Evan Schuman: Can Starbucks get people to use its app to pay for dry cleaning?

Say that your company operates the mobile payment app that is the most popular in the U.S. It's used frequently within your chain's 20,000 or so stores. How do you leverage that success? One thing you might shoot for is to allow your customers to use your card or app to make purchases from a wide range of other retailers -- assuming you can find some way to monetize it, perhaps through a revenue share. This would be an interesting way to make money from your customers when they aren't even in one of your stores. It would also give people who are not yet your customers a reason to get your mobile app.

That's where Starbucks and its CEO, Howard Schultz, seem to be headed. And the coffee company could be positioned better than a lot of its competitors to do that.

"We believe that there is an opportunity to extend the mobile payments that we have experienced inside Starbucks stores to other places within the marketplace" and that is "what we're going to be doing in the near future," Schultz said in a broadcast interview last week. "We believe we have an opportunity to try to create a value-added service outside of the Starbucks ecosystem that eventually could compete with PayPal."

First, we must bow to the impressively deep vagueness of Schultz's comments. What the heck is the "Starbucks ecosystem"? Websters defines an ecosystem as "the complex of a community of organisms and its environment functioning as an ecological unit." Please tell me he didn't say "ecosystem" if he just meant "our stores." And "within the marketplace"? What marketplace? That could mean any place where sales are made, online and physically.

Details are needed. Schultz said that some announcements will be made during tomorrow's (March 19) annual shareholders meeting. This might be one of them. But if we look at what others are doing and earlier Starbucks deals, we can make some good guesses.

The first question is just how transferrable the Starbucks payment app will prove to be. You can take the app out of the coffee shop, but can you take the coffee shop out of the app? What I mean is that you have a problem if your customers think of their Starbucks app as a fine way to pay for coffee but an absurd option when it coms to the dry cleaning. Is the Starbucks app's popularity directly tied to Starbucks stores, or is it something about the app itself? Only if the answer is "the app itself" does it make sense to transplant it.

In theory, though, there are wonderful places the Starbucks app could go. As part of a 2012 deal, payment firm Square took over much, if not all, of Starbucks' payment processing. Why is that relevant now? Because it could potentially make it very easy for the Starbucks app to be a payment tool in any shop that accepts the Square device. Given that Square customers are overwhelmingly very small mom-and-pop shops, there is likely to be no meaningful competition with Starbucks.

But what else is Schultz thinking about when he says "within the marketplace"? Many grocery stores already sell Starbucks products. But few grocers have shown much excitement for mobile payments so far. A more promising aspect of "the marketplace" might be online. Starbucks could leverage the mobile device itself and become a payment option for Starbucks customers who want to shop online. The e-commerce majors (Amazon, Walmart.com, Target.com, eBay, etc.) aren't likely to jump onboard with Starbucks anytime soon, but there are plenty of mom-and-pop online outlets that might find it an interesting option.

Of course, Starbucks would hardly be alone in thinking about leveraging a popular consumer brand into a payment mechanism. Both Amazon and Apple have also let it be known that they might enter the payment field. Which of them has the best shot?

Amazon's case is the weaker one. It has little reason to make it easier for people to shop online anywhere but at Amazon, since it has set out to offer anything and everything online through its virtual storefront. It does have an interest, though, in dipping its digits into brick-and-mortar transactions. There, however, it's the other side that has a problem: Merchants large and small fear Amazon as the ultimate competitor. Why hand over to that behemoth unlimited information about customers and purchase habits?

Apple's situation is closer to Starbucks'. Like PayPal, both have been developing successful payment systems (Apple's iTunes, and Starbucks' payment card-turned-app), so they have experience in the field. Both also have expertise with in-store operations, so brick-and-mortar chiefs would be comfortable that their systems would work. Apple has a stronger competitive case than Amazon, since the wares it peddles are pretty much limited to its own personal electronics, a few accessories and downloadable content. That means that a Macy's, a Foot Locker or a McDonald's could theoretically let customers pay with iTunes with little fear that Apple would later try to steal those customers.

So Starbucks is at least as well positioned as its potential competitors in the payment field. Where it falls short is that question of whether consumers will think to use a Starbucks app when they're buying shoes. Amazon doesn't have that problem, since people are used to buying just about anything from it. Even Apple has more variety in its iTunes offerings than Starbucks does in its stores. What could help Starbucks is a continuation of its brilliant take-it-slow strategy. Starbucks has gradually trained its customers to get used to new systems. First, it slowly moved them away from cash and Visa/MasterCard/Amex to a Starbucks card -- just switching one rectangular plastic card for another. Then it eased the move to the mobile app by simply putting the back of the card in customers' phones.

This has worked so well (I did say that Starbucks' app is the most popular in the country) that I wouldn't be surprised to see a similar gradual process at work as Starbucks tries to get customers to use the app in other stores. What seems likely to help is to be explicit about the benefits of using the Starbucks app, both for consumers and merchants. That might include discounts, at least at first, and that means some serious multiparty negotiations will have to be conducted. Starbucks could sweeten the pot for merchants by offering some cross-marketing opportunities: Signs in those nearly 20,000 Starbucks stores might say something like, "Use your Starbucks payment app here today and anytime with these fine local establishments." Something similar could be generated on Starbucks' website based on a user's IP address, geolocation data or a ZIP code entered six months ago.

If anyone can figure out a way to make all of this work, it's likely Starbucks. After all, this is the company that routinely gets people (myself included) to pay $7 for a cup of coffee.

Evan Schuman has covered IT issues for a lot longer than he'll ever admit. The founding editor of retail technology site StorefrontBacktalk, he's been a columnist for CBSNews.com, RetailWeek and eWeek. Evan can be reached at eschuman@thecontentfirm.com and he can be followed at twitter.com/eschuman. Look for his column every Tuesday.

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1 Comment

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