ScanSource's Dixon Analyzes The Changing World Of The POS And Bar Coding VAR
By Jim Roddy, VP of Marketing, RSPA
In this interview, Greg Dixon, ScanSource’s CTO and technology evangelist, talks with Business Solutions president Jim Roddy about how resellers can make money from EMV and payment security, the shift from the break-fix to the as-a-Service business model, and trends the channel should watch.
Roddy: Greg, earlier this month, we posted an interview between yourself and BSM associate editor Bernadette Wilson. It was titled “Where Mobility Fits In Retail And Hospitality.” We’re going to link to that interview from this page and not focus on mobility today. But my first question does tie in with retail and hospitality. Everybody’s talking about EMV, and we feel that’s important, but the bigger picture, and where we see the potential for VARs to make money long term is just around general payment security. I’m curious, what’s your take on payment security and tying it in with EMV?
Dixon: Obviously there’s a lot of thought about it, and it’s a complex story that I don’t know we really have time to deal with here. But retailers are faced with what level of security they want to apply to their particular circumstance, and there are these three levels, level one, two, and three. Level three is sort of the ultimate, where all of your integrated card swipe and dip — that’s the new word — technologies are all integrated into the solution, built in, and now that means that the ISV software, the hardware itself, everything has to be tightly integrated in order to accomplish this basic PCI [Payment Card Industry] security.
That’s a lot of money, that’s a lot of time, and that’s a lot of effort. What we’re seeing a lot of companies do is stop short of level three and stop at level two, which means that they’re going to depend on point-to-point encryption. We’re getting a lot of attention around P2PE — the little phrase with the number “2” in there — we’re seeing more of that, and they’re allowing for that, I think. Now, integration goes away, it’s less tightly integrated. There has to be some communication now, using a new sort of protocol between the POS [point of sale] terminal and the payment terminal, which are now separate devices. There’s probably a USB-type connection in there.
Every terminal has its own SD case, software development case, API-kind of approach that says, “You have to talk to me this way, and I have to talk back to you this way.” There are no standards there. Every terminal’s got its own methodology and language, and so there are some complexities there. There’s been the introduction of some middleware components, and middleware is always a temporary solution, a stopgap solution. But all that’s going on right now, and all of it comes around this idea of payment security.
We’re seeing that, and it’s both a good thing and a bad thing. It’s bad in that it’s a stopgap and that there’ll be more things to come, but it’s kind of good in that for companies who make those terminals, the standalone terminals. We participate in that, and there’s a lot of churn that goes on in the channel, just because those terminals are getting replaced and we’re having to go to an EMV kind of scenario, we’re seeing lots of customers rethink the whole scenario and say, “Look, my POS system is five years or seven years old. We should be in a replacement cycle there as well,” and so we’re seeing lots and lots of opportunity that’s based on this wave that’s coming along because of EMV.
Roddy: You’re taking about the opportunity related to EMV. We’re hearing a lot of conjecture and a lot of complaining about EMV. Even for breakfast this morning, I sat down with some ScanSource employees and a couple solutions providers, and they were talking about the steps they’re actually taking in the installations. I’m curious, do you see any definite action steps that resellers can take around EMV, because a lot of folks are just complaining or taking a wait-and-see approach, and that seems to be dangerous. What definite actions would you say resellers should take?
Dixon: Resellers need to be evangelists. They need to be able to really clearly state the case, without creating any FUD factors here — fear, uncertainty, and doubt. That’s really not a place for that, I don’t think, but if a retailer is balking for the wrong reasons, then we need to help them understand that there is a shift in liability coming, and that it’s not absolute. It doesn’t mean that, on November 1st of 2015, suddenly you’re going to be a tremendous risk. You need to take cautions and precautions, and I’m sure that a lot of retailers are seeing that and not seeing the sort of big picture.
Our customers need to make absolutely sure that their customers understand that this is, in fact, an inevitability, and that they’re going to have to accept it, and that there are ways to go about it that are not as expensive as they may seem, and that we’re going to have to explore those things together, and while we’re at it, we’ll have an opportunity to talk about your whole POS solution, and talk about are you future-proofed for the next evolution, the next thing that’s going to come along?
