Anyone with a modicum of business acumen scratches their head at NCR’s POS strategies. To sum up the status quo:
- Be apathetic towards your customers
- Enrage your channel, then buy them out at suppressed prices
- Refuse to invest in product development
- Make it impossible / expensive for customers to integrate other services
- Charge customers more for products you haven’t updated in decades
Yea, it’s wild.
On top of this we’ve heard two pieces of information, one which we’ve been able to confirm pretty broadly, the other which totally computes but no one has verified.
The verified factoid is that NCR’s JetPay acquisition, which was made nearly two years ago, is still not materially operational. Dealers have reported that the solution doesn’t work. Further, they’re being told that when it does become available on Aloha, it will only be available for merchants who use Cloud Connect, not the legacy EDC (electronic data capture).
“I’d guess that 95% of Aloha sites use NCR’s EDC and if told to upgrade to Cloud Connect would just as soon buy another POS,” shared one of NCR’s largest resellers. It stands to reason that NCR will not be attaching their payments to many of their existing customers.
The unverified factoid is that NCR has cancelled their payments agreement with Omnivore in favor a $0.15 per transaction fee that the merchant will pay. Omnivore is a very expensive piece of middleware to integrate into Aloha POS (among others), but integrating to Aloha POS has also been likened to jamming smoldering coals up your rectum due to crushing misery of NCR’s incompetence. Pick your poison.
What matters is that third parties who were previously using Omnivore to process payments on Aloha sites will now need to run through JetPay. This doesn’t seem to be the case for third parties using Omnivore that are also themselves NCR approved partners. “I’m not aware [of any impact Omnivore’s cancelled payments program] would have on us. As an NCR Certified Partner, we have not been provided any information on this topic,” said a current third party using Omnivore.
NCR is running full bore towards recurring revenue because it brings a 8x multiple, and payments is a part of the plan. Instead of fixing, well, really anything, NCR would rather just charge their customers more using different accounting principles (i.e. SaaS) to benefit from the multiple premium the market would give them.
Even in the face of COVID, while their customers are struggling to survive.
And in exchange, we bundle up MORE and MORE products and we’ve really gone out. We told our salespeople go out and use this [COVID-19!] as an opportunity to sell a whole bundle of Aloha Essentials including payments or go in and where we can now do a touchless payment integrate payments off a mobile app integrate it back to the point of sale differentiate what we can do and recognize that we’re not going to drive a lot of volume and payments this year, but let’s get a lot of customers signed up for the future…
So, we’re going to try to use this time period as an opportunity to grow our account base in the payment business.
Mike Hayford, NCR CEO
Never let a crisis go to waste, right? You have to appreciate the arrogance at some level.
And even though NCR is now convincing 80% of their direct-sale sites to sign up for the turd that is Aloha Essentials (according to their Q4 2019 earnings call), the absolute sales numbers are nothing short of anemic.
During the first quarter, we added 372 incremental Aloha Essentials sites as subscription bundles.
Mike Hayford, NCR CEO
372 sites in a quarter. That’s fewer than 1,500 sites per year. Toast is adding 10-20x that number of sites annually. In fact, we don’t think NCR’s sales are even keeping up with their passive churn (i.e. the number of merchants who go out of business), let alone the active churn in Aloha merchants leaving for POS companies that actually invest in their products.
Aloha’s only staying power is in enterprise, but that’s being eroded by Brink, Qu, and Revel in quick service / fast casual, and the same thing will happen in table service over the next 24 months. COVID has only made it clear just how far behind Aloha POS really is and even enterprise brands are getting tired of dealing with NCR’s patchwork of solutions.
- NCR’s homegrown online ordering, once purchased, doesn’t get up an running for weeks or months, if at all
- NCR’s QR code mobile payments solution doesn’t work on older versions of Aloha (i.e. pay a lot of money to upgrade) and also comes with a $0.15 per transaction fee if you’re not using JetPay (which looks to be a ripoff)
Here’s what we think happens. NCR’s CEO is really a CFO. He looked at the situation and decided he was going to try to financial engineer his way out of the hole by pushing Aloha Essentials without fixing any of the underlying problems.
Put it this way: he’s been CEO for 27 months and what structural improvements have really been made? Has product improved? Has service improved? Has value improved?
His calculus was surely that he would convince enough merchants to pay monthly for his existing, dilapidated POS assets that the business unit would be worth more even if a substantial number of customers left because they woke up to the fact that he wasn’t going to fix any of the plaguing issue. Here’s that math laid out in a very simplified model.
Let’s say Aloha costs $100 for every new merchant who buys the product. And we’ll assume that Aloha has 1,000 sites. Every year NCR sells 100 new Aloha sites at $100 a piece but they also lose 100 sites because Aloha is hot garbage. Using this math the 1,000 existing sites have no value because they’ve already paid their one-time fee. So the Aloha business unit is only worth $100 * 100 sites = $10,000.
Then NCR hires a CFO as a CEO. That now-CEO decides that NCR should go to those existing 1,000 sites and convince them to pay $100 a year, every year, for the system they already use. And every new Aloha site should also pay $100 a year. This recurring revenue is worth 8x the annual recurring revenue. So if NCR can convince all 1,000 sites to pay $100 a year the Aloha business is worth 1,000 * $100 * 8 = $800,000. And if they can convince those 100 new annual sites to pay $100 a year they will add $80,000 in value as opposed to $10,000.
Got it?
So we think NCR’s CEO tinkered on his little spreadsheet and came to the conclusion that he could change nothing but the payment structure and make the Aloha business unit worth more money. In fact, using this simple model, Aloha could lose 87.5% of its sites but so long as 12.5% of those sites converted to Aloha Essentials the Aloha business unit would be worth the same it is today.
Now, the problem with this calculus is this: NCR’s enterprise merchants aren’t going to buy Essentials, and the SMB merchants who would be dimwitted enough to do so are more likely to go out of business. This would be obvious to anyone who’s ever built a product business.
At the appalling rate of churn we bet NCR will need to sell the Aloha asset sooner rather than later (using the greater fool theory, naturally), and if merchants are going to get screwed by their POS provider they may as well get screwed by Toast, who at least is investing in building better solutions.
NCR is literally the worst POS company we’ve ever covered and it’s amazing how consistently horrendous they continue to be across all facets of life. Good Lord.
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