COMMENTARY: Amazon, Square, Groupon, and the Death of mPOS

This week, Amazon launched Amazon Local Register, the mobile POS (mPOS) solution that may well kill mPOS solutions. That’s not to say that they won’t exist anymore, but it is to say that mPOS as a value proposition in and of itself is really going to struggle moving forward.

Square, through both technology and business model innovations, popularized mPOS by enabling anyone, anywhere to accept electronic payments. Since then, however, Square has pivoted from that strategy and now focuses on serving the needs of more traditional and established businesses with not only payments, but also with a series of value-added product offerings.

Square offers business intelligence reporting, an electronic cash register with inventory management capabilities, online selling tools, management of online orders, appointment booking tools, invoicing tools, integration with QuickBooks accounting, and coming soon it will be providing delivery services. All of this is neatly wrapped up in a single, comprehensive product that also provides a distinctive consumer experience that is consistent across merchants and merchant locations. The ability to aggregate these services into a simple, elegant user interface is a competitive advantage that Square continues to enjoy over the rest of the merchant acquiring industry.

However, there is a key value component that has, as of yet, eluded Square despite its best efforts—demand generation. It’s the holy grail of digital commerce, focusing not on facilitating transactions with and retention of existing customers, but rather on helping merchants find new customers. To do this effectively, you need an audience of consumers who come to you when they are looking to shop, and you need to be able to direct them to merchants who pay you for that customer delivery. If you can do this, you have a massive competitive advantage over even Square.

To date, the only provider that has anything close to this ability that has entered the mPOS market has been Groupon, but Groupon’s demand generation is tied so closely to deep discounting that its value in this area is diminished, and the size of its consumer base pales in comparison to Amazon’s 244 million active users worldwide.

Amazon has finally decided to step out of its online-only world and pursue the much bigger offline market.  For the first time, we have an mPOS provider who is able to leverage its audience of hundreds of millions of consumers to provide demand generation tools to offline merchants. It’s not part of the initial product offering, but you can bet on this: Amazon Local Register is not a payments play. Do you really think Amazon’s high growth, high price/earnings ratio investors will tolerate investment into a commoditized industry with margins that are continuously spiraling downwards? Not on your life, Amazon will only play where it can win, and it can win the mPOS market through demand generation.

So if you’re with an acquiring organization that, like all other acquiring organizations, has scrambled to bring mPOS and other value-added solutions to market in order to compete with Square, it may well be time to re-think that strategy. How are you going to answer Amazon’s demand generation offering?

Rick Oglesby is a senior analyst at Centennial, Colo.-based Double Diamond Payments Research. Reach him at rick@doublediamondgroup.com.