There’s a lot of opportunity here for talk. Resellers need to be ready for it. They need to be prepared and have a good message, and I think fear and uncertainty is not the right approach.
Roddy: It’s funny, because a few years ago, we weren’t talking so much about EMV, but it all comes down to the fundamental of, if you’re a reseller, you need to get to understand the technology, understand the general vertical market that you operate in, learn your customer’s needs, and then like you said, be that evangelist to encourage them, and be advising them. No matter what the situation, that’s what it is.
Dixon: A trusted advisor, and if you don’t have that kind of relationship already with your customers, shame on you. You should. That’s really part of what business is about, and our customers need to be trusted. The only way you do that, honestly, is through an ongoing relationship. You can’t just say, “Write me a big check and see you next year.” We’ve talked some about managed services, and that’s good. That’s a good thing, because it creates that almost monthly relationship between the reseller and their customer, and it gives them plenty of opportunity to become trusted and to become an advisor and to become a partner in their business, and to understand how their business works day-to-day-to-day.
Those are all good things, I think, and ultimately, when a reseller has to give their customer the bad news, oh man, it’s much easier to take, a much more trusted relationship, and the merchant now is going to know that the reseller has their best interest at heart.
Roddy: That’s a perfect segue into my next question I wanted to ask you. We’ve talked for years about the shift from the break-fix model to the as-a-Service, managed services model. What advances have you seen in this area, especially in point of sale and bar coding? You’re up close and personal with that every day.
Dixon: Managed services is not new. It’s not new to the IT industry. It’s five or six years old. It’s a maturing market space for those who are involved in more of the core parts of the network. If there are four or five layers here, layers one two and three, those are the core parts. It’s the ERP [enterprise resource planning], it’s the CRM [customer relationship management], it’s the voice communications parts of the network, it’s the storage and all those things. Managed services is not a new thing for those.
Our customers live at the edge of that network, and so those edge suppliers, like point of sale, like mobile devices, just to use those two examples, are really, really ready for managed services.
Those customers were already getting managed services opportunities from their core network folks and are already accustomed to it. They’re already accustomed to paying a monthly bill for a service level agreement. The language — you don’t have to reinvent this. It’s something that’s already in place. Our customers, though, who serve the edge of the network, really need to become aware of these things. They need to learn to speak that language, and they need also to learn how to embrace and manage these devices, these edge devices. Otherwise, I’m afraid they’re going to be overrun and sort of pushed out of the network.
In regard to POS, we probably honestly were ahead of our time, five or six or more years ago, when we helped develop a solution around POS managed services. We called it Virtual Technician, and it’s now a real product. It’s called Vigilix now. Honestly, had we done that three years ago, instead of six or seven, it might have been better, because its time was too early. We’re rethinking that whole thing, and the guys who own that thing today, I just met with them last night again. We have a new project that we’re working with them on, regarding managed services and dashboards and the like.
What we’re trying hard to do right now is to bring point of sale and mobility and credit card security — let’s not leave that one out. It sounds like point of sale, but it’s really a kind of separate thing these days, bringing all of those things under the managed services umbrella, and to help those resellers embrace how to manage those devices, to have the POS terminal actually reporting on its health proactively, have the mobile devices doing the same, through a mobile device manager, but also the credit card terminal, where EMV will have layers and changes and updates. If you can do remote key injection, then you can do remote EMV software updates. We’re figuring out now how to roll that in under our managed services offering, for a POS-type of solution.
Then the last piece of that is if you’re going to manage the devices, you ought to own the network that they’re running on. That’s been a huge issue of mine, is that our customers want to let other people put in the network, even the wireless components, and then we hook our things to their network. To me, that’s just bad business.
What we’ve been doing this year, and what we’ll be doing a lot in the next few months, is providing solutions that help POS resellers, who are maybe unaccustomed to networking, really get good at the network, get a managed network and make it PCI-managed, make sure it’s absolutely secure and then give them the tools, those dashboards and those RMM, remote monitoring and management tools, that give them the ability now to take some baby steps. Maybe if that’s what they want, we’ll help them with baby steps, even though I think the day of baby steps might be rapidly coming to an end. We’re going to have to dive into the deep end of the pool here sometime, and we’re going to help people do that. But I think that’s where we are. We’re at the cusp of a real change in our industry here, one way or the other.
