One of the biggest themes of this blog is that you cannot do everything, especially in software markets. Remember Google+? Remember Amazon’s Fire Phone? Remember Apple’s gaming console?
The aforementioned companies are some of the most lucrative organizations in the history of the world yet even when expending tens if not hundreds of millions of dollars they fail to compete in categories that one would expect them to dominate.
And that’s fine, because if one company was able to own every aspect of your life you’d be pretty disappointed with the pricing, quality, and service eventually, which is why monopolies are usually very hard to defend in a free market absent protective legislation (or unlimited investor dollars).
Competition is great for the consumer.
But what catalyzed this post were the market dynamics we finally see intermingling despite reporting on their eventuality for a number of years. It seems that COVID was the necessary catalyst to force retailers to grow legs and leave the primordial waste waters they’d been living in since the invention of “buying stuff offline”.
Here’s what we’re talking about.
POS is “free”.
POS (or ERP is some instances) is the anchor of any retailer. Whether that’s an offline retailer or an online retailer is irrelevant. At the end of the day there needs to be one central hub that acts as traffic cop, ingesting all a retailer’s data and metering it out to applications that matter.
At least with offline commerce, which was the obvious forebear to ecommerce, POS systems were trash. Most POS systems were built by people you wouldn’t even trust to clean up your dog’s shit, let alone write code. Yet because retailers are so unsophisticated and capital (until recently) so unwilling to fund retail technology, here we are.
Over the past decade the deluge of cheap capital has brainwashed retailers into truly believing that POS is free. No, really: they believe it literally should be free. And while no reasonable person would ever believe that a business’s most important piece of technology should ever be free, there is a sliver of intrigue in here that has merit:
POS is reaching its singularity.
As all POS moves to cloud and features get stamped out, what separates POS providers? On a feature-basis, it turns out not much. It might be the sales model, support model, or other ancillary integrations (at least for POS companies that don’t foolishly believe they can own the whole stack), but it’s less about the core POS, just like your car is (hopefully) no longer about reliably turning over and getting you from A to B. Sure, you can change interior colors or get a sunroof, but what’s the real difference between cars?
Unless you’re talking about a legacy POS which would be akin to a buck-toothed donkey on the showroom floor at a car dealership, today’s POS companies are all pretty similar at their core.
Yet POS must still change.
Conventional retail has held a slight advantage in that Amazon and ecommerce have forced faster evolution, but for foodservice retail we’d wager that > 90% of operators were still single cell organisms refusing to evolve.
Enter COVID.
COVID accelerated the ghost kitchen model, which is very analogous to ecommerce. For the first time conventional foodservice operators were faced with this rapidly growing, unrecognizable beast that required much smaller CAPEX, no front of house, and collected customer data on every order, wielding it like an excavator to dig a wider and deeper moat with every transaction.
The asymmetry was and is simply remarkable.
So while POS had nearly reached its singularity, it quickly found that its perceived finish line was further out than anticipated, requiring material resources to accommodate this new digital world as digital-native third parties proliferated and their customers demanded more.
“We need QR ordering.”
“We need click-n-collect.”
“We need unified customer data.”
It seems that singularity wasn’t quite where POS companies thought it was, even though they’d successfully convinced their customers that all these additional features should be free, too.
Tomorrow’s POS must generate real, not theoretical, ROI.
POS companies have had and will continue to have their hands full working to account for market changes. If you thought the world was murky before, it’s only gotten worse.
“Do we build QR ordering?”
“Do we build click-n-collect?”
“Do we build a CDP for unified customer data?”
All of these decisions take time, R&D resources, and most of all, compete against third parties that are objectively much better suited to solve these problems. So while POS companies are busy working to make updates, they ironically can’t charge for updates because POS should be free, remember? Toast has near-unilaterally spent $1B convincing merchants this is as true as theorems of gravity.
This is where things get interesting.
If merchants have been conditioned to expect a POS for free, they’re only going to pay for things that offer tangible ROI. POS offers soft ROI in the way of time savings, but retailers literally don’t value their time at all. And we’d wager that 80% of retailers hire family members and don’t even care if their family members are stealing from them, whittling down the hard ROI a POS can demonstrate with accounting reconciliations.
Real, positive ROI comes from third party solutions like labor or marketing tools that POS providers will continue to struggle building given all the spinning plates that they need to successfully deliver “for free”.
Look at Shopify and Lightspeed as recent examples. They both announced efforts to integrate Google Adwords into their POS solutions (and we’re skeptical the solutions are simple enough for their SMB customers having worked with Facebook and Google for years on these issues), but Klaviyo is running away with the ecommerce marketing opportunity after garnering a $10B valuation.
Still think POS can build everything?
As POS reaches its next singularity the entities that will command the ROI that merchants want won’t be POS companies, but third party solutions that clearly articulate their value without the encumbrance of building and supporting a “free” POS. And with a high CAGR in ecommerce, headless POS becomes a more legitimate threat, leaving even today’s dominant cloud POS companies ripe for disruption with a simpler POS build that could come from a marketing tool like Klaviyo, or a even third party delivery company.
To think that all that effort in trying to monopolize the stack might go to total waste. We’re crying for POS companies everywhere.
Add comment