The Digital Third place in Web3 by the retail pioneer of Customer Loyalty
We don’t talk enough about Starbucks in Fintech land lately. Starbucks has been a leader in deploying digital technology and creating customer experiences in-store, on mobile, and now in the so-called `third places` for Web3.
Starbucks is a brick-and-mortar pioneer of the mobile app launched in 2009, when many of the neobanks or Fintechs offering consumer banking services were not even `a thought`.
Just two years later, in 2011, the Starbucks app offered in-app payments and in 2014 they rolled out their mobile pre-order and pay functionality. This is the same year that Apple Pay launched in the US and Walmart Pay followed in late 2015.
If you believe that Apple Pay has been the leading App that jumpstarting mobile payment adoption in the US, then you are wrong. Up to and including 2018, the Starbucks App was the top platform by the number of people using mobile payments. Apple Pay and Google Pay followed. This is staggering given that Apple & Google Pay Apps can be used for many different products and services and Starbucks Pay was and is only used within the Starbucks ecosystem.
It is only in 2019, Apple Pay surpassed Starbucks in terms of the number of users and therefore, we should credit the Starbucks app for enabling mass adoption of mobile payments.
Starbucks started with a prepaid gift card which was not common at all back in 2009. Then launched a gold card, with a $25 annual fee and a 10% discount off all purchases. They followed with a mobile variation that awarded Stars to customers when they used a prepaid card connected to their mobile device. Stars, led to different tiers and rewards. They worked with mFoundry (acquired by FIS in 2013) and by 2016 they had 12 million Starbucks Rewards members and 8 million customers who were checking out in stores with their phones, making Starbucks the retailer with the largest mobile ecosystem in the world.
The challenge of course, is how to maintain a lead in the digital business game, as customer expectations change and increase. The higher the expectations from customers, the lower the perceived value of the rewards that a product or service provider offers. Customers drift away, try new things, seek new experiences.
Clearly, Starbucks`s digital channel customer experience has been very successful. The number of users of its platform has grown to 31+ million as of March 2021 from 23+ million in 2018.
Mobile orders in Q2 2021 represented 26% of US transactions, up from 18% a year ago.
Starbucks uses machine learning to gain insights into customer behavior and preferences. Amazon Alexa’s “Starbucks Reorder Skill” leverages the Alexa platform and allows customers to place orders. Starbucks offers in-store pickup and curb-side pickup. Today, Starbucks Mobile Order & Pay is a more than $4 billion business.
The year that Apple Pay proximity users surpassed those of Starbucks, Starbucks made a B2B move leveraging its mobile technology. It licensed parts of its mobile technology to a rebranded company focused on the restaurant business — BrightLoom. The company led by Adam Brotman developed a cloud-based Saas offering with AI capabilities for restaurants (payments, orders, rewards, personalization etc.) and Starbucks invested in it and had a seat on its board.
Adam Brotman was the chief Digital Officer at Starbucks from 2009 to 2016 and is credited as the architect of the Starbucks Mobile Order & Pay pioneering product. Adam became the CEO of Brigthloom from 2019 to date. Adam also founded Forum3 last year, a Web3 company that helps brands in their digital transformation from Web2 to Web3.
When I read about Starbucks plans to create customer experiences with NFTs, I did not dismiss the announcement as PR lipstick. Starbucks walks the talk of `Continuously creating value for customers by pushing the envelope of customer loyalty`.
“We are creating the digital third place. To achieve this, we will broaden our framework of what it means for people to be a member of the Starbucks community, adding new concepts such as ownership and community-based membership models that we see developing in the web3 space,” said Starbucks Chief Marketing Officer Brady Brewer during the recent earnings call.
Adam Brotman, is being appointed as a special advisor to the upcoming Starbucks Web3 debut. They have hinted that they will start with an NFT collection unlike other collections that have found their cultural acceptance, community adoption, and value on NFT marketplaces through trading and extraordinary price appreciation (e.g. Bored Apes Club).
The Starbucks first NFT collection artistically will be inspired by coffee art and storytelling and will focus on unique experiences for members and benefits.
I am very curious to see how they will introduce community-based ownership in the Web3 Digital space. Web3 is all about lowering rents and sharing rents with early and loyal users. Will Starbucks innovate in Web3 like it did in Web2?
On top of the Starbucks Digital success in Web2, the company is hugely successful in the Gift card sector. According to their CEO, Starbucks gift cards which are sold `everywhere` are bigger than the entire gift card industry and as of Q1 2022, over $1 billion were `locked` in Starbucks unused gift cards.
Can Starbucks impact wallet adoption by luring its loyal customers and the millions of people that gift or receive Starbuck gift cards (according to Business insider, c. 120 million people) to buy, gift, receive Starbuck NFTs?
At this early stage, the number of wallets (unique and or active) is a decent indicator of adoption.
In mid 2019, there were around 40 million crypto wallets. The Defi+ bull run of 2021 added the most crypto wallets than any previous years — 22+ million wallets according to Cryptopolitan — bringing the total around 55 million wallets. Other sources, report higher numbers of around 68 million wallets.
Crypto wallets for now are predominantly holding and transacting in cryptocurrencies versus Digital assets like NFTs and IDs. It seems to me that Starbucks and Ticketmaster could have a sizable impact in wallet adoption with their non-NFTs. Their NFT offerings could also increase the probability of a flippening between fungible and non-fungible tokens in wallets (by 2026). Starbucks and Ticketmaster can introduce at-scale end users to genuine community-based ownership via their non-speculative NFTs.
Let’s watch how fast and which companies help the world reach the milestone of 100 million wallets. And also, whether this is accomplished via non-speculative NFT adoption like the designs Starbucks and Ticketmaster are planning.
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