THE 5 Cs OF CONNECTIVITY: Cost, Capability, Complexity, Compatibility, Change

by Ed Kozma
Posted On: 12/3/2019

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What is connectivity? Is it an industry term or a technology term? The simple answer: it’s both. The basic description is the ability to transport data from one point to a central hub from which that data can be used productively. Whether you’re beginning your journey with technology, or continuing your investment, there are five key factors to consider when it comes to who you choose as your connectivity partner and provider: cost, capability, complexity, compatibility and change.

COST

Often when operators think of connectivity to the machine, the initial thought is around supply chain improvement in route efficiency -- or, in simpler terms, extracting data from the machine to make better-informed business decisions and optimize operations. In the industry, most of us know this by the term telemetry. What was once a system driven by educated guesses of experienced route managers has since transformed to a data-driven model wherein “live” machine information is used for a more holistic and integrated approach to machine and route management.

As operators transitioned to connected equipment, gains were initially realized as significant, but became smaller as time passed. A tweak here or there in year two or three delivered moderate improvements but nothing equal to those initial gains. Connected machines also proved to cost more indirectly, with the now-associated labor costs of managing a connected field base. As the connected network of machines grows, so does the cost. Based on the size of the operator’s business, this could mean a part-time or dedicated resource. After the amount of investment, time and effort, operators understand where the weaknesses were in their connected business, and have smoothed out the variations of supply for their customer base. Does this mean the operator has plateaued in terms of using connectivity? Is there anything left to do with the machine data now that the supply chain has been addressed?

An argument can be made that a portion of an operator’s accounts are constant and long-term, so the minor improvements in efficiency do not offset the ongoing cost of the connection. This may or may not be true; that depends on the financial focus of the operator. Is the operator happy with the business remaining static, or should it be focused on new account growth? Most businesses are focused on growth, so how can that operator increase the value of the data connection which is now recognized as a cost of doing business? The answer is simple: the focus should shift from “what is the cost?” to how to manage or offset that cost.

CAPABILITY

Ultimately, the operator seeks to leverage that single connection by adding revenue opportunities, and cashless acceptance is a natural addition. There are many offerings in the market today, with various economic programs that speak to the incremental sales lift associated with cashless. This is no longer conjecture: it is a fact.

The ability to accept credit and debit cards -- or all forms of payment for that matter -- has fueled investment into service providers and operators alike. Most newcomers to the industry or to connectivity now start their journey with the decision: cashless versus telemetry -- or, in simpler terms, cashless-payment acceptance versus data analysis. The promise of incremental revenue with the scalability of telemetry appeals to anyone who wants to improve the business or win an account.

So what should an operator consider when selecting a provider? The choice of provider should be based on how its service meets the needs of the operation. Does the operator just want cashless acceptance? Does the operator just want telemetry? Or both? Or more?

Based on the case stated above, there is an inherent value -- increased efficiency and incremental revenue – in having both, if they can be encapsulated into a single data connection to keep the costs per machine down. However, the same scenario will play out again: the future state of your business with cashless and telemetry will become the current state, and the need to find ways to reduce the connection cost will be repeated. This means operators will again seek to integrate additional services into their equipment network. A potential provider should have the capability to expand the connection beyond the current market requirement.

In this case, “capability” refers to the resources and materials available to execute a strategy: Does your provider offer more services that are deliverable today, to increase revenue? What is its strategy for expanded services? What does their roadmap for development look like?

As we look at how connectivity capabilities will evolve, it’s important to look at what’s on the horizon:

• Integrated machine media The integration of screens is a rising trend in vending, but using targeted media to engage consumers is not only a way of increasing capability; it also offsets connection costs.

• Connectivity for cash “Cash is dead” is an industry misconception -- it still is true that the most important form of payment is whatever is in a consumer’s pocket, and that includes cash. Having a connection to cash hardware means better insights to sales, equipment health and servicing. It’s becoming a crucial part of the evolving capability story.

COMPATIBILITY

Besides the service provider’s ability to add services to its own programs, there is a need to have a level of interoperability with other service providers, tying compatibility to scalability. 

