Here’s a concise tweet summarizing the Olo vs Toast analysis:
🧵 Olo vs Toast: A $2B vs $25B tale of strategic choices
Both restaurant tech companies IPO’d in 2021, but chose radically different paths:
🎯 Olo: Enterprise-first (300k locations) → Higher margins (61% vs 25%) → $339M revenue (2025E) → Acquired for $2B
🚀 Toast: SMB land-grab (700k locations) → Massive scale advantage → $6B revenue (2025E) → $25B valuation
Key insight: Olo’s “fewer but bigger” customers had superior unit economics initially, but Toast’s TAM choice created 17.7x larger revenue base by 2025.
Sometimes the bigger market wins, even with lower initial margins.
When are smaller customers “better”? Olo was just acquired for $2B by Thoma Bravo after 20 years — a big success. But Toast went a more “SMB” route focusing on smaller restaurants and chains. That’s lead to a $25B market cap today. 10x larger.
The long tail in commerce is often bigger than the “enterprise” segment.
Bottom Line Up Front: Olo’s enterprise-focused strategy targeting restaurant chains with 5+ locations has created a profitable, high-margin business with $2B in value, while Toast’s SMB land-grab approach serving 700,000+ smaller restaurants has built a $25B juggernaut. The irony? Olo’s “fewer but bigger” customers represent a smaller percentage of the total addressable market but generated superior unit economics – until Toast’s scale advantages kicked in.
The Core Strategic Divergence
The fundamental difference between Olo and Toast isn’t just about technology – it’s about market segmentation philosophy that has created two entirely different business models with dramatically different outcomes.
Olo: The Enterprise-First Specialist
- Target Market: 300,000 enterprise restaurant units (5+ locations)
- Customer Base: 88,000 active locations across 750+ brands
- Notable Clients: Chipotle, Texas Roadhouse, Five Guys, Applebee’s, Denny’s
- Go-to-Market: Top-down, corporate-level sales to headquarters
- Value Proposition: White-label middleware that integrates with existing tech stacks
Toast: The SMB Volume Play
- Target Market: 700,000 small business restaurant locations
- Customer Base: 134,000 locations (mostly SMBs)
- Sweet Spot: Independent restaurants and small chains
- Go-to-Market: Direct-to-location sales with bundled hardware
- Value Proposition: All-in-one platform replacing multiple point solutions
The Numbers That Tell the Story
Valuation Multiple Divergence
Unit Economics Deep Dive
Olo’s Enterprise Advantage:
- ARPU: $911 per location (Q1 2025)
- Customer Acquisition: Corporate-level deals = lower CAC per location
- Sales Efficiency: 20% of revenue spent on sales & marketing
- Gross Revenue Retention: 98%+
- Net Revenue Retention: 111%
Toast’s Volume Economics:
- ARPU: ~$39,000 per location annually (including payments)
- SaaS ARPU: ~$6,000 per location
- Customer Concentration: 30% of company focused on support
- Growth Engine: Hardware stickiness + payment processing scale
The “Fewer but Bigger” Paradox
Here’s where it gets interesting: Olo’s focus on enterprise customers represents a smaller percentage of the total restaurant market but historically generated superior unit economics.