Roddy: Yes, he or she who owns the network, owns the customer. There’s no doubt about it.
Dixon: I believe that, and I can’t seem to convince, en masse, our customers of that truth.
Roddy: This is great, you’re segueing into my next questions. I have the March issue of Business Solutions here. It has, on the cover, A Marriage Of POS And Managed Services. There are some folks who are obviously doing it. You’re seeing that, but we still have been hearing objections to the business model itself, from point of sale and data collection resellers. Are you seeing as many objections or has that calmed down a little bit? Is the focus now more on what steps do I need to take in order to transition at least part of my business?
Dixon: When you transition, everybody doesn’t transition at the same rate. Some people are more risk-adverse, some people are more forward-thinking than others. Those who are forward-thinking and less risk-adverse, and maybe even a little better financed, those are the guys that we’re seeing take ownership of it.
I see my sort of usual group of resellers, they come to these events and we all get together and see how things are going, and I see their businesses progress, in some regards, and then other folks I say, “Wow, isn’t this what it looked like two years ago?” I feel for those guys, and I worry for their health and future, but the good news is, I do see people embracing, I see people taking it on. I see mergers going on, acquisitions going on, so there’s going to be some significant consolidation this year and next and the next, as some companies become less healthy and more willing to be merged or bought, and the other companies who are more healthy are going to take them on, because that’s the necessity of managed services, by the way.
To maintain your old, that same profit margin, with a hundred customers, to go to a managed services model, you have to multiply that times ten. The amount of money you can make on an individual customer goes down, but also the amount of effort that goes into it goes down. Your efficiencies go up, your profitability, to remain the same, you have to have more and more customers. I’m saying times ten. As a result of that, if you’re really sharp and you have the great business model, you have the right tools, then your profitability’s actually more than it used to be. That top line may be the same, but the bottom line can grow, and it’s a very interesting business model, but it’s not for everybody, obviously, or everybody would be headed there. I’m concerned for those who are hanging on to the break-fix, old-fashioned kind of model.
Roddy: Are you still seeing resellers just saying, “Speak to the hand – I’m doing fine. I don’t even want to go to that business model. This has worked for me for years.”?
Dixon: No, I don’t think I hear that much confidence in them. What I get is a lot of looking at their shoes and what’s next and how can I get out of this? There’s a discomfort there that they can’t deny. They can’t deny the world is changing below their feet and only a fool stands still when the ground moves. That’s what I think’s happening.
Roddy: What I’ve also seen is when you talk to resellers who have made the transition, on the first of the month their bills are already paid for the month. They’re in a way different state of mind, and the way that they speak about their business, as opposed to somebody who’s nervous, looking at their watch like, “I’ve got to make the next sale, the next project.”
Dixon: How can that not be an attractive model, in my opinion? When you start the month with a book of business — and the trick is, again, if you just say, “Well, I’ve got a hundred customers, I’m going to convert those hundred customers from break-fix to managed services,” you’re going to go down the tubes. I’m telling you, that model just does not work.
You’ve got to figure out a way to incent your salespeople. Salespeople only do what they get paid for, right? You have to incent your salespeople in new ways, and probably some older salespeople are going to have to find something else to do. If they don’t want to embrace the new model, that’s also true.
But find some new salespeople with a new mentality, who can — and I’ll say probably younger people are born in the cloud and don’t know any better, that’s their business model. You’re going to have to literally take other people’s customers away from them. What I say to those customers, those people who have customers, either you talk to them about managed services or somebody else is going to, period.
Roddy: One of my last questions for you is regarding a channel report recently published by The 2112 Group, which is headed up by analyst Larry Walsh. Some of the bad news that came out of it was the challenges, the continued decline in channel startups and increasing difficulty adapting to emerging technology and business models. What are your thoughts on those trends that they’ve identified? Are you seeing that? Or not so much?
Dixon: I know Larry, and I appreciate how he goes about these things. I would have described the results maybe differently. Now, I’m not arguing with his results, and I’m sure they’re mathematically correct, but fewer startups is a way to describe it. But fewer businesses in existence is another way to do it.
