Open Systems Mean Open Season For Service Providers
With a sole focus of servicing open POS (point of sale) systems in multiunit restaurants, Spartan Computer Services grew from one customer and 18 employees to a 155-employee, $13 million company.
Open architecture computing systems have been redefining the job description of POS (point of sale) VARs. As many retailers and restaurateurs migrate from proprietary POS and cash register platforms to open systems, VARs have recognized there is an increased need for service offerings to meet the demand.
More Flexibility Means More Service Revenue
Open systems give end users more hardware and software choices, lower cost components, and increased ability to purchase technologies that were previously cost-prohibitive. But Jack Steenhausen, president of POS service provider Spartan Computer Services (SCS) (Greer, SC) observes that along with these advantages come hidden costs and potential nightmares. Open systems allow end users to mix and match base hardware and peripherals, as well as software applications. This can force end users into a service and maintenance approach that draws 5, 10, sometimes 20 or more different vendors. For the restaurateur, this means juggling multiple service contracts with staggered warranties and several different maintenance schedules. "Who is going to support this open systems investment, which is now installed in hundreds or thousands of restaurants?" Steenhausen asks.
These end user headaches spell opportunity for the POS service provider. Forget about software and hardware vendor allegiance. Case in point, SCS has grown from 18 employees and one customer to 155 employees (115 of them technicians) and $13 million in revenue since 1993 by fixing open systems POS problems regardless of the labels and logos on the products they service. On-site maintenance services now account for 2/3 of the company's revenue, with one-time integration and installation projects and a small amount of hardware sales accounting for the remainder.
"As most restaurant companies know, once open systems are deployed, the challenge is to keep them running," says Bill Fitzpatrick, senior vice president of sales and marketing at SCS. "The cost of maintaining open systems-based hardware is significantly higher than the cost of supporting proprietary configurations." Compounding restaurateurs' problems, Fitzpatrick says the restaurant industry is not attractive to many service providers because of its geographic attributes and the costs associated with servicing a chain with a large geographic footprint. Unlike many corporations that require support at a single headquarters location, restaurants require operators to manage technology challenges for hundreds or even thousands of regional or national locations. "A network hub that fails in a corporate office is usually a temporary inconvenience fixed by an in-house technician. A failed network hub at a remote restaurant can be disastrous," he says.
Open Systems Mean More Systems To Service
Fitzpatrick says the maintenance of kitchen display systems and other subsystems like them - which are brought to the table thanks to the declining cost curves of open systems hardware - has contributed to SCS' success. "We've even developed the Inexpensive Part Hypothesis based on our experiences," he says.
The Inexpensive Part Hypothesis states that in the POS industry, there is an inverse relationship between system integrity and the cost of the open systems component. For example:
- If POS terminals don't support "offline" mode, then the failure of a $100 hub can bring down $20,000 worth of touchscreen terminals.
- An entire KDS (kitchen display system) might crash because of a bad $300 ports card.
- When the $200 hard drive in the in-store processor crashes, it may take the $30,000 POS system with it.
"The corollary to the Inexpensive Part Hypothesis is not very nice either," says Fitzpatrick. "It states that the cheaper the part, the less likely it is that a trained, professional employee will be available to service the failed part. Instead, the person who brings the replacement part to the restaurant will have a badge that reads U.S. Post Office or Yellow Cab."
The beauty of this hypothesis for a company like SCS is that even when hardware sales and margins are flat, there is a lucrative market for custom POS service. Add to this a weak economy - which causes most companies to delay the installation of new POS equipment - and end user service requirements are on the upswing.
Other attractive aspects of selling service are the absence of long sales cycles and intense ROI analyses. "Our fees are viewed as operating expenses," says Fitzpatrick, "and are usually considered part of the cost of doing business."
SCS' typical service contract draws a flat fee based on the restaurant's revenue. Steenhausen says that regardless of what occurs in a customer's restaurant (short of abuse) it's covered in the contract. "Anything from a new screen overlay to restoring systems after a lightning strike may be covered, which even includes cabling problems," he says.
Competing With VARs, Manufacturers For Service Dollars
Steenhausen says SCS will continue to grow by adding two or three major on-site maintenance clients each year, while attempting to expand its share of the "one-time" work market. "We'll grow our maintenance services by expanding our business with existing clients. Many of our clients have multiple restaurant concepts [brands], but we may not currently be providing service to all their concepts," he says. The service provider will also intentionally target select retail accounts that fall outside its typical quick service market. Specifically, it will pursue specialty retailers and convenience stores running IBM or NCR platforms. Steenhausen says his company's size is an advantage when competing with traditional VARs and big technology vendors for this business. "We're much larger than most POS VARs, which allows us to provide support nationwide. But we're smaller and more responsive than the big POS hardware companies, which provide services similar to ours," he says. In fact, Steenhausen says all of its customers were previously using services from their POS hardware vendors before switching to SCS for service. "The market we provide niche services to is simply not significant to the big hardware manufacturers. With billions of dollars in hardware sales, it's simply not worth their time to deviate from their standard business practices and service models," explains Steenhausen.
As for its refusal to resell a POS software application, SCS says it won't deviate from servicing the "big picture" technology needs of its customers in favor of promoting specific programs. Besides, advances in open systems restaurant technology keep them busy enough without worrying about reselling software applications. New restaurant applications will always require new technology. Some examples of new restaurant technology serviced by SCS and enabled by open systems include credit cards for quick service, order confirmation boards, kiosks for employee access to corporate resources, and wireless technology for table management. "This translates to a need for companies that can deploy and maintain all of a restaurant's equipment," notes Steenhausen. But despite SCS' success, Steenhausen admits the company has misjudged the direction of the restaurant POS market. "We were certain several years ago that equipment would become more reliable and more redundant, and thereby lessen the need for on-site service. We were wrong. In fact, the opposite has proved to be true. More technology is being deployed to restaurants and the diversity of systems is increasing, which certainly isn't decreasing the need for a hands-on service organization." That poor prediction bodes well for service organizations like SCS.