With Subway Leaving Olo, Does Onosys Get Acquired?

Olo’s stock apparently flirted with lifetime lows as news broke that Subway would be taking its 20,000 store footprint off Rails, Olo’s integrated product to third party delivery providers, in favor of an in-house solution.

There are a ton of topics to touch on here.

First, there’s the build vs buy that enterprise merchants roil with.

In the old days (ie McDonald’s) the solution was to build your own everything, including the POS.

This has proven challenging for retailers as time progressed since technology has only moved faster and faster, with nimble integrations required for IT systems to work.

Most retailers simply cannot keep up the level of focus on their IT systems, regardless of budget.

Second is the general premise of Olo.

PAR snapped up a European online ordering company to go directly after Olo.

Qu has built a very solid online ordering product that’s arguably more robust (and inarguably more modern) than what Olo offers.

For example, if you built to Qu’s ordering APIs and have a user build an online order, then decide they want to change stores, Qu allows you to port the basket to any store.

Olo doesn’t allow this without deleting the whole basket when moving locations.

Many larger merchants view Olo as a tax. Some don’t like Olo because they’re an effective monopoly. Others look at how much money Noah, Olo’s founder, has made, and they become envious (though we are quick to point out he did this by creating value and not sodomizing merchants on payments unlike some other public “restaurant” suppliers).

Accordingly, enterprise merchants have tried building their own in-house ordering to replace Olo, though after a few million dollars they eventually realize that they are not software developers.

Suffice it to say Olo is not without competition.

But there’s a really interesting wrinkle here.

When Olo got started it was vying for business from Onosys, itself an online ordering software upstart. Olo took the approach that restaurant online ordering was a venture scalable business while Onosys did not, and Olo grew to become the dominant player.

However, Onosys is a robust enterprise tool, it’s been overhauled over the past two years, and according to some industry experts it’s actually a better product than Olo.

Yes, really.

So if one was to believe that Subway isn’t the only enterprise brand contemplating leaving Olo, it would seem that Onosys might not be a bad technology to consider either buying, or licensing as an infrastructure to build your own online ordering platform.

Some private equity companies have rolled up a ton of brands, and building a unified ordering platform – if they wanted to go down that path – would be challenging given the breadth of technologies needing to be integrated across their portfolio brands.

My problem with Olo is how expensive it is. It’s just not that hard to do online ordering. When we look at how much we’re paying, this HAS to be a serious point of deliberation for multi-brand funds that will sell someday. Stripping out Olo could be tens of millions in incremental EBITDA to the big players; give that a 15x multiple and it’s real money.

Enterprise operator

It would seem that Onosys could be a real springboard to moving in a semi-owned or owned model, decoupling from Olo and likely pocketing millions in EBITDA, and these numbers matter when selling assets.

For a quick example, assume the average store pays Olo $600 per year after some aggressive portfolio negotiations (this is likely on the very low end: Olo reports $160M in ARR for 80K locations, implying that the average site actually pays more like $2000 per year, or $150/mo.)

Now multiply that by 10,000 stores and you’re saving $6M per year.

At a 10x EBTIDA multiple that’s $60M of EV.

Then again maintaining software is never easy, but a lot of what Olo does is getting easier as companies like DoorDash and Uber offer more robust APIs for ordering integration.

And online ordering is a much easier product suite than POS.

That PAR splashed $20M for an enterprise-grade online ordering solution, Qu built an Olo analogue that’s arguably better in some cases, and Lunchbox acquired Novadine for reasonable prices in the millions of dollars tell us that online ordering moats are coming down, not going up.

Should Olo start to worry?