Today’s POS Dealers Have A Moat. But Will They Keep It?
Our observations at last year’s RetailNow conference by RSPA were mainly that there were few POS dealers below the age of 50. All the young blood seemed to be coming up from the payments side of the business.
The math makes enough sense.
POS prices are only falling with the entry of cloud POS software and the globalization of hardware manufacturing. POS systems are becoming more reliable and remote support is made increasingly free by the POS companies themselves, meaning there’s little vestige of the revenues legacy POS dealers once enjoyed.
Payments, however, are the one revenue stream that has stayed constant. Payments revenues are still declining — and it would be foolish to believe moving money will incur a fee too far in the future — but it’s the only well POS dealers can turn to.
All of this has put legacy POS dealers in a fascinating position. Let’s attack it from another angle to see what we’re getting at.
Imagine you were new to the POS industry and you wanted to resell POS systems. What system would you pick up? Well, selling a legacy system has become much harder than it used to be. Newer systems are sexier and cheaper. They have more futuristic features (like the ability to offer remote access, API connections to Google, etc.) and any day-to-day features they lack will be made up for within a year or so.
So if you agree on those premises you’d start with a cloud POS system, and now you must consider your revenue potential. Well, a cloud system is going to leave very little revenue on hardware… if you want to bilk the customer they’ll just go on Amazon.com to find a device themselves. The POS company is handling a lot of the Tier 1 support themselves, so that revenue stream is less than it would be on a legacy system. The software is $100/mo, maybe $200/mo if you install 3–4 terminals in a site, and of that you’d get ~25%. Considering most of the cloud installs going in today are with smaller merchants, new dealers are probably looking at $35/mo from their typical install.
In other words, cloud POS wouldn’t net you very much money at all. You’d need to sell a few hundred accounts before you could muster enough income for a decent lifestyle, and that would take years as POS sales cycles are fairly long.
That’s why most newcomers are entering from the payments side of the business, where they’re earning $100/mo+ per merchant from the processing and enjoying much faster sales velocity. But in an apples-to-apples comparison, legacy POS dealers that have activated payments residuals on their merchants are making more money because they’re getting the support services contracts that newer cloud systems make obsolete.
In this way legacy dealers have an advantage over newer dealers: they have a footprint of merchants on relatively sticky POS systems that afford them the opportunity to transition their business models.
Starting a POS dealership from scratch today is harder than at any point in the history of the channel. Legacy dealers know they can’t continue to sell (relatively) overpriced hardware and software, and that they will need to find new service revenues (read our thoughts on what these surely are).
It will take a new dealer selling cloud POS many years to catch up to the revenue legacy dealers enjoy today (but lament is shrinking quickly). Today’s POS dealers need to have, as our friend Bill Bradley often mentions,
One foot in the old and one foot in the new.
By that he means dealers should use their existing accounts to their advantage and start phasing their existing customers to a new model of doing business. Because if they don’t, someone else will.
As we love saying around here, you can’t fight the market. Will yesterday’s POS dealers realize that before their moat dries up?