Cloud computing is a hot topic. In the retail and restaurant space, the term is often misused and misunderstood. Some resellers are resistant to cloud-based POS due to a lack of knowledge and experience. In an attempt to educate retail and restaurant POS dealers on what cloud really means to them, Business Solutions magazine recently spoke with Mike Burris, CEO of Aeris POS Systems/Essential Elements, a cloud-based POS software provider.
Why should POS dealers consider this "new" way of business?
Mike Burris, CEO, Aeris POS Systems/Essential Elements: Change is nothing new for POS dealers. If you chronicle just the past 15 years of technological, financial, and social changes that have affected the POS industry, it illustrates that POS resellers have always been challenged to innovate in order to compete. Truthfully, that has been the case for decades. It’s why organizations like the RSPA (circa 1950) were formed, and why publications like Business Solutions are important information resources for POS resellers.
Traditionally, POS dealers don’t have the “development roll” within the industry. Instead, they are the dynamic connection between business owners and industry-focused software developers & hardware manufacturers. They introduce innovations to business – both those intended as value added features (i.e. Gift Cards) and those intended to be defense against liability (i.e. PCI Compliancy). They move the market forward. In turn, they bring customer-based ideas for improvements back to those developers and manufacturers. They affect the market, but do not control the market.
Early in the 1990s, most POS companies recognized the inevitable move to “Software as a Service” (SaaS). Pricing models were beginning to fall. Hardware was becoming a commodity. Advances in technology and the expansion of the Internet meant new approaches, and new players, were entering the marketplace. Shrinking margins meant POS companies had to change the way they did business. They were preaching “Service Revenue” to their dealer partners.
Cloud computing is part of that evolution. Cloud computing is a concept that was envisioned as far back as the middle of the last century. It has been noted for decades that when the proper marriage of dependable web connectivity and evolving hardware came to pass, it would result in a better way to do business. It’s a concept whose time has come. Used as intended, Cloud Computing is a more reliable, more efficient and more affordable way to do business.
Almost every major company is either building or buying a cloud based solution. Database and application storage is trending heavily toward this model. Most of the large legacy POS companies are working on ways to introduce cloud features into their own business model. In a few years, cloud computing will become the norm. Dealers who recognize this will be ahead of the game.
Bottom line is, POS dealers already understand they must diversify to stay in business. This isn’t a tough decision; it’s a smart one.
Not all clouds are created equal. What are some questions dealers should be asking when evaluating solutions for their line cards?
Burris: So many companies are interjecting phrases like “in the cloud” or “cloud-based” into their marketing. In most cases it means almost any function or interaction that is Internet-based. Very often enterprise functions — pulling reports or pushing POS commands — are touted as cloud solutions. I think we need to first look at what a “true cloud computing” system would include:
1. What is the pricing model? In its purest form, Cloud Computing should be priced like a utility; more akin to buying cable TV. You don’t pay a large, up-front cost. You pay a reasonable monthly fee for the services you use. If you want more services, you pay more than the person who doesn’t require them. You don’t pay an extra maintenance fee. You don’t pay for upgrades. Over the life of a system, the costs for a true Cloud Computing solution should be less expensive than those associated with a conventional POS installation.
2. How many versions are out there? At its core, Cloud Computing is a single application with individual databases for each customer. Customers do not buy POS software based on the current version release. The model doesn’t work effectively if there are multiple POS version releases floating around. The efficiency is in the ability to develop to a single source code. The affordability comes because developers are not saddled with the challenges of writing code for multiple versions when new features are introduced. The model doesn’t work if you must charge a customer a monthly fee, and still expect them to also pay for version upgrades.
3. What other “products” come with it? Along with the need for a single, common POS application is the added value of eliminating third party software whenever possible. That is not to say that third party solutions are not viable. But, to be effective they need to follow the cloud computing model and avoid high-cost installation fees. If features, like Online Ordering or Customer Rewards, can simply be “turned on” at an additional monthly fee, it is be a better value for the end user.
4. What’s the support model? As hardware has become more reliable, there has been a significant change in the customer support model. Most support is handled on the phone and over the Internet. Less on-site visits are required to keep customers operating. Dealers spend a lot of payroll dollars on a good support staff. Cloud computing is designed to be a more effective support model than traditional “boxed software” models. Under the best circumstances Cloud computing POS developers can assist their dealer partners by taking on the burden of the initial support calls. Dealers should be free to spend much less revenue on support personnel and focus more revenue dollars on sales.
5. What’s in the cloud? Probably more than any other characteristic that differentiates cloud computing from legacy POS is the approach to database management and information distribution. All of the strengths mentioned above give cloud computing a better inherent ability to both gather real-time POS detail and turn that information into useful analytics. The more a cloud computing solution can create tools – sales analysis, inventory, GL, labor, menu analysis, recipe costing, nutritional analysis, commissary, warehouse, budgets, KPI, AR, AP, dashboards - to enhance this fact, the greater the divide between itself and legacy POS solutions. Taking full advantage of cloud computing means far better business analytics for multiple-unit chains, or complex concepts.
In short, true cloud computing should be less expensive, and a higher value.
What are some common customer objections and can you give some specific ways dealers can overcome those objections?
Burris: I don’t think customer are voicing a large number of objections. What I see is so much confusion and miss-information at the dealer level that the facts are not being properly conveyed to the customer. Once Resellers understand more about the true cloud computing model, they will be able to educate their customers about the exceptional value-added benefits of cloud POS.
Some dealers have concern about the income model of cloud-based POS. Can you address those objections?
Burris: This is a great question. When evaluating new cloud computing solutions the Reseller needs to consider how it affects their business model.
1. What’s the Income Model? Generally speaking, the installation cost for software accounts for 25% - 30% of the total cost of a new POS system. The balance is in hardware, installation and training, and those costs do not change under the cloud model. This means the Resellers income model remains the same on every aspect of an installation except the software. Even the ongoing support and replacement income from hardware and training remain the same. Over time, the software residuals for monthly fees bring the Reseller a longer term customer and a better R.O.I.
2. What’s the service model? Again, with most hardware becoming a commodity, and a cloud computing partner that will handle the burden of most initial calls, Resellers can devote more time and personnel towards selling new customers.
What advice do you have for how dealers can pay their sales reps on this model?
Burris: I hear a lot of discussion about this subject. Remember, that most of the Reseller’s income does not change, nor would it for sales reps. My suggestion would be to compensate a sales person for a reasonable amount of time for software residuals; possibly two years. Incentives for new or additional sales of hardware or add on services shouldn’t change. Good sales people will make the most of this accumulated income and benefit from it.