Apple’s iTunes Pass To Position Itself Behind Starbucks Success
NASDAQ: AAPL, SBUX
Mid July 2014, Apple (NASDAQ: AAPL) announce the launch of iTunes Pass in Japan, later expanding it to the United States, Australia, Canada, Germany and the UK markets.
Much like the Starbucks Mobile Phone App at it’s launch, Apple’s iTunes Pass will allow users to use a Passbook card to add credit to an iTunes account, initially just from an Apple Retail Store.
From 9to5 Apple Site:
To take advantage of this new program, you need to use the iTunes Store app on an iOS device to obtain an iTunes Pass. You can get one of these by tapping the “Redeem” button at the bottom of the home page within the app. To use the card, you can visit an Apple Retail Store and ask a specialist to help you add credit to your account. The specialist can then scan the barcode on the Passbook card to immediately add credit to your account.
Starbucks has established the user adoption processing workflow very successfully from it’s initial launch in 2011. To the benefit of Apple, training the user in this very similar workflow will not be necessary.
Product Development And Spotting Changing Social Behavior
It has always been my contention that when it comes to product development, a clear correlation in spotting changing social behavior should be foremost in thought. It is not the latest and greatest technology of the time that matters. It is the changing social behavior and winning user adoption that will lead the space. The product that rises to the top recognizes a changing social behavior, gets lucky enough to create one, or both, all the while fulfilling this newly created market need. Those products that can position themselves accordingly have a leading advantage; their potential user base has already adapted and accepted the learned social behavior change as their own.
As smartphone market share increases into 2016 and user adoption continues to takes place, a whole new class of product opportunities is created. The mobile phone as an adaptable use device is only just beginning.
Starbuck Success In An Internet Age
Starbucks (NASDAQ: SBUX) has succeeded on all fronts in their Digital Strategy. There could not be a better example of leading a change in social behavior and driving user adoption in the loyalty, mobile payment space than what Starbucks has accomplished. Let’s take a more in depth look at the Starbucks Loyalty, Mobile Payments Platform Ecosystem.
Launched in 2009, the My Starbuck Rewards loyalty program has been widely successful, both creating value for the customer and building loyalty to the Starbucks brand.
In Jan 2011, the My Starbucks Rewards loyalty program evolved with the launch of the Starbucks Mobile Phone App. This integration marked the beginning of the Starbucks mobile payment ecosystem.
In an Aug 2, 2012 article I wrote, “Starbucks, Mobile Payments And The Oprah Effect,” I note that it’s all about changing social behavior. Starbucks has trained the user one at a time to use the mobile phone as an adaptable use device. This adoption of changed social behavior spearheaded by Starbucks, (and of course lead by Apple’s iPhone iOS, Google with Android), has created a whole new class of product opportunities. The mobile phone as an adaptable use device has only just beginning.
Moving into 2014, Starbucks strategy has been an overwhelming success. Mobile payment transaction have just passed the 6 million mark.
Howard Schultz, SBUX F1Q 2014 earnings call, Jul 23 2014
“Starbucks.. invested over many years in the creation and development of proprietary world class digital and mobile payment and card technology and expertise. This expertise and the assets that support it enabled us to seamlessly process more than 40 million new Starbucks card activation valued at over $610 million in the U.S. and Canada alone in Q1, including over 2 million new Starbucks card activations per day in the days immediately leading up to Christmas and $1.4 billion of Starbucks card loads globally.
“Even more, the sheer magnitude of the $1.4 billion loaded with deposit cards in Q1 is the opportunity presented by the millions of customers that will be visiting our stores to redeem these cards in the future.
“Today with only 10 million customers actively using our mobile payment app, over 7.3 million active my cover of reward [ph] in U.S. alone, over a half of them at home are gold status members and a figure approaching 5 million mobile transactions taking place in our stores each week. Some [ph] integrated mobile and world app technology is by far the undisputed leader in digital retail technology.
“Together mobile and Starbucks card payments represent over 30% of total U.S. payment. This powerful technological advantage combines with our robust pipeline of food and beverage innovations and Starbucks’ recognition as one of the world’s most respected and most trusted consumer brands will provide us with a winning hand as mobile, card and online sales trends continue to converge and accelerate around the world and into the future.
“In China today, MSR transactions now account for over 40% of total tender, a remarkable metric, and demonstrates the loyalty of out Chinese customers and the relationship they have to this card.” **
Q and A Session – Starbucks Earning Call: Diane Geissler, CLSA
“The China consumer have embraced smartphone technologies. So I think the market is bright for the launch of this type of [mobile payment, loyalty rewards] platform? But maybe you could give a little bit of more detail about what you plan there, how it will differ from what we see in the U.S.? And then your expectation sort of how you are going to measure yourself in is it heading your goals or not? If you could give us some details around that, I would really appreciate it? Thank you.”
Adam Brotman – Chief Digital Officer
“Yeah. Diane, it is a great question and the answer is, absolutely we believe the opportunity for mobile payments is something that we’ll spend not limited China but frankly there are many markets around the globe. We have already bought it to all of ten markets and China we believe will be no exception, highly technologically savvy, consumer base, one where they were talk about MSR offering and growth and we believe that China will be a great opportunities to do the kinds of things there then we are trying here in terms of mobile payment, mobile royalty, innovation of the store. So, yes, I can’t get any specific but that’s coming soon.” ***
More from the Q and A Session. A leading question from Sara Senatore, Sanford Bernstein:
“Our next question is from Sara Senatore with Sanford Bernstein.”
Sara Senatore – Sanford Bernstein
“I actually wanted to ask a question on digital and mobile. Essentially, I think a couple of calls ago, of maybe last call, there was talk about potentially other retailers being interested in using the Starbucks platform. You know, white labeling I think. Could you talk about whether there’s anything else to update us on? I mean, from the perspective of what you might think of as offering from a Starbucks ecosystem around that or where you’re going longer term with that?”
“We can tell you right now that we are in a series of very active conversation on this with both technology and financial services companies that would be potential partners here. And while those conversations are going on, I can’t tell you the specifics of them, but what I can tell you is we remain absolutely confident in the nature of the opportunity here, both in terms of what we’ve started with mobile loyalty as a platform as well as the appeal of stars as currency.
“And I’ll leave it at that, and you’ll hear more from us in the future.”
What’s on the horizon?
Is a Starbucks Mobile Payment As A Service offering on the way? Do I hear MPaaS? Who will be the partners and participates? The developments will be interesting to watch.
Apple and mobile payments. Will it ever happen
In previous Apple earnings calls, Tim Cook had expressed interest in the mobile payment space. There has been much speculation as to if and when this will happen. What technology will Apple embrace. Will it be NFC, iBeacon Technology using Bluetooth Low Energy (BLE), Bluetooth 4.0 standard, Bar Codes? Possibly the iOS 8 Touch ID API is the security level.
Apple’s Touch ID API announce at WWDC 2014
It’s not the technology that matters most in my opinion. What matters is the user adoption of the changed social behavior. Starbucks has succeed in creating a new social behavior, the use of the mobile phone as an adaptable use device to purchase items, using the phone for mobile payments. The Starbucks workflow is the proven key.
Apple’s iTunes Pass is positioning itself right inline with Starbucks success. The user adoption has already taking place.
In my opinion, follow the changing social behavior, not the technology. Will Apple and Starbucks partner up with a mobile payment platform of their own? It’s a long shot but what is for sure is with Apple’s iTunes Pass initiative, Apple is clearly positioning itself off of Starbucks success, and rightly so. It’s a smart strategy.