model of high POS integration fees (like anything more than 2%) to be incredibly unsustainable. In Part 2 we’ll cover some fascinating legislative pressures that might make these integration fees extinct altogether, much to the chagrin of the POS despots.