Commerce in 2008: VeriFone’s (PAY) stock plummet is only one part of their upcoming challenges
Perhaps many of you have been following the challenges facing VeriFone (PAY) over the past few months. Since November 30, their stock has dropped 66.94%. This represents a $32.15 decrease in value. (Graph is located here.)
On December 3rd of last year, VeriFone announced that they would have to restate their results and earnings for 2007. This, evidently, was caused by a series of accounting errors. Then, on January 3rd, they announced they would need to delay their annual report as a result of the ongoing process of earnings restatement. This, in and of itself, is not terribly surprising considering the massive work related to their ongoing reviews. (Information on December 3rd and January 3rd at the respective links.)
With all that said, the decreasing stock prices is not the greatest challenge these companies will face.
What is this challenge?
The growth of the integrated software solution.
These tightly integrated, vertically oriented solutions offer substantial value to the business. Consider, for example, that the small business frequently relies on their Software Company for insight and advice into payment related solutions. The last statistic that I have seen is that this is true in 45% of SMBs. As such, you can imagine the importance that the Software Company places in providing the right information to their customer base. And, when feasible, in providing such a solution to their niche vertical.
What benefits does an integrated solution have over traditional hardware?
Typically, the distribution of payments hardware involves a measure of programming (or provisioning), shipping to a location, and then (in some cases) an on-site visit to complete configuration. Software solutions, however, are able to take advantage of web-based delivery mechanisms. As such, the "cost" of delivery is decreased solely to bandwidth for delivery and support of configuration. In many cases, these costs can be minimized in partnership with an established ESD (Electronic Software Distributor) to manage the hosting and fulfillment for a negligible fee.
Quicker to Process
The modern merchant, as the SMB community begins to skew towards a younger demographic, expects immediate gratification. While there are some established industry requirements that cause a measure of delay (underwriting among others), software installation is usually quick and simple. Software installation and configuration is a process that many SMBs are already familiar with through their interaction with non-commerce specific software packages (iTunes, Microsoft Office, etc)
Don’t misunderstand me. Payment terminals are extraordinarily good at what they do. However, "what they do" is simply limited to payments. Integrated Software Solutions are inherently designed to support an entire business workflow and not just payment workflows. Take, for example, Club Prophet Systems a Software Company that has leveraged the IP Commerce Toolkit for their software targeted at private and semi-private golf courses. Their solution provides the following capabilities: (more detail here)
- Member Management Database
- Credit Books
- Gift Cards/Gift Certificates
- Client Loyalty Program
- Food & Beverage
- Event Management
Using this solution, a course is able to manage the entirety of their business and not just their payment acceptance.
I tend to digest complex concepts into mantras (ala Guy Kawasaki). If I had to "mantra" the above, it would be:
Deliver bits — not bricks.
With all this said, there will always be a community of merchants that desires hardware solutions. In 2008, Commerce Service Providers need to ensure that they supplement their traditional offerings with software solutions. These integrated solutions will continue to gain importance and, most importantly, traction in 2008. It isn’t an either/or proposition (hardware or software), it is necessary to offer both.
Deliver bits — not bricks.
January 10, 2008