The Disintermediation of the Point of Sale Industry

I’ve been a little on edge lately, ever since I’ve seen products like Square – the little add-on credit card reader that supports an iPhone, and the iPad.   I have a sense of dread.   What I see is the impending destruction of the point-of-sale industry (not complete destruction mind you, just partial).    The product flow of the POS industry has been soooo boring, for the last few decades (I got here in 1985).   I mean the last exciting thing that happened was ScanSource essentially rolling up distribution and training for point of sale (although they only bought two POS companies as I recall and then just ate everybody else’s lunch. ).   A nice feat that was accomplished by offering dealers easy credit for their POS purchases, and free two day shipping –( no small trick when most POS components are ten to thirty pounds in weight), and access to free product training.  In short, they accomplished what they did and at the same time added a lot of value to the industry.

Prior to ScanSource,  POS distribution was handled by a variety of mom and pop operations.  No offense to anyone intended, but, pretty much that’s the way it was.   I think the average size POS wholesaler was under five million in annual revenue.   And markups were running about 50% at the distribution level.    That was not a business model destined to make it in the age of computerization.   No matter.   ScanSource and BlueStar have both improved the POS manufacturers/vendors side, as well as the dealer side – through excellent logistics and the consolidation of training.    Prior to ScanSource, the last exciting event was the arrival of the personal computer and its adaption by thousands of small software companies as a POS terminal, a mega POS terminal though.  And that brought enormous value to the small business owner.

But now, when tens of millions of POS devices are NOT going to go through the “POS manufacturer to distributor to VAR to business” chain, and instead are going directly into the hands of end users via Square (www.squareup.com),  watch out!    This little company is offering ENORMOUS value to the small business owner (micro-business owner really) .   And, like so many other Internet related processes, now that this genie is out of the bottle, it ain’t going back in.

This article is not about Square, but allow me a moment to emphasize what they are offering and why it matters.   A free credit card reader that plugs into your iPhone.    A free app that lets you ring sales.   No monthly contract, no minimums, no fees – just a 2.75% fee on all credit cards.   It’s a beautifully attractive model and it’s going to mess with the entire POS supply chain.   This is POS for the masses.  For the uber-small company.    And, I’d argue vehemently that the uber-small company, and virtual company, are the biggest growth waves in the United States right now.

The iPad – if you don’t have one of these yet, you owe it to yourself to buy one.   First of all, it’s great to travel with.  Second of all, it is being turned into a cheap POS device.  It has mobility (WiFi), an attractive and easy to use size and shape, and it is CHEAP!  Especially when compared to those incredibly well built and durable POS devices we are accustomed to buying.   It’s so cheap, that I would say it is disposable.  And, it’s going to get cheaper.  A recent article estimated the manufacturing cost of an iPad at about $67.    Since a whole variety of tablets are now hitting the market, the competition will keep prices low.  I'm ready for the restaurant that will put an iPad at every table, so we can do our own ordering - no waiting for the waiter.  Or the app that will let me order on my Android phone at the table, and then charge my Google account at the end of the meal.  

What does this mean for all of us in the POS industry?    On one hand, we should probably be elated that the point of sale industry is going to add tens of millions of new customers.   This is the product for the masses.   Just as Paypal brought fast and easy e-payments to all of us, this concept is not stoppable.    On the other hand though, this is tens of millions of POS devices that will eat into the traditional business model.   And, of course, this is just the beginning.   Does that mean that thousands of POS dealers should start looking for new careers?  Not at all, but don’t expect the status quo to last either.    Those who rely on the traditional VAR POS business model ought to be thinking (and sweating) about this.

It’s all good.     Meanwhile, you can count on The Point of Sale News ( www.pointofsale.com ) to provide coverage on this upcoming tidal wave in POS.

(Readers - do you agree?  Add your comments below. )