The unassuming appointment book is emerging as a multi-billion-dollar battlefield between companies looking for a way to capitalize on the giant business of processing payments for small and medium-sized businesses.
Microsoft’s recent addition of appointment booking to Office’s productivity software comes on the heels of First Data’s strategic investment in Booker, a company that provides similar functionality (and which Revolution also has invested in), putting the two giants on a potential collision course at the intersection of software and payment processing.
Payment processing is the business of enabling merchants to take credit, debit, or P2P payments. It’s a huge, $900 billion global industry dominated by Visa ($13.8B ’15 revenue), First Data ($11.4B ’15 revenue), and MasterCard ($9.7B ’15 revenue). And, it’s being disrupted as changes in consumer expectations and new technologies blur the lines between online, mobile, and in-store commerce.
Until now, the payment processing battle has been for the credit card swipe when consumers purchase a thing. But today, a greater percentage of the US GDP is spent on services than on things, and software now enables for services to be purchased with a credit card. From 2009 to 2014, credit card, debit card, and electronic payments surged more than 40% in the U.S., to around $6.5 trillion. By 2018, some 81¢ of every dollar spent will be card based or electronic, versus 65¢ today.
And, it turns out that for most SMB services businesses, all roads lead to the appointment book.
After all, for most small services businesses, the appointment book is the system-of-record for inventory and, therefore, how they make money. Take for example, a spa. A 50-minute massage at 5:00pm represents a $100 revenue opportunity that has historically been tracked in a little black book. Companies like Booker (on whose board I serve), MindBody and now Microsoft are using cloud computing and big data analytics to migrate those appointments from the black book to online software, allowing for a better consumer experience through integrated online / mobile / in-store purchasing, increased revenue through marketing integrations, and easier bookkeeping through accounting integrations. Importantly, that software also allows easier payments processing through merchant processing integrations. [Editor’s note: Street Fight also delved into this dynamic area in the white paper “How Back-Office Innovation is Transforming Local Marketing.”]
This is why Microsoft’s announcement that it is adding appointment booking functionality for “free” to its Office 365 subscriptions for small merchants and First Data’s investment in Booker are strategically interesting. As more alternatives exist to Word, Outlook, and Excel, Microsoft must continue to bolster the value of its core offering to justify its annual $100 per license payment. By including “free” appointment booking software for small businesses, Microsoft allows a small or medium sized business who subscribes to Office to sell its services online and have the associated appointments automatically added to that merchant’s appointment book. This brings Microsoft much closer to the revenues of a services business. It’s easy to envision a next step when Microsoft includes “free” (or massively discounted) payment processing to Office subscribers, thereby “giving away” First Data’s core business to protect its own cash cow.
This would be almost irresistible to merchants, who hate paying for the right to collect credit card payments, and would immediately put the core business models of payments processing companies at odds with Microsoft’s strategy of protecting its core Office franchise.
First Data has been feeling these effects. First Data investor KKR recently told Fortune Magazine that the company was losing 15% of its business every year to competitors who offered lower prices or better service.
But, under new CEO, Frank Bisignano, the company is focusing on moving up the value chain to a software business that delivers greater value and higher, more sustainable margins. The strategy to migrate up the value chain began with First Data’s acquisition of Clover, a Silicon-Valley platform for merchant-centric apps. This was followed by the company’s investment in Booker, to better integrate its processing with the day-to-day operating needs of services SMBs. Bisignano told Fortune. “For years, we’ve been selling these dumb ‘bricks’ that do nothing but swipe cards. We’re replacing those bricks with bar and countertop computers that will manage inventory.” And, the appointment book is the inventory management system for many small merchants.
Consumers want, and expect, convenience. It’s time for the e-scheduling revolution to begin. Two big players have already made the first move.
Tige Savage co-founded Revolution with Steve Case and Donn Davis. He is cofounder and managing partner of Revolution Ventures, a venture capital firm based in Washington, D.C. that focuses on early stage investments in companies that are transforming large, existing categories. Examples include OrderUp, LivingSocial, Zipcar, Booker, and Revolution Money, where Tige has been an investor and board member.
Related content on Street Fight: “How Back-Office Innovation is Transforming Local Marketing.”