Magazine Article | February 13, 2013

Untangling The Confusion Around Cloud-Based POS

By Jay McCall, Business Solutions magazine.

Three industry experts address common VAR misconceptions and objections.

Many VARs, integrators, and MSPs that provide IT solutions and services outside of retail are becoming very familiar with cloud computing services. In the retail and restaurant spaces, however, the term is often misused and misunderstood. Some resellers resist 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, I recently spoke with executives from Aeris POS Systems/Essential Elements, COMBASE USA, and MicroBiz.

Why should POS dealers consider this “new” way of business?

Mike Burris, CEO, Aeris POS Systems/Essential Elements: 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 models. In a few years, cloud computing will become the norm. Resellers who recognize this will be ahead of the game. The 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.

Till Freier, CEO, COMBASE USA: On the surface, SaaS models may not seem as profitable for dealers, but in most cases they are for the end users, which requires dealers to jump on board whether they like it or not. The majority of end users will eventually be looking for only these types of solutions. The most obvious reason is the significant reduction of upfront capital. Another good reason for the SaaS model is that all the software updates are usually included. The end user receives the best possible service because the SaaS provider makes a profit only when the system is continuously used. The traditional, “sell and walk away” sales model becomes irrelevant, which is another benefit to end users, since dealers will have to be more committed to keeping end users satisfied.

Kevin Kogler, president and CEO, MicroBiz: Mobile POS is at the top of the requirement list for many retailers looking at new POS systems. Cloudbased POS applications give retailers the ability to access their retail management system and accept payments at any time, from anywhere, and on almost any type of device. As long as a computer device can open a browser, a retailer can access its POS system and accept payments. So, retailers can use a single cloud-based POS application with PCs, iPads, iPhones, Android devices, and Windows devices; they can quickly set up pop-up stores, seasonal stores, and sidewalk sale registers as needed. Another top requirement is real-time product information and inventory management. With a cloud-based system, this data is stored centrally and continually updated, and it can easily be interfaced with other web-based applications such as ecommerce sites. So, a sale in one store or an ecommerce site is instantly reflected across all registers in all stores accessing the system without any sort of store-to-store replication or polling process — making it easy for, “buy online, pick up in store,” or “store to web” fulfillment. Product information can be accessed from anywhere, such as by a salesperson with a tablet computer standing on the floor next to a customer.

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 as a utility, akin to buying cable TV. You don’t pay a large, upfront 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-based POS solution should be less than those associated with a conventional POS solution.
  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 customers 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” for an additional monthly fee, it is 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. Fewer on-site visits are required to resolve IT issues. Dealers spend a lot of money on good support staffs. 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, general ledger, labor, menu analysis, recipe costing, nutritional analysis, commissary, warehouse, budgets, KPI (key performance indicator), accounts receivable, accounts payable, dashboards — to enhance this fact, the greater the divide between itself and legacy POS solutions. Taking full advantage of cloud computing will yield far better business analytics for your customers.

What are some common customer objections and can you give some specific ways dealers can overcome those objections?

Kogler: Is my data safe? In most cases a retailer’s data is much safer using a cloud-based application than on-premise software. Cloud-based software providers maintain extremely strict security policies and procedures (e.g. strong passwords, firewalls, encryption) and continually back up and replicate customer data within multiple data centers. Each customer’s data is maintained completely separately and distinct from other customers’ on their own virtual database. In comparison, many retailers have their entire store system on a completely unsecure PC or server — subject to total loss in the event of a fire, flood, or theft. While some back up religiously, many forget to back up or find that their backup data is corrupt only after a loss has occurred. Most VARs have experienced that call from the retailer requesting that the VAR perform the impossible task of recovering yesterday’s sales from a backup that’s a couple of months old. This would not happen with a cloud application.

I want the security of owning my own software license. Some retailers believe there is more security in buying a perpetual software license than in renting software through a subscription contract. While it is technically true that a retailer owns the intellectual property when buying a software license, the value of this ownership depreciates quickly. After two years, the purchased software may lack many of the new features and functions offered by newer software. As a result, most software vendors require the user to sign a separate software maintenance contract in order to receive periodic updates, or require the user to buy a new version of the software every two years. Rather than focusing on who owns the POS software, it’s more important for a reseller to understand who owns the store’s data. The retailer should have clear rights to this data, and it should be in a format that is easily convertible should the retailer decide to switch to a new POS system. Some legacy vendors use proprietary data structures, which are difficult to convert to a new POS system. Most cloud-based vendors give the retailer clear rights to their data and maintain it in a modern and open data structure.

Freier: Most commonly, one of the first questions we get asked is whether the SaaS solution will work offline. This is obviously a huge concern, and end users and VARs should keep that in mind when selecting SaaS solutions. Not all SaaS models are created the same. The ones that are purely cloud-based, meaning that even the cash register is web-based, will slow to a halt if the Internet connection is overloaded or down. The other option is to select a hybrid cloud model, where the client’s software is locally installed on the hard drive and is able to download its data from the cloud and upload its sales data for reporting. This not only increases the reliability of the cash registers, regardless of internet capacity or reliability, but also helps to keep the cash registers working at optimal speed, since they don’t have to call out to a distant server to process each action.

Another concern is that the traditional way of purchasing software would be the cheaper way. If you compare a single license purchase and the sum of fees for SaaS over several years, the traditional way might be cheaper, but it comes with added risks and responsibilities. For example, if the software purchased is outdated, which happens sooner or later to any purchased software, then it needs to be replaced. This causes unexpected costs and increases the risk of missing important updates. Keep in mind, also, that SaaS stands for software as a “service,” so the ongoing costs associated with SaaS solutions are paying for that service, which includes the maintenance and replacement of the servers where their data is stored, security updates, and software updates. What it means is that instead of buying a traditional license allowing the use of a particular piece of software, the end user is getting a whole solution that is going to continue to work for them, continue to improve, and continue to be maintained on their behalf.