Market Composition Reality Check
- Total US Restaurant Market: ~1M locations
- Enterprise (5+ units): 300,000 locations (30% of market)
- SMB (1-4 units): 700,000 locations (70% of market)
The Counterintuitive Truth: While Olo serves the minority segment by location count, these enterprise customers often generate:
- 3-5x higher order volumes per location than SMBs
- More complex integrations requiring specialized middleware
- Higher willingness to pay for enterprise-grade solutions
- Lower churn rates due to switching costs
Strategic Moats: Different Games, Different Rules
Olo’s Enterprise Moat (Narrowing)
✅ Strengths:
- Deep enterprise relationships with major brands
- Complex integration capabilities across disparate POS systems
- High switching costs for large chains
- Superior gross margins (61% vs Toast’s 25%)
⚠️ Vulnerabilities:
- Enterprise customers building in-house solutions (Subway departure)
- POS vendors adding native online ordering
- Limited TAM expansion opportunities
- Competitive pressure from Toast moving upmarket
Toast’s SMB Fortress (Expanding)
✅ Strengths:
- Massive scale advantage (134k vs 88k locations)
- Hardware lock-in creates switching friction
- Payment processing network effects
- All-in-one platform reduces vendor fatigue
⚠️ Challenges:
- Lower margins due to hardware and payments mix
- Higher support costs (30% of workforce)
- Intense competition in SMB segment
The Financial Performance Tale
Profitability Profiles
Olo: The Efficient Specialist
- Q1 2025 Metrics:
- Revenue: $80.7M (+21% YoY)
- Operating Income: $11.5M (14.3% margin)
- Net Income: $11.8M
- Free Cash Flow: Nearly break-even (partner payment timing impact)
Toast: The Growth Juggernaut
- Q4 2024 Metrics:
- Revenue: $1.34B (+29% YoY)
- ARR: $1.6B (+34% YoY)
- Operating Income: $32M (2.4% margin)
- Free Cash Flow: $306M annually
The Scale Inflection Point
Toast’s massive scale has fundamentally changed the competitive dynamics:
- Payment Volume: $160B annually vs Olo’s ~$29B GMV
- Data Advantages: 134k locations generating transaction insights
- Network Effects: Payment processing benefits from volume
- Capital Efficiency: Spread R&D across larger customer base
Market Evolution: Why the Acquisition Makes Sense
Olo’s Strategic Challenges
- TAM Constraints: Limited enterprise market prevents hypergrowth
- Competitive Convergence: Toast and others moving upmarket
- Technology Commoditization: Online ordering becoming table stakes
- Customer Consolidation: Enterprise accounts building in-house
Thoma Bravo’s $2B Bet
The private equity acquisition at $10.25/share (65% premium) reflects:
- Undervalued Public Market Position: Growth investors prefer hypergrowth
- PE-Friendly Profile: Predictable cash flows, clear cost optimization opportunities
- Strategic Value: Potential consolidation play or Toast acquisition target
Lessons for SaaS Builders
The Enterprise vs SMB Strategy Decision
When to Choose Enterprise-First (Olo Model):
- Complex, highly regulated industries
- High switching costs and customization needs
- Limited number of potential customers
- Ability to command premium pricing
When to Choose SMB-First (Toast Model):
- Large, fragmented markets
- Standardizable solutions
- Network effects potential
- Path to adjacent revenue streams (payments, lending)
The Market Share vs Market Size Trade-off
Olo achieved dominant market share in enterprise restaurant tech but faced market size limitations.
Toast sacrificed early market share for market size optimization and is now leveraging scale to move upmarket.
Key Insight: In winner-take-all markets, total addressable market size often trumps initial market share if you can achieve scale advantages.
The Future Battlefield
Toast’s Upmarket March
- Acquiring enterprise customers with full-stack offering
- Leveraging data insights from SMB base for enterprise solutions
- Building enterprise sales capabilities
Enterprise Response Strategies
- Building proprietary solutions (Subway, others)
- Vendor consolidation to reduce complexity
- Demanding better economics from middleware providers
The Middleware Question
The core question facing Olo and similar middleware companies: As POS systems become more capable and cloud-native, does middleware become commoditized?
Final Analysis: Different Strategies, Different Outcomes
Olo’s $2B valuation reflects:
- A profitable, well-run business with strong unit economics
- Limited growth runway in a constrained TAM
- Strategic value but not hypergrowth potential
Toast’s $25B valuation reflects:
- Massive scale in a large, fragmented market
- Multiple expansion opportunities (international, enterprise, fintech)
- Platform network effects and data advantages
The Strategic Takeaway: Olo made the “right” choice for profitability and customer focus, but Toast made the “bigger” choice for market impact and long-term value creation. In SaaS, sometimes the bigger TAM wins, even with lower initial margins.
The acquisition by Thoma Bravo may actually be the perfect outcome for Olo – allowing them to optimize for profitability without public market growth pressure while potentially positioning for strategic consolidation in the evolving restaurant tech landscape.
