Android Is About To Truly Kill The POS Business Model

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Todd Michaud spent years leading retail technology teams for Dunkin' Donuts and Baskin-Robbins and today serves as the VP of IT for a billion-dollar franchise restaurant company. He also runs Power Thinking Media, which helps restaurants and retailers with social and mobile challenges.

This year—2012—will be the beginning of the end for the traditional POS platform. Even though many analysts predicted that Apple, and its iPad, would be the David that finally took down the Goliaths, I'm here to state for the record that Google will land the fatal blow.

For years, traditional POS hardware vendors have had their prices threatened by lower cost consumer products. Retailers wanted to know why they should pay double for a single POS terminal than they would for a powerful PC available to anyone. The vendors have justified their higher prices by saying that it is "industry hardened" or "commercial grade." If you wanted something that was tough enough for the retail environment, so their messaging went, you needed something with high-end features such as redundant disk-on-chip and earthquake-proof chassis that were built to take thousands of touches and handle spills and other abuses found in a retail environment.

That argument worked when tablets were $500 and even $400. But now that Android tablets have fallen below $100, the argument falls apart. You could have four spares in the backroom and still be ahead. It's not even about mobile POS versus traditional; it's purely about price.

If a $100 Android tablet with a free Square reader can handle 95 percent plus of the typical POS functions for 5 percent of the cost (that's not a typo, but a 95 percent savings over traditional POS counterparts), how can vendors continue to justify their higher prices? The short answer is that they can't.

It started in the restaurant world with companies like Sharp that, having transitioned out of the cash-register world, saw an opportunity to create a lower cost hardware approach to compete with the established POS vendors. After all, these companies were losing their strong-hold on an environment that cash registers had once ruled. They saw that POS was complex and high priced, and they worked to create approaches that were simpler and more cost effective. In many cases, these companies produced great hardware at a much lower cost.

But the traditional POS vendors fought back. First, the argument was about future-proofing: "This platform might meet your needs today, but what about loyalty, CRM and all the other stuff you told me you want to do in the future? This low-end platform just won't be able to scale."

They continued the Fear, Uncertainty and Doubt tactics with: "If you have different vendors for hardware and software, then there will constantly be finger pointing between the two about who is at fault. And you will have challenges getting these issues resolved."

The argument was good, once. Having run a retail technology organization that had to support thousands of such environments, this problem was a real one—and a massive headache. Sites could be down for days while trying to resolve a problem. CIOs everywhere evaluated the pain of managing two vendors, and many decided that the additional costs were justified by having a "single throat to choke" when there was a problem.

Then the Apple iPad was released. What was once this expensive technology (touchscreen) that retailers had paid handsomely for, was now available for as little as $500 and suddenly in the hands of millions of consumers. Retail and restaurant CIOs once again went back to their POS providers and demanded to know why an iPad was $500. And why were they paying so much more. "Why don't we just use an iPad?"

Again, the POS vendors had an answer.Again, the POS vendors had an answer: "This is a consumer-based product that is not built for commercial use. Do you think that can get wet? What happens when someone drops it? And you still have all the problems of managing different hardware and software vendors. We don't think that's a good idea."

These were also good arguments, and once again retail CIOs became cautious. "Those screens are easy to break. Imagine how many we will break or, even worse, have stolen." These doubts have certainly impacted tablet POS adoption. (Although many retailers have decided to experiment with iPads as a POS platform, few major chains have decided to go all-in.)

People have to stop thinking about these devices in a mobile sense and simply think of them as a computing platform. Tablets are a touchscreen with plenty of CPU and memory to handle even the most complicated POS functions. Put them in a larger case (or even mount them to the counter), and you can use them as a full POS platform.

Now, all of the arguments against these platforms still hold true. But the big difference is the price-point. At $100, a retailer can afford to buy four spares for every main terminal and still pay 75 percent less than what a traditional POS package costs. Drop it? Grab a spare. Can't get it to work? Grab a spare and fix it later. Need to replace one? Amazon will ship another one overnight.

This obviously isn't news to the big POS players; they have had price pressures for years. But instead of taking the opportunity to pass along savings to their customers when the price of their components dropped, they continued to beef up the horsepower and keep the same price-point. They could have been better prepared for today, but they chose to protect their top line.

POS vendors' opportunity now is to focus on their intellectual property and their software, and to do it in the cloud. That's why Micros is pushing its Symphony platform and why NCR specifically called out Radiant's cloud-based approaches as one of the reasons it acquired the brand.

The big players need to turn their attention to figuring out how to make their software the one that best operates on all the other platforms. I think we'll see a lot of R&D efforts on POS in HTML5. That way it is compatible with all devices, rather than having to build an application for each platform.

Outside of the costs, the additional benefit is to take technology out of the store and put it into datacenters (cloud). These tablets also have the ability to add redundant Internet connections through integrated 3G cellular.

What do you think? Do you think these new Android tablets will be the straw that breaks the camel's POS strategy? If you disagree (or even, heaven forbid, agree), please comment below or send me a private message. Or check out the Twitter discussion on @todd_michaud.