But what about Square?
After working on RewardMe (In-Store Intelligent CRM that quickly helps any store setup a Rewards Program) for a while, I’ve been asked by potential investors over two dozen times, “What do you think about POS companies like Square, and do you think they would take over the market?”
First of all, I definitely think a few of the iPad based POS companies would become financial successes (like Square, perhaps Revel).
They are making money and doing well.
But after operating in this space for a while, I strongly believe that the POS industry will always be a fragmented industry.
A commodity with many players competing on price
There are literally hundreds upon hundreds of POS companies out there, and I believe the top 10 POS companies only have about 40% of the market. New iPad based POS companies like Square are doing great, but there are many many others that are coming up. I’ve heard of half a dozen new POS systems that just came out just this year.
Essentially, the POS/payment space is a commodity. No stores have been saying, “I wish I could process payments better”, nor customers saying, “I will I could pay better”. Some merchants pick POS systems based on reputation (which suggests reliability), but many just pick it due to cheaper costs. When there aren’t any “features” that are there that could make you win outside of pricing, you are a commodity that is less differentiated.
A deep psychological fear
But the reason why I think the POS industry will always be fragmented goes deeper than that. When I started working on RewardMe, I was surprised that one chain store wouldn’t all use the same POS systems. In fact, even if they only had 9 stores, they could have 4 different POS systems within it.
Here’s the reason: It’s a really difficult challenge to try to displace something so fundamental in a store’s operation as a POS system. This extends beyond just the cost, operations, or technology challenges. It is more connected to a deeper psychological fear of the store owners when they have to change their POS systems.
Again, very few of the merchants feel like they are solving a pain in collecting payments, giving back change etc. so why change what’s not broken?
POS Systems are like the Tree Ring for Chains
In the case of a chain, maybe in 1995 everyone was using a certain type of POS. And then in 2001, the corporate decides that another POS system is better, and wants everyone to use it. However, very few of the stores actually want to switch their POS systems, so corporate could only manage to get the new stores in the chain to start with the new POS.
That goes on for another 3 years, and corporate then decides on yet another POS company. Eventually, the POS technology even becomes fragmented within a chain!
If the corporate office of a chain cannot have enough clout to overcome the psychological resistance of displacing a bad/outdated POS system, it is certainly hard to be convinced that a new technology startup could do that easily with scale. (And this is why RewardMe decided to become POS Agnostic so we could create value for chains regardless of what POS system they use)
So what about Square?
Back to the good old question. Square is very successful right now! Haven’t they proved that this challenge can be overcome?
However, even for Square, their success has not been in displacing the POS of existing stores. Square has been very successful at reaching out to micro-merchants who wouldn’t have a POS in the first place.
Bringing unavailable technology to a new niche is a strong play, and Square has done well in that. But once you saturated that new niche, bringing in a better technology in an already established yet HIGHLY fragmented space is tough.
RewardMe’s success is independent of POS systems
We think POS companies like Square and Revel are great companies that could even partner with or leverage RewardMe’s technology. Either way, their successes won’t interfere with the growth and success of RewardMe