Remember when you could go down to your local video store and rent a movie? You don’t have to admit to the pull you felt to peek behind the red saloon doors in the back, but in my generation’s teenage years, Blockbuster and stores like it dominated our pop culture scene.
For me, it was Video HQ. I remember new releases spanning multiple shelves and hoping as I walked in that the latest movie was in stock. The free popcorn wasn’t a bad touch either and don’t get me started on the punch card or the sneaky shenanigans I pulled to rent rated R flicks.
Many of these local stores were replaced by Blockbuster, who had better deals with more studios and got the best titles earlier and in greater quantity.
Then, something weird happened. Netflix popped up and offered mail service and then streaming. As internet speeds increased, streaming became less of a fringe idea. Then these little red kiosks started popping up and instead of $3-5 for 3 nights, it was 99¢ for one night movie rentals.
Blockbuster was in trouble.
You see it wasn’t really 99¢. RedBox was slinging promo codes like an overnight stock clerk at Walmart putting toilet paper back on the shelf. They were giving away rentals to show people that this new idea wasn’t scary and frankly it was better. Come on, just give it a try.
NetFlix did the same thing. They absorbed costs early on to encourage adoption. Then, their incredible service and commitment to the customer journey did the work and anchored these new relationships.
All the while, Blockbuster kept its head in the sand. Who knows, maybe it happened too fast for them to even react in a meaningful way. Sometimes an ambush is… well, an ambush.
Toast is doing what RedBox and Netflix did. They’re doing it to an industry led by old-fashioned, slow-moving giants, and frankly, it’s genius. Genius from the standpoint of dominating a market ripe for disruption… not necessarily the best thing for restauranteurs across America.
Toast offers restaurant point of sale and related services, including processing, online ordering, and now even payroll. Toast raised $400 million in February following a $250 million raise the previous April.
They’re using this money to aggressively proliferate their system in every major market across the country. Like RedBox kiosks, they are cutting into established brands like Micros, NCR Aloha, and numerous other legacy and more modern POS systems.
How are they doing it?
Toast has hired a good sized outside sales force and frankly, their product marketing, offering, and positioning is strong as hell. They don’t mess around with other verticals and are purely focused on restaurants… for now.
That, and the product works. Say what you want about the processing piece (we all know they overprice their processing) but when you look at the value the system brings – restaurant operators just want the damned thing to work and from what I’m seeing, Toast is working really well for most.
Couple a strong product with strong positioning, a reasonably well-trained sales force, and Scrooge McDuck levels of cash on hand? You have quite a force to be reckoned with.
Here’s the real story though.
RedBox and Netflix (then Prime, Hulu, and others) killed the “video store”. They didn’t corner the market, the collapsed it and created a new playing field. I think Toast is doing this to restaurant POS.
They penetrate the market with low-cost equipment, they discount their SaaS fees, provide a good product, market the hell out of it, release more features and services to cater to their customers, rinse and repeat.
Then, once that have that market cornered or elevated, they get to do what they want with pricing. We already know that their payments fees are really high. We already know that they’ve increased their third-party integration fees and are even forcing third-party integrators to use their payment rails.
RedBox used to be 99¢ – if you even paid for the rental. Then the coupons went away or were reduced and now it’s $1.80, more for BluRay. NetFlix used to be $6.99 per month and included shipping DVDs across the nation and back. Then it was $8.99 and then it was $12. Granted the service has gotten better with richer content, better interface, etc. But they created a market and now they get to control their price.
Toast could very well do the same thing.
What do you think?