Any naif who has dared to google “restaurant POS” has found themselves adrift in a sea of sponsored ads paid for by the likes of Toast and Square. Each system claims theirs is THE system guaranteed to skyrocket your business into the fourth dimension. System X purports to increase across-the-board revenue by 400%. System Y boasts that its CRM software is number one according to US News and World Report. System Z promises its hardware will cure your depression, clear your skin, and water your crops.
No doubt about it: POS selection is a hero’s journey. We’ve spilled a lot of pixels about the various options available — for food trucks, for different operating platforms, and for the complete novice. Today, though, we’re going to dial it back to a simple question to help you clamber through the briar: What is the difference between a “cloud-based” POS and an “on-premise” POS?
The super simple answer is there in the names. A cloud-based point of sale system operates mostly in the cloud (i.e., on distant servers) whereas on-premise point of sale system chills in your office. Essentially, the major distinction lies in how and where the chosen system processes and stores data. Let’s unpack that further.
You’ve heard of the cloud, have used cloud-based services, and might even be about 80% sure you can define it. Essentially, the cloud is a network of computer servers around the world that act as one gigantic hard drive. Cloud applications and services are those that “live,” and rely on, the internet. By contrast, on-premise softwares, including perhaps your POS, operate on a sort of closed circuit within the confines of your restaurant’s four walls. The daily operations of the on-premise POS — often referred to as the “legacy” or “traditional” POS — rely on a single server that stores your data at your business.
There’s the quick-and-dirty. To better understand the differences, we spoke to Science on Call’s Luisa Castellanos, a long-time fixture of the foodtech-o-sphere who has seen cloud computing transform the industry.
In a nutshell, the main competitive advantage of a cloud-based POS system is that restaurant operators can access it from anywhere via the internet. And if there's a location more convenient than "anywhere," restaurant operators has yet to find it. "About 10 years ago, there was a noticeable shift in the number of restaurants utilizing cloud systems," Castellanos says. "Operators started seeing each other’s success with cloud-based POS systems, and realizing that, with the cloud, no longer would they have to be at their shop to make changes to the menu or push updates and promo codes — they could essentially run their businesses remotely.”
The practical elision of the physical barriers of distance is an obvious asset for owners whose businesses have multiple locations. As takeout/delivery apps and online ordering have skyrocketed in popularity, the “live syncing” nature of the cloud has taken a lot of the hassle out of omnichannel sales. That’s right: You can thank the same functionality that lets you collaboratively edit a Google Doc from multiple computers for helping your favorite Chinese place keep track of inventory and balance their books breezily.
There are plenty of other benefits to the cloud POS. Like many SaaS startups, companies like Square and Toast run their software on sleek, lightweight devices (many mobile or handheld), saving you counter space and social cachet by dispensing with the need for the bulky hardware associated with most legacy systems. Cloud POS providers boast robust support teams — many on-call 24/7 — that can easily “remote in” to troubleshoot tech issues. Compare this to the support available for traditional systems, which can often only be fixed or upgraded on-premise.
Although you might think reliance upon the internet puts cloud POS users in a more vulnerable position than legacy brand customers, the opposite is true. Depending upon a solitary on-site server is risky.
“If that server goes down, everything goes down,” Castellanos says. “You typically have to call the support number associated with the vendor to have them send a technician out. You’re out of service for the day, because you’re waiting for someone to physically come and repair your equipment, and you can’t process credit cards until they do.”
Sure, internet problems can disrupt certain of your cloud POS system’s flashy auxiliary features. Your CRM platform might stall out, and certain integrations won’t work until internet service is restored. But you needn’t miss a whole day of business. “With a cloud-based POS system, you can typically take credit card payments even when you’re off-line,” Castellanos says. “The system collects the data, stores it, and processes the transactions as soon as the internet comes back up.”
This brings us to the question of data security. It’s a common misconception, Castellanos says, that storing data in the cloud renders it more vulnerable to hackers and other nefarious actors. “The cloud is safe,” she says, full stop. “The credit card information collected is all encrypted. All of the major cloud-based POS systems are PCI compliant. They have to be — they have so many customers that they have to make sure the data is protected.”
In other words, when you opt for a cloud-based POS, you’re throwing your lot in with millions of other cirrus wisps relying upon the safety of the massive multi-server network composing the cloud. On the other hand, if you choose to fly solo with an on-premises POS system connected to your business’s personal server, it’s really you against the big bad world. As much as you’d like to be impervious to disaster, you’re pretty poorly positioned to handle the contingencies outside of your control.
“If you have an on-premise POS, and your equipment gets destroyed in a fire or a flood, you lose everything; there is no backup out there,” Castellanos says. “Or if somebody comes in and steals your terminal, they might not be able to get at your data, if it’s password-protected — but you can’t get to it, either.”
At this point, the cloud-based POS seems to be trouncing the on-premise POS on every count. So why do the legacy brands continue to enjoy the lion’s share of the market?
Inertia is one reason, of course. Before the rise of the cloud, on-premise POS systems were the only options on the market, and operators who have been in business for longer than a decade have grown accustomed to the traditional brands (there’s a reason they’re referred to as legacy systems). Multi-location restaurants only compound the resistance to a huge hardware and software change.
“A lot of restaurant owners think, ‘If it ain’t broke, don’t fix it,’” Castellanos says. “There’s a generational component as well. There are people who don’t want to make that change because their staff is so used to the preexisting on-premise system, and they don’t want to deal with throwing something new into the mix and teaching everybody how to use it. Changing between brands is expensive and time-consuming; multiply by 20 the price of the hardware and the installation fees, and you’re looking at a serious chunk of change, and the changeover could take years.”
One cloud-based POS perk that gets a lot of hype is that these systems require a smaller up-front investment than do the on-premise setups. “With the traditional brands, a single terminal is going to run you at least a thousand bucks,” Castellanos says. But that doesn’t mean a cloud-based option is a financial no-brainer. In the long-term, a cloud POS will charge you for software updates, ongoing licensing fees, and perhaps options like loyalty programs and gift cards. They also dictate which payment processor you get to use. Legacy systems, meanwhile, might offer you a choice of processors and are more likely to bargain with you on the price. “Over time,” she says, “the cloud option is actually almost always more expensive.”
That many of the aforementioned sponsored ads peddle cloud-based solutions that promise a lower lifetime cost brings us to Castellanos’s key takeaway for the POS-curious: “Don’t blindly trust what these companies tell you on their websites. You really have to do a lot of your own research in this process. Talk to the sales representatives, request demos, ask questions, see if you can get a better deal on the rates listed — even the cloud-based companies can be flexible. And definitely talk to other restaurant owners you know. See what they’re using and get their reviews.”
Despite the shortcomings of the cloud-based model, Castellanos is confident that it’s where the industry is heading. “If you’re starting from scratch, any POS you pick is going to be expensive,” she says. “But cloud-based systems are more scalable, and those are the companies that are constantly coming up with new ways for users to generate data insights. Many of the legacy brands are starting to go hybrid with their newer products, moving away from being completely on-premise to having at least some cloud components.”
As is the case with restaurant tech writ large, there really is no one-size-fits-all solution. But Castellanos has one piece of advice that everyone would do well to heed. “Some operators who want to be really unique and innovative go with random systems that nobody’s ever heard of,” she says. “Then they find out it doesn’t integrate with anything, the technology is sketchy, the support is nonexistent.” If your retired uncle Joe wants to get into programming, that’s great, but before you opt for the home brew point-of-sale solution he’s slapped together in his garage, think twice. Or maybe three times.