You know, a lot of businesses, it would be hard to come up with the math on that, when we have just experienced a decline in our economy that caused a whole lot of companies to go out of business. You would maybe expect, if he was comparing this to how many businesses maybe should be coming back, and it’s fewer than expected — that I could buy into.
But the fact is here, too, the old business model is old and it’s getting older, fast. As a result, there will be less companies to point to and say, “There’s another one, there’s another one, there’s another one.” There’s going to be a decline in just the sheer numbers of companies that are capable of doing this, and unfortunately the big guys are going to get bigger, and the small guys are going to go away.
Now, that’s a little harsh, and it doesn’t mean to be harsh. What it says is that we’re in the middle of a time when it’s really critical that distributors like ourselves are consistent with our message, that we’re doing everything we can possibly do to make our customers hear it. We’re the evangelists to the evangelists.
We have to make sure that they’re hearing it loud and clear. Every time you put me on a stage, I can’t help it, but this is what I want to talk about. You’ve got me on a stage right now, and I’m not going to let my customers down. They need to hear that we’re living in different times these days. These are different times.
Like me, I’m 38 years in the IT business. Trust me, I’ve seen everything come and go. We’re seeing another thing here come, and some things are going to go as part of it. You can blame the cloud, blame an Internet that is reliable and fast and capable, blame these kinds of things, blame virtualization, blame VMware. I don’t know, you can blame a lot of things. Blame Amazon. But the facts are, it’s a different world. Our business models are going to have to change to accommodate that new world.
Roddy: I remember my college basketball coach used to say, “Point the thumb, not the finger.” You’re talking about blame, blame, blame, but isn’t there a, “Hey, how can I embrace those things?” because some people are?
Dixon: Absolutely. When I say blame those things, those are facetious things. You can’t do a thing about those, right? You can’t predict what that other team is going to do. All you can do is predict what your team is going to do. That’s what I say to our team, is that we have to adapt our game, bring up a new defense, create some new offense. If all we’re doing is playing defense, again, going down the tubes. But we need to have some new offense, and the new offense here is to embrace the new business approaches. It’s a little hard for us, because we’re a technology company. We like to talk about technology, and here, we’re having to have business conversations and business model discussions and financial and profitability issues. Those are a little different for us, and it’s not a message that resellers are accustomed to hearing from their distributor. We have to wave our hand even louder and shout even louder. People get it.
Roddy: A lot of folks didn’t even consider that they had a business model. It was, “I fix problems, and when somebody calls me, there’s a problem. I didn’t even know there was a different business model.”
Dixon: Right. “What’s wrong with this? It’s been just fine for 20 years.” Boy, that’s tough.
Roddy: My last question for you is intentionally broad. Besides what we’ve talked about, what are some of the most important things for VARs to pay attention to over the next 12 to 18 months? Like you said, you live on the edge and see some of the new, cool gadgets or different things, but outside of what we’ve talked about with EMV and managed services and the as-a-Service business model, what are some of the other things?
Dixon: I’m not sure there’s anything that new. You have to watch the trends. You have to pay attention to the momentum that’s going on around you, and you have to first react and then proact, if that’s a word. You have to get ahead of that wave. If you just drag along behind it, you might not survive it. You might get drowned by it.
There are ways to do that, and I think that resellers in the POS space have a once-in-a-career opportunity. I’m not kidding you, a once-in-a-career opportunity to take advantage of something and to take advantage of the momentum that EMV is creating, because as it’s moving along, all sorts of things are jumping on that wave, like mobile wallet.
You say, “Well, why did Apple do this? Apple’s just Apple.” Listen, their timing was perfect for Apple Pay, because they knew that this thing would pick up momentum, it would ride along on the EMV wave, and that as people replaced their terminals, which is what you have to do to get Apple Pay to work, they’re already replacing it. They’re replacing it for somebody else.
Let EMV take the blame and Apple get the credit. Apple is brilliant, and Samsung, exactly the same. They bought a payment (company) and now there’s Samsung Pay. These guys are no dummies, and our resellers watch those things, pay attention to it, and then find ways to hook their solutions onto that moving wave.
You hit it right, they’re going to have about 12 to 18 months, and then this wave’s going to settle. We’re going to have to think of something altogether new.
Roddy: We’ll be back having this conversation again.
Dixon: We will.