Compatibility can reside anywhere from the device level to the network level, and can be stated in several ways. How do I connect my device to your network? How do I connect my network to your network? 

In many cases, it is not difficult to accomplish, based on industry standards, but it does require a collaborative effort between the service providers, and has incremental costs. Normally, this adds a $1 to $2 charge per month, per machine, beyond the current monthly fees, depending on your provider.

Why is there a cost to route data? Simply stated, there is cost associated with maintaining the network infrastructure: labor, server and service costs, to ensure that your data is managed properly. When it comes to secure data management, this is one area where you don’t want corners or costs cut.

The compatibility factor becomes a challenge when it comes to the transfer of financial data generated by epayment devices. Financial transactions contain encrypted data that must be managed through the use of cryptograms in each link of a network, ultimately securing it end to end. The regulatory controls established by PCI protect the integrity of the cardholder data by regulating access to financial processing partners’ networks. This added regulation reduces the ease of transfer of data, and creates a barrier to entry for those companies not capable of maintaining their PCI certifications or standards.

This all means that any potential provider must maintain a focus on compliance and plan to manage PCI expiration dates by renewing certifications. The transition to EMV-certified devices further reduces network compatibility between providers, and adds complexity. It restricts the ability to allow any cashless device to connect to any payment network unless the device itself has been certified to that specific network. This means that a cashless device from provider A cannot work on the payment network of provider B unless it has been certified for use. 

So why don’t all card reader manufacturers certify to all payment networks and make everything more interoperable? The cost of ongoing support of a cashless device, in a “one device to many processors” model, is prohibitive, as certification costs range in the tens of thousands of dollars. These costs tend to recur on a 24-month cycle as the security specifications change to address discovered threats, the integrity of the network, and new developments. Therefore, the payment-processing options are limited to whom the providers have selected to partner with. Simply put, the more payment processing partnerships your provider has, the more flexible it will be with options for interoperability.  Operators have little need to understand the nuances of PCI and EMV compliance, but it is important to understand how it limits options to scale by not having products compatible with the financial network. So it is important to ask your providers these questions about compatibility.

A network of remotely connected machines, each with multiple services, is now part of a large ecosystem of business partners, each with an influence on your business. Indirect business partners, like card brands and telecom companies, are responsible for managing their own networks and making changes to advance their business goals. Their fundamental responsibility to all their customers is to manage network security, stability, and near-term future innovation.

The phrase “the needs of the many outweigh the needs of the few,” means that change is always on the horizon. When change occurs, these companies tend to support technology transition with ample advance notice and information. A recent example of this is the “sunsetting” of the 3G cellular band and migration to the 4G band by the telecom companies.

No single business or industry can halt the progression of change in the telecommunications space when that change benefits many other industries and drives future innovation. So the vending industry should play the stakeholder role, ensuring that knowledge can be shared to aid in a transition. This allows for better planning and decision-making well ahead of an upcoming change.

ONLINE RESOURCES

So what’s next? (Separating rumor from reality.)

• There has been a substantial discussion that the 5G band is on the horizon. What is 5G, when is it coming, what is the long term viability of 4G?

This link -- https://moneyinc.com/why-5g-will-be-way-more-important-than-youthink -- provides a general overview of 5G and what it may promise. But the fundamental need is to address the rapid, exponential growth of connected devices and the need for those devices to transfer massive amounts of data quickly. At the moment, most vending applications don’t send or receive large amounts of point-to-point (vending machine to server) data, or require massive data to be delivered in a fraction of a second. Most data from a machine or a cashless device are sent in kilobytes, so it would seem 5G would be overkill for vending.

But as broad-ranging innovations appear and technology advances, new ideas to improve the vending consumer’s experience while improving the operator’s business efficiencies will evolve to a point at which transferring massive amounts of data will be a must. Ideas include gathering demographic data, immediate customer complaint resolution at the machine with a live video chat with a customer service representative (finally addressing an industry desire to put a face to the machine), or using machine learning to improve the operator’s profit picture.

