When Will Big Retail Rethink Point-of-Sale? Sooner Than You Think

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IMG_9871copyThe past few years have seen an explosion of local technologies, with venture capital and existing players alike investing heavily in bridging the so-called online-offline gap. But today, many of these services still revolve around a black hole of sorts — the point of sale. Much of the automation and efficiency that technology has brought to ecommerce is still out of reach for the local market because the sellers remain largely offline.

That’s changing. Thanks to the decreasing cost of mobile hardware and improvements in cloud computing, startups like Square and Leaf have been able to provide business management software at a fraction of the cost of legacy systems, opening parts of the small business market which were traditionally priced out of software. But one startup, Revel Systems, wants to bring the tablet-based point-of-sale model upstream and disrupt the entrenched cadre of existing business software providers which generated billions in revenue last year.

Revel’s founder Lisa Falzone, a Stanford grad and erstwhile hedge funder, spun the company out of an online ordering app in 2010. Since then, Falzone and her team have raised over $14 million in venture funding, and have activated over 5,000 accounts.

Street Fight recently caught up with Falzone to discuss Revel’s plans to break the legacy companies’ iron grip on the market; where Square’s payment business fits in the equation; and when we can expect to see tablets on the counters of some of the biggest retailers in the U.S..

Let’s start with legacy POS systems like Micros and NCR. What’s stopping them from making the transition to a cloud-based product?
It’s your classic example of a legacy industry getting fat and happy and not being able to be nimble. Take NCR, for instance. They bought Aloha (via Radiant Technologies), which is a point-of-sale system for the hospitality industry. But then they have NCR Silver, which is more along the lines of Square register. NCR charges $8,000-a-system for Aloha, so they would have to take a big cut in revenue and cannibalize their existing business to compete with the new market.

So there’s a lot of movement in the startup world in and around retail point-of-sale today. Take Square, which sits sort of ambiguously between payments and point-of-sale. How does Revel fit in with systems like Square?
We view Square as more of a payment provider. Sure, they have Square Register, but that’s more replicating the functionality of a cash register rather than building the core functionality of a point-of-sale system with business intelligence and analytics — the functionality that high-volume single-store locations and franchises need to run their business. Consider this: Square’s annual payment processing volume per client is somewhere around $1,500;. our average client is $300,000 in annual revenue per year. You’re looking at a completely different demographic.

Square overlaps a bit with the smaller guys. But as a soon as those stores start to make more money and want to know where their business stands, we believe they’ll want the functionality we provide. Square doesn’t match up. It’s like comparing apples and oranges.

If a big part of the Revel’s strategy is to reduce the price-point susbtantially, what opportunities exist for incremental revenues down the road?
Once you own the point-of-sale, there’s so many tentacles of monetization that you can easily add in. Right now, Our focus is POS, but potentially we will come out with a loyalty program and other ancillary products. Data is huge. Big data is a big buzzword, but most of the companies that say they’re going after data cannot access the really useful datastreams. The data that a POS system generates is incredibly useful and valuable.

Like others in the industry, Revel manages a marketplace where third-parties can sell products built on the data the system generates. How do you scale this effort without sacrificing potential revenue opportunities in the future?
Right now, we lean toward partnering. But it all depends what the integrations look like. Today, our focus is doing POS and partnering with others for online ordering and the like. But have some cool stuff coming up the pipeline that combines online ordering and loyalty — that’s one place we definitely want to tie in directly.

The adoption of more open point-of-sale systems could spawn a lot of innovation in the local tech industry. When do you expect adoption of these new systems to reach a meaningful level?
It’s different than a web business where you can get millions and millions of users overnight. You have to go and convince every mom-and-pop to change out their existing products and adopt a new one. But in the next four-to-five years, you’re going to see a complete transformation in the industry, when at least 80% are going to have a next-generation point of sale.

What does that adoption curve look like? Are there certain developments that might push the market forward?
We’re really waiting for the big brand names to come aboard. For example, the first large thousand-plus store chain to roll out [cloud-based] POS is going to be enormous [for adoption generally]. I see that as “crossing the chasm,” along with the network effects of the data, and the growth of the service and application marketplaces.

One other thing to watch is that soon Windows XP will longer being supported. So everyone who is using a Mircos system [which run Windows XP] has to buy a new system. Most of these old legacy systems are based on PC software, so as Microsoft switched from XP to windows 8, PC compliance really hasn’t caught up. Everyone who uses an old Micros system will not be PCI compliant come April [when it stops being supported].

It’s been a breakout year of sort for retail technology. What should we expect in 2014?
Order ahead is going to be really big. Technology has caught up with consumers, so they don’t want to wait in line anymore. We think there’s going to be a lot more personal devices interacting with retail devices. Whether that’s things pushed over SMS, or stuff maybe integrations with quantified self devices like the FuelBand. As people start become more and more open with their data, you could imagine an feature where a restaurant could match food suggestions based how many calories you burnt that day.

Steven Jacobs is Street Fight’s deputy editor.