More Reasons to Not Be in the Hardware Business
The
emergence of contactless transactions continues to accelerate even as the
pandemic recedes. Make sure you are not one of the ones being left
behind.
BY HOWARD
TULLMAN, GENERAL MANAGING PARTNER, G2T3V AND CHICAGO HIGH TECH
INVESTORS@TULLMAN
The COVID-19 pandemic irrevocably
altered certain assumptions, behaviors and business practices that we had taken
largely for granted for decades. In addition, the pandemic dramatically
accelerated the adoption of emergent technologies by several years compared
with even the rosiest prior adoption forecasts. E-commerce, telemedicine,
videoconferencing and the use of digital connection and collaboration tools
like Slack and Teams are some of the most visible and obvious beneficiaries of
these new norms.
After the exponential growth of the last
two years, we are already seeing that the expansion in these offerings will be
somewhat slower, more measured and predictable, and less utterly disruptive
than might have initially been assumed. These tools and solutions (among
others, in sectors like logistics) were already advancing and increasing their
adoption and penetration prior to the pandemic. As a result, while they still
face many of the typical challenges of scaling up, there aren’t likely too many
new surprises in their respective bags of tricks. Uber Eats, as an example, may
have temporarily surpassed the revenues of traditional Uber in a remarkably
short time --boosted undoubtedly by the global lockdowns. But now we can expect
more stable growth especially since driverless vehicles remain somewhere
between wishful thinking and utter fantasy.
Businesses and technologies that bring
exciting innovation that is truly disruptive (with game-changing dimensions on
the scale of Uber killing the taxi business) are initially harder to identify.
But many of them are intent on attacking industries that share a singular
attribute - hardware manufacturing - as well as serving as proof positive of
the old adage that time has an ugly way of turning your assets into
liabilities. Way back in 2013, I identified six distinct reasons why it no longer made much sense to be a manufacturer of
almost anything unless your name is Apple, which has also stumbled from time to time.
If anything, over time things have just
gotten worse. In 2017, I warned that software continued to eat the world and
“smarts kept trumping steel” in the car biz. The hardware business was simply
no place to be any longer and: “Everyone who makes stuff is gonna have to get more aggressively into the content/software part of
the game pretty soon or they'll be left behind.:00
And
finally, I wrote in 2019 that the great compression was well underway and that
standalone and single purpose devices - whether sitting on a surface or wrapped
around a wrist - were doomed to be superseded by more
digital and comprehensive solutions. Simply stated, it sucks to be in almost
any hardware business today. Garage door openers built into your car or an app
on your phone, fitness trackers folded into watch functions, set top boxes and
routers upstreamed and disappeared. Nobody needs more loose, single-function
stuff laying around the house gathering dust and getting lost.
But sea changes like this also present
enormous upside rewards and opportunities for smart, fast operators who can get
ahead of the oncoming waves. Right now, one of the most exciting surfers I’ve
seen - who’s also getting a gigantic boost from the behavioral changes brought
on by Covid-19 - is a California company called MagicCube.
Now that we have basically trained the entire world not to touch anything, as
MC Hammer said, in U Can’t Touch This, “that’s how we livin’”. We
don’t want to touch, handle, sign or swipe anything if we can avoid it. Smart
bank cards, digital wallets and other phone-based solutions are rapidly
emerging on both the consumer and retailers sides of the transactions.
But, in the back of the house or behind
the counter, in millions of retail establishments, it’s still business as usual
because all they ever do is all they ever knew. You still sit there while the
clerk or waiter disappears into the bowels of the business to run your card
thru the machine sitting right next to the soda dispenser which is just as
sticky and then you have the privilege of sticking your now nasty card back
into your wallet or purse.
Addressing that glaring gap, MagicCube
is on its way to replacing these single-use devices with software installed on
off-the-shelf smart phones and tablets. The company is blowing up the very
sleepy and old hardware sector at the heart of the problem, which currently
brings in more than $70 billion annually and continues to grow. That’s a
strategic issue for global transaction companies like Worldline that
have been hawking POS (point-of-sale) payment hardware in all sizes and shapes
from countertop units to wall mounted terminals. It’s hard to know where to
start in describing the workplace inefficiencies, staff and customer congestion
concerns, mobility and access problems, hygiene headaches and other issues
which these tired and ragged black boxes represent.
So, is it really any wonder that
“contactless” everything is all the rage and that the antiquated and mechanical
ordering and payment processes are at the very top of the list of things that
desperately need to be changed if not discarded? Could there be a quicker,
cleaner, safer and easier solution to the problem than using that clever little
device we’re already holding in our hands to initiate, authorize and accept any
purchase transaction in seconds from virtually anywhere customers and employees
happen to be?
This is what MagicCube delivers - its
software-based softPOS solution called i-Accept - turns
any smart device into a magic wand and permits merchants to empower and enable
their staffs throughout their stores to instantly process and accept
contactless payments from customers’ cards or digital wallets. No waits, no
long lines, or equipment required, no changes in consumer behaviors except for
the better, and, of course, no touch needed. On the business side, MagicCube’s
cloud-based solutions seamlessly connect retailers and their merchant banks
without the need for on-site hardware.
The new wave is already well underway
with MagicCube having deployed its solution globally in various banking
partnerships. Apple recently announced its contactless NFC acceptance
capability for its phones, but not everyone wants to pay the price for entry
into Apple’s pristine but pricey walled garden. The Android world where
MagicCube lives is much bigger, broader, and less expensive. In addition,
Apple’s Tap to Pay scenarios are almost 100% consumer payment focused whereas
MagicCube is addressing the retailer acceptance side of the coin. Paying is OK
but getting paid (acceptance and authorization) is the name of the B2B side of
the game.
Walmart recently announced that it will
be giving 750,000 of its store employees a free Samsung phone equipped with a
proprietary Walmart app to enable them to provide more fluid, flexible and
responsive in-store service to customers. It was first used for a scheduling
tool but quickly expanded. The obvious next step is to enable and use these
same devices with MagicCube’s solution to accept payments and eliminate
checkout lines during high volume periods.
And, in a sign of the coming times,
Worldline - seeing the writing on the wall - is exiting the hardware side of
its business by selling the bulk of its payments terminal manufacturing
business at a huge loss. Square might stick around for a while as an iPAD
appendage but only if Dorsey really starts paying attention now that he’s out
of Twitter.
Our entire digital world today is about the
ease and ubiquity of access, the speed of everything, and consumer convenience,
which trumps everything else. If you thought the cab companies died quickly
with the advent of Uber, you ain’t seen nothing yet in terms of the upcoming
changes in the software POS world.