• EMV -- What is it? Whom does it impact among the current cashless systems in my field base? How does the enacted liability shift impact my business? Are chargebacks back on the table? When will contactless cards become more available? This link -- https://www.pymnts.com/news/2015/why-emv-is-a-big-deal-forsmall-business -- although dated with a podcast, offers a very relevant look at the small- to medium-size business mindset on EMV technology back in 2015, pointing out concerns.

This second link – https://www.digitaltransactions.net/magazine_articles/contactless-cards-in-america-when-oh-whenwill-they-appear -- offers a more up-to-date perspective on the importance of making the business decision to migrate to EMV over the next several months, as contactless cards start being issued en masse.

• What is the future of the DEX protocol? Will the DEX protocol capture the future data needs of the operator or the operator’s customer? Ultimately, it is difficult to say whether DEX will evolve into a broader protocol or whether it will be enveloped as part of a new protocol that will feed advancing VMS systems. Only time will tell whether market demand will force a new standard that suppliers will adopt.

So: how do you protect your investment and prepare for change?

• Purchase products that have designed cost-effective connectivity needs continual adaptation in modularity that reduces the cost to upgrade to the next requirement.

• Work with a service provider that is actively engaged with the various business partners in the connectivity ecosystem. These providers will be aware of upcoming changes earlier than others, allowing for their business and their customers to plan for change as early as possible.

• Seek out information from your state and national trade associations, by attending seminars or listening to webinars to get educated on the subject matter. Logic dictates that the path of connectivity leads to an ever-ramifying business with added complexity. So it begs the question: How can I add services to my network of machines, but reduce the amount of complexity to manage it? There is no easy answer to this question, as there will be a mix of technologies in the future market.

COMPLEXITY

The goal should be to have all data flow into your business and automatically feed other business systems to drive business processes like product orders and commission payments. Ultimately, the caliber of your vending management system is the determinant in reducing the amount of complexity within your own unique connectivity portfolio.

Transforming to a connected business takes time, effort and focus to yield the best results. Depending on the size of your business, a staff member may need to shift his or her responsibilities to manage the connected machine base, which presents its own technology learning curve. Selecting the proper staff member is critical to growing the connected field base. Adding services too soon, when the staff is struggling to understand the current services, can create more confusion and wasted time. 

The diversity of the added services should be weighted to the competence of your business to support new technology. Reducing that diversity by focusing on a single provider that supports multiple services will minimize the complexity of a connected business. These types of providers tend to have strategies to address the introduction of new services with current technology platforms, taking a holistic approach to minimize the disruption to users. All service providers want to avoid complexity in their systems and want them to be easy to use. Ease of use is important, but more important is for those systems to seamlessly work with one another to reduce complexity.

CONCLUSION

The reasons for operators to have connected equipment are fundamentally the same, but each operator’s ability to implement one or more services will be different. It is important to understand the current state of your business, financially and operationally, to maximize the potential financial benefits. The beauty of a connected machine -- be it vending, micromarket or coffee -- is that it creates an opportunity to expand with future innovations more easily, be it through remote management, updates, service tools, or something not yet seen.

In the connected world that is all around us, that we live in every day, the development of the next greatest thing for vending is just around the corner; but where do we start? The best guidance is to seek a service provider that can competently address the 5 Cs, with a focus on customer support, clear communication, and continuous improvement. Before you can get the right answers, you have to know the right questions to ask.

ED KOZMA has a vending industry career that spans 28 years in technical services, vending operations, distribution, manufacturing and trade association leadership. He is currently Crane Payment Innovation's vending sales director for the Americas region and is widely regarded as a subject matter expert in electronic and cash payments. He has continuously advanced his education from an electronics engineering technologist to a certified project manager and has completed several business programs throughout his career. He has been a NAMA Certified Executive (NCE) for the past 10 years, and was the recipient of the Canadian Automatic Merchandising Association's Don Storey Award that recognizes his leadership and commitment to the industry. He can be contacted at edward.kozma@cranepi.com