Olo has made it clear that it will be getting deeper into the entire ordering flow for restaurants, both online and in-store.
Their latest acquisition of Omnivore explicitly mentions this as a driving factor.
Securing on-prem orders does two things for Olo.
First, it probably expands their TAM by about 400%. That Olo took 15 years to reach $100M of revenue (bolstered by a pandemic) tells you that they might be running out of organic TAM. Downmarket in the SMB segment, there’s fierce competition for online ordering business, with many of the POS companies offering their own version of online ordering that merchants are perfectly happy to use (and Doordash’s acquisition of Bbot only intensifies this battle).
Omnivore in particular gives Olo the ability to keep open tabs in-store, which moves them forward considerably as it relates to building in-store ordering.
Second, on-prem integration gives Olo more transaction data and thus more optionality to build additional tools. It’s not a walk in the park, but seeing as how virtually nobody with large volumes of POS data has done anything particularly meaningful to-date (sans Aben), Olo faces little competition. Bolstering this point, Omnivore also brings over 100 integrations, many of which are POS bolt-ons like loyalty, kitchen display systems, labor scheduling, and back office, and Olo can now understand the API schemas necessary to build or support these features as they think about eating the POS stack.
Next let’s discuss the tough topics.
First, Omnivore is a disaster of a business. Their economic model is tenuous at best, and they exist because legacy POS companies – like Aloha – couldn’t build third party integrations to save their lives. Then when large swaths of the legacy restaurant POS landscape were bought by payment bros at Heartland and Shift4, the Omnivore model became even harder to substantiate: payments companies owning POS assets only quickens the demise and relevance of the POS asset, in turn spurring more merchants to find newer cloud replacements.
(Ironically it could be argued that the growth of cloud POS was only hastened by the incompetent stewardship of legacy POS by payments bros and NCR).
With newer, more modern POS companies, the need for an Omnivore disappears, though enterprise merchants are still using bastardized versions of legacy POS systems (the kind that are Olo’s mainstay clients).
That’s why Omnivore had been shilling itself for years until Olo decided to put it out of its misery: Omnivore’s market is rapidly shrinking.
Second, Omnivore puts Olo in a precarious position with regards to who currently uses the service.
For example, Wisely, Olo’s marketing acquisition, often used Omnivore for integration to legacy POS systems that larger, table service restaurants were using (enterprise table service is still a greenfield segment of the market for modern, cloud POS because the segment is both contracting and requires more features that fast casual counterparts).
What happens if a potential Wisely competitor uses Omnivore?
Does Olo boot them out?
Or, closer to home, what if an online ordering competitor – like Lunchbox – uses Omnivore?
Does Olo shut off the integrations?
Does Olo charge competitors so much to leverage the Omnivore integration that the competitor is now too expensive for the merchant to use (by the way, this has been NCR’s modus operandi for years and it would appear Toast is following in their footsteps)?
To put the market at ease, Noah Glass, Olo’s CEO, told us that he will not act this way.
We very much intend to keep Omnivore and Olo open and won’t behave like some players in the ecosystem. We don’t want to be disliked by upstarts and innovators and that means making it easier for these companies to take advantage of Omnivore’s distribution.
Noah Glass, Olo founder and CEO
Still, there are many larger Olo customers who aren’t as enamored with Olo as they used to be. The legitimacy of their positions are certainly worth discussion.
Several large customers told us that as Olo approached IPO they demanded longer term contracts for their existing customers (typically 4-year terms). On top of that, Olo’s rates also generally increased.
Olo says that this isn’t accurate.
In 2016 Olo introduced a variable pricing plan that was a mixture of a flat subscription and a price-per-order package with scaled tiers based upon the volume of a merchant’s transactions. If a brand had not renewed Olo prior to 2016 then they would have seen relatively new terms even though those terms had been in existence since 2016.
Olo also noted that three and four year terms are standard and were not changes that were part of the IPO.
Some brands had said they were looking at Olo alternatives, Olo was too expensive, and a few had built (some unsuccessfully) their in-house version of Olo.
Brands even reached out to us unsolicited when reading Olo’s comments about their new Olo Pay solution. When we asked why, they pointed to this quote from Olo’s CEO, Noah Glass:
Glass stated that the product [Olo Pay] will lead to “four times more revenue per order” for the company, which intends to add new frictionless checkout tools into the platform later in the year.
https://www.pymnts.com/earnings/2022/olo-launches-pay-amid-competition-frictionless-ordering
The topic of Olo Pay deserves a separate article, but for a high level read Noah’s quote was in gross terms, not net, and has built his payment program to be net ROI positive for operators. Let’s table the analysis for now.
With POS companies getting more into online ordering, competitors like Lunchbox raising big money, and even SMB entrants like Doordash eyeing the space, this is going to be a hotly contested market, and Olo’s permanence at the top of the mountain doesn’t seem like a foregone conclusion.
It is definitely worth watching what some large enterprise brands do over the coming year as a leading indicator for Olo’s grip on the restaurant online ordering market. There are a lot of moving pieces as multiple parties vie for a piece of the action.