You walk up to your favourite coffee shop to grab a quick bite and as you stop to order you notice that somethings different. Where there used to be a bulky, cathode-ray driven, monitor staring at you as you ordered, now it’s a tablet, perched on a modern little stand. Rather than fighting with a credit card machine that tells stories about the cold war, you just tap your card on this little square and everything is approved. What happened?
This is the power of cloud-based point-of-sale (POS) systems, a decentralized innovation that is forcing massive disruption in the retail, restaurant, and payments industry. When I first started to work in restaurants back in 2007, a brand-new Silverware Point of Sale system, with printers and tech support cost $10,000 to install, plus licensing contracts, plus maintenance, plus inventory monitoring and so on and so forth. Due to the incredibly high switching costs small businesses would pick the cheapest service available and stick with it until well after the computer should have gone to the great microprocessor in the sky. I can still find restaurants using the original Squirrel or MICROS 2.0 and know owners that only use the old systems as they know how to delete cash bills to cheat the taxman.
In the intervening years there has been a revolution brought on by wireless technology, cheap tablets, and cloud-based storage. The legacy systems were all run off a central in-house server, which made them very robust until something went wrong with the central terminal, and to use the built-in credit card machines you had to pay extra. Thus, everyone switched to the portables, which came with the tap, the most expensive form of merchant fee. So, by avoiding paying extra for the POS credit card functionality, the business owners would shoot themselves in the foot by needing to pay for a credit card terminal.
While the cloud-based POS was first introduced in 2001 (https://www.globalpaymentsinc.com/en-us/blog/2017/08/30/how-the-cloud-has-changed-point-of-sale-technology) it is only recently that the concept gained popularity. The POS market is still incredibly fragmented (https://www.foodserviceworld.com/listing-category/services-consultants/) and the new players are rapidly disrupting the existing business model.
While incumbents such as Squirrel (https://www.squirrelsystems.com/pos-solutions/), MICROS (https://www.oracle.com/ca-en/industries/food-beverage/products/workstation6.html), and iPOS (https://www.ipossoft.com/iposcafe.html#head) are keeping the payments system separate newcomers to the space like Lightspeed (https://www.lightspeedhq.com/?rac=true&f=CA-EN), Square (https://squareup.com/ca/en/point-of-sale), and Clover(https://www.clover.com/pos-solutions/restaurant) are either payments services companies or have integrated payments services. Beyond just bundling the payments solutions together these newcomers are providing data on customers and lowering costs. Whereas it used to be around a hundred dollars a month for a POS plus the initial capital outlay the new systems cost between sixty and seventy dollars a month with a much smaller initial investment.
These cheaper systems combined with the mini card readers like Square’s Square have created opportunities for new entrepreneurs. Almost every stall at the local farmers market or makers fair will use a Square for payments. The buyer can just tap a card or phone, and get the receipt emailed. There is no more need for cash, and it makes tracking business expenses simpler.
By capturing two different value streams the cloud POS suppliers are lowering the price while maintaining healthy operating margins. The lower prices, dawn of fintech, and government regulations like the ones in Germany (https://www.npr.org/2020/02/04/802669731/germany-has-a-new-receipt-law-and-bakeries-are-getting-sweet-revenge) are driving demand for POS systems across the globe. This increase in surplus has resulted in a fluid, competitive marketplace. The continued growth in demand has also prevented the development of pricing wars within the cloud POS market. When the incumbent market is priced at the same level as the cloud and the market is fully saturated then pricing wars will arise to go along with the acquisitions(https://betakit.com/lightspeed-to-acquire-germanys-gastrofix-to-snag-more-european-customers/), expansions, and new products.
A secondary industry that is going to be eradicated by the cloud-based POS industry is the POS printer industry. Currently the industry stands at $2.4B per year and growing at around 7% per year with many incumbents such as Epson (https://www.businesswire.com/news/home/20191009005489/en/Growth-POS-Printer-Market-Impacted-Rising-Adoption). These incumbents are essentially defenseless to this disruption. Society may desire a paper receipt in the short-term but gradually online receipts will become the norm. Currently with most of the Square products an e-receipt is the only way you can get one. This is reducing waste and decreasing societies annoyance at running receipts through the washing machine.
Figure 1 – Legacy POS Industry Value Chain
Figure 2 – Cloud-Based POS Value Chain
To further eliminate the need for printers the digital POS is eliminating the kitchen printer and streamlining back of house operations. In the past a printer was required for each individual station and on most systems the whole order would get sent along to each station. The cloud-based systems are using screens and data analytics to feed information into the stations with perfect timing. These modern systems are improving operational throughput, reducing food waste, and capturing value for the operator.
The propagation of cloud-based POS platforms is creating a value shift in the retail and restaurant industries (https://global-factiva-com.proxy1.lib.uwo.ca/ga/default.aspx). This value is being captured from the incumbent players in three industries. First the point of sale incumbents who have been forced to innovate or partner with new players like Silverware with Clover. Second is the payment industry incumbents such as Visa, Mastercard, and the major banks who are losing the revenue from operating the terminals. Third, and the industry most threatened by the cloud-based POS are the POS printers. When every retailer switches over to the cloud a 2.4 Billion-dollar global industry will disappear, and cooks and bartenders will no longer dream of hearing the heavy “chunk-chink-click-whir” that used to signify an incoming order. Once the last chit printer goes quiet and you can no longer physically receive your receipt the paperless consumer experience will begin.
Strategy in the Age of Decentralization 