March 9, 2005

Prices Plummet for Point-of-Sale Systems

By Evan Schuman, eWEEK

With causes ranging from new, low-priced vendors to needing more lanes open simultaneously, IHL Consulting Group is reporting that prices for typical point-of-sale base units in North America have been plummeting, from about $2,200 in 2002 to $950 last year.

At the same time, the number of POS systems sold also sharply increased—about 12 percent—to a little more than 1 million units, said Lee Holman, one of the report's authors and vice president of product development at IHL.

When software, services and various POS-related peripherals are factored in, that amounts to a roughly $6.5 billion market for 2004, with an expectation of an "even bigger" market for 2005, IHL said.

Greg Buzek, the report's other author and president of IHL, said the POS growth extended across many retail segments. Last year "was an outstanding year of unit growth for vendors, particularly in specialty stores, table service restaurants and super centers," he said.

"Looking ahead, our research indicates that every segment of the retail industry will increase its POS purchases in 2005 over 2004, as retailers upgrade to more reliable and easier-to-use systems."

Around 2001 and 2002, many of the POS price reductions were based on improving supply-chain efficiencies, with vendors reducing their costs and passing along a small portion of those savings to customers, Holman said.

But IHL attributed many of the recent price reductions to responses from POS industry veterans—especially IBM and NCR Corp.—to POS newcomers, especially Dell Inc. and Hewlett-Packard Co., which introduced lower-priced systems.

"The very fact that HP and Dell have entered the market has driven the cost down," Holman said in an eWEEK.com interview. "Simply by including Dell or HP in the mix, that forces the other vendors to drive their prices down. Prior to Dell and HP entering, there was no reason for vendors to have a hardball price, and there was no reason to have to cut their prices significantly."

Another industry change is the debundling of POS and supporting peripherals and systems. Historically, when retailers would upgrade, replace or add new POS units, "he would buy all his stuff—including scanners, printers, monitors and so on—from the same vendor," Holman said.

"As retailers have become more savvy with their technology," he said, they have started keeping their peripherals and not replacing them just because they are buying new POS units.

That means that they can get months and sometimes additional years of service out of those peripherals, which reduces their total POS-related expenditures. That has also made it more difficult for vendors to pad POS prices.

An unexpected finding in the POS report, Holman said, involved IBM. The company has taken a lot of heat recently for its declining PC and laptop sales, a move that has culminated in IBM selling much of that business to China's Lenovo Group Ltd.

Part of that PC group includes IBM's retail store systems group, which includes POS sales. Those retail sales "have been going in the opposite direction from the rest of the PC business," Holman said. When the sale to Lenovo completes, IBM "is going to have a chance to focus even more on POS" issues.

Although IBM received a lot of publicity for losing the Publix POS account last year to HP, it received less attention when it won significant new retail accounts, including Circuit City, Sears and Pep Boys, Holman said.

Another finding in the report is that Linux is continuing to grow in retail, increasing about 34 percent in 2004 compared with 2003, account for some 6 percent of the overall market. "It's not a significant piece of the pie yet, as you're still talking about small numbers," Holman said.

Linux in retail "is expected to rise dramatically in coming years," said a statement issued by IHL. Holman said he expects specifically to see continued growth for Linux retail, especially with convenience stores, specialty retailers and the hospitality industry.

Holman saw 2004 Linux retail activity as having been helped by IBM's decision to embrace SuSE Linux as the preferred operating system for its POS units.

"That's a big deal for somebody that has historically had this proprietary operating system," he said, adding that IBM support "is going to be a bright spot for any retailer who is thinking about Linux."

Shipments of Windows 2000/XP-based terminals represented 56 percent of the overall market. Windows 9x/CE represented another 15 percent of the shipments for a total of 71 percent of the market.