With all the hype of mobile payments being announced this Tuesday at the big Apple (NASDAQ: AAPL) event, much attention has been given to well, just about everything, except Starbucks (NASDAQ: SBUX).
I’m not big on rumor articles or speculation pieces so I’m hesitant to write this today. My premise and belief in product development has always been to develop ideas around changing social behavior.
My contention has been that 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 noted in my 2012 article, “Starbucks, Mobile Payments And The Oprah Effect. How Starbucks will drive changing social behavior and user adoption into 2016,” Starbucks has spearheaded a new change in social behavior with it’s creative use of the Apple app ecosystem and the iPhone hardware device by getting customers to pay for their orders with a mobile phone.
The magnitude of what Starbucks has truly accomplished here goes far beyond buying lattes one mobile payment at a time. Starbucks has in a major part lead the changed social behavior of users using the mobile phone as an multi-adaptable use device.
“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 (Jul 16 2014):
“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.”
Continuing from my July 31 2014 article:
“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.”
A New iPhone And A Watch
What will these two Apple products have in common? A hefty price tag. There is no doubt in my mind that these two new, beautifully industrial design pieces of art will carry an expensive price tag.
How will this play into the widespread adoption of an Apple mobile payments ecosystem? If the system is based purely and contingently on having these two new devices, not very well. Conversely though, looking at what user adoption in the mobile payment loyalty space has already taken place, what is established and successful, clearly the Starbucks mobile payments, loyalty program ecosystem is a front leader.
I’m a big fan of iBeacon. The creative use potential is huge. Regarding NFC, a chip by NXP Semiconductor (NASDAQ: NXPI) may very well likely make it into an Apple device this year. Touch ID will be helpful indeed. POS system updates are underway. None of these though will drive use and adoption of an Apple mobile payment system initially.
The already established changed social behavior and user adoption of the Starbucks mobile payments model, the new July 2014 iTunes Pass model, will lead users into the Apple mobile payment ecosystem, not a new $900 iPhone or $450 watch.
Time will tell though. Either way, as always, it’ll be interesting to watch.
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 behaviorshould 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.
As noted in my Aug 2, 2012 post, “Starbucks, Mobile Payments And The Oprah Effect,” my core thesis revolves around the creation and adoption of 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, (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 is only just beginning.
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.”
“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.
Starbucks has been an early mover in recognizing and embracing the huge opportunity presented through the use of social media and digital platforms.
Launched in Dec 2009, the My Starbucks Rewards loyalty program has been widely successful, both creating value for the customer and building loyalty to the Starbucks brand. According to Q2 FY12 Earnings Conference Call, more than 4.7 million active members in the U.S. and over 2 million members in the loyalty program internationally loaded more than $2.5 billion on the cards annually. The Starbucks Cards currently account for 1 in 4 transactions in U.S. Starbucks stores.
In Jan 2011, the My Starbucks Rewards loyalty program evolved with the launch of the Starbucks Mobile Phone App. This integration marks the beginning of the Starbucks mobile payment ecosystem. The opportunity in front of us is in its infancy.
“Evolving social and digital media platforms in highly innovative and relevant mobile payment capabilities are causing seismic changes in consumer behavior and creating equally seismic disruptive opportunities for business. Starbucks identified the power of mobile payment capabilities earlier than most retailer’s restaurants and consumer brands and now have processed over 55 million transactions since launching it in January 2011. And today, we operate one of the world’s largest mobile payment programs processing over 1 million mobile transactions per week in the U.S. alone.” **
This changing social behavior spearheaded by Starbucks’ user adoption of 2011- 2012 is about to go to the next level . With Apple’s Passbook App released in iOS 6 Sep 19 2012 and Google’s backing of NFC and release of the Google Wallet API to developers at Google IO Jun 27 2012, the opportunity in mobile is just beginning.
Starbucks Announces Mobile Payments Partnership
On Aug 7 2012, Starbucks (NASDAQ: SBUX) announced a partnership with Square Inc, a mobile payments transaction company whose product enables anyone to accept credit cards anywhere, anytime for everyday transactions through the use of their free credit card reader for the iPhone, iPad, and Android device
“By accepting Pay with Square, Starbucks is giving millions of customers another way to enjoy a quick and seamless payment experience at approximately 7,000 Starbucks stores. The partnership will also accelerate the ability of small businesses to grow with Square’s innovative technology and a stronger and more widely available Square network.”
“More than two-thirds of the 27 million small businesses in the U.S. currently do not accept credit or debit cards, in large part because of the expensive interchange fees associated with payment processing, cumbersome application process and required credit checks. Square enables merchants of any size – from sole proprietors to national retailers – to accept credit and debit cards.” ***
The partnership terms include:
•Customers will be able to use Pay with Square, Square’s payer application, from participating company operated U.S. Starbucks stores later this fall, and find nearby Starbucks locations within Square Directory;
•Square will process Starbucks U.S. credit and debit card transactions, which will significantly expand Square’s scale and accelerate the benefits to businesses on the Square platform, especially small businesses, while reducing Starbucks payment processing costs;
•Using Square Directory, Starbucks customers will be able to discover local Square businesses — from specialty retailers to crafts businesses — from within a variety of Starbucks digital platforms, including the Starbucks Digital Network and eventually the Starbucks mobile payment application;
•Starbucks will invest $25 million in Square as part of the company’s Series D financing round;
•Starbucks Chairman, President and CEO Howard Schultz will join Square’s Board of Directors.
This partnership marks a major milestone in changing social behavior. 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.
The Mobile Phone is becoming an adaptable use device. Mobile phones are going to be physically used as an object of interaction beyond what they have been designed for thus far: accessing the Internet, interacting through Mobile Apps, text messaging, and talking on the phone.
Paired with changing social behavior, the adoption of this new user form of engagement is occurring and will only grow in the future.
The potential for creative uses as a result of changing social behavior is immense. Starbucks, Apple and Google are all leading the way into a new behavioral trend. j66 + Co is positioning itself to take full advantage of this newly created market opportunity.