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October 24, 2010

The Starbucks Digital Network. Why Bother?

Starbucks_Digital_Network

Earlier this year Starbucks made Internet access totally free in all its company-owned U.S. stores. Now, Starbucks has launched the online Starbucks Digital Network, available exclusively in its U.S. locations.

This network, according to a company press release, is "a collection of hand-picked premium news, entertainment and lifestyle content along with local insights and events. Developed for screens big and small, customers with Wi-Fi enabled laptops, tablets or smartphones can visit the network while in line or while enjoying their favorite beverage in the café."

To bring this digital network to life, Starbucks, along with Yahoo!, is working with lots of content partners including: Apple, New York Times, Wall Street Journal, USA Today, Rodale (health and wellness publisher), LinkedIn, Zagat, and SnagFilms. Essentially, this is a "walled garden" of online content that Starbucks and Yahoo! will tightly control.

Mark Walsh from MediaPost questions the sanity of Starbucks digital network strategy. Mark remarks, "My initial reaction to the Starbucks digital hub is 'why?' Isn't free WiFi enough of an incentive to bring in customers who might otherwise not come to Starbucks? The swelling laptop and netbook population in stores since the company switched to free Web access in July attests to that."

Agreed. Why bother?

Here's why according to Stephen Gillett, Starbucks executive vice president, chief information officer and Digital Ventures general manager...

"Our customers are the inspiration for the Starbucks Digital Network. They’ve told us they want to be the first to know what’s happening in their neighborhoods and around the globe, to have an easy way to discover new music, great books and important films and find ways to be more involved in their communities. And they’re connecting with the brand digitally in numerous ways. These points combined with our passion for creating a unique customer experience, our heritage of recommending culturally-relevant works and focus on giving back to the community, led us to create this new, one-of-a-kind, localized content experience with Yahoo!."

Disagreed. How bothersome.

Let's get real. Here's the real why bother.

If we put Stephen's words through a digitization monetization translation filter, we learn Starbucks has overcomplicated all of this because they are trying to make money from all of this. Starbucks has already done something uncomplicated to get customers to linger longer inside its stores — it made wi-fi access totally free. (The general assumption being if customers linger longer inside Starbucks using the free wi-fi, they will buy more goodies.)

Perhaps a more accurate quote from Stephen should read like this...

"Our ancillary need for profit is the inspiration for the Starbucks Digital Network. The analysts working on Wall Street have told us we need a systematic way to discover new revenue, great profit and important mechanisms to financially leverage our community of customers. We're monetizing our customers with our brand digitally in numerous ways. These points combined with our passion for creating a unique revenue stream, our heritage of being a relevant high-growth stock and focus on giving back to the Wall Street community, led us to create this new, one-of-a-kind, monetizable experience with Yahoo!"

We've been through this before.

Remember how Starbucks, in the early 2000s, spent too much of its time and talents trying to sell CDs, books, and movies to its customers? I remember. I also remember Starbucks selling real estate space inside its stores for Kozmo.com drop boxes. We can go further back and dig up Starbucks failed dot-com strategy from 1999, which cost the company millions.

As it relates to the Starbucks Digital Network, rest assured, it is more about making money than fostering community.

Starbucks contends it is not charging program partners $$$ to be involved with its network available exclusively to tens of millions of its affluent customers. While money may not be changing hands, Starbucks is sure to have bartered receiving advertising placements inside the pages of their newspaper partners and display ads on the websites of all their program partners. Starbucks will also benefit financially from money its customers spend with any content provider while on the network.

All of this potential money making activity that's far outside Starbucks comfortable home of coffee troubles me today, just as it did in 2004 when Starbucks strayed from what it does best. Then, Geoffrey Moore, business strategist and venture capitalist, made a smart observation that applies today... "If Starbucks is just trying to find more ways to monetize the traffic that comes through, this is a bad idea. At some point the customers will start to feel abused."

I'm afraid Starbucks, with it's newly launched Starbucks Digital Network, is falling victim to a proven failed strategy of trying to monetize its customers in ways unrelated to coffee.

Why bother Starbucks? You already know how this will turn out.

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*** The following is an alternative angle to the post above. It's shorter. Less backstory. Perhaps more oomph. ***

If you order a Why Bother at a coffee shop you'll get a decaf nonfat latte. It's a harmless drink that doesn't give you the jitters or the fatty calories.

The Starbucks Digital Network is the equivalent of a Why Bother.

If Starbucks is hoping to get customers to linger longer inside its stores then they've already solved for that by making wi-fi access totally free in all its U.S. owned locations. Why bother with spending the time (and money) needed to corral all these content partnerships with the Wall Street Journal, USA Today, New York Times, Zagat, Apple, etc. when so much of their content is freely available online and freely available online inside Starbucks.

Seems like wasted effort to me.

People will linger longer inside Starbucks for the free wi-fi, not for the Starbucks Digital Network.

Why bother with anything more complicated Starbucks?

Seriously, why bother?

John,

This feels like an electric version of the brochure rack that is mounted on the condiment bar (where you doctor up your coffee with milk, sugar, etc)

Have you ever seen anyone pick up a brochure off of that rack?

I remember, when managing promotions at Starbucks, product teams and external business partners clamoring to have a brochure on that rack.

Why?

Because it build legitimate awareness and sales? That was the hope - but, in reality - it felt good to see your logo or product there.

There is a perceived value.

A spot on the brochure rack was pitched in value as if x-million customers would see it. Awesome!

Fact was, only a small % of all customers go to the condiment bar where they may possibly be exposed to the brochure.

A smaller % of those people are paying attention to anything else but their milk and sugar.

A smaller % of those people may actually see a brochure to pick it up, care to read it.

The same goes for any content in the new digital network.

I love that Starbucks now offers free wifi. When I log onto Starbucks network NOW, I quickly check the "agreed" terms of service box and go back to my surfing.

While there is high perceived value to have the eyeballs of the road warrior engage with Starbucks proprietary content... In truth I'm certain - just like the brochure rack - while it may 'feel good' to have you logo on SBUX digital landing page - only the smallest fraction of a small group will ever take a look at it.

... and as we know from experience, the content partners are excited because they will get this incredible visibility with the millions of weekly SBUX customers.

How many times did we hear feedback from companies SBUX partnered with at the local, regional, and North American levels that they aren't getting the visibility they were "promised." Truth was, they got the visibility as promised but to your point, customers didn't notice because they didn't engage with the marketing collateral.

With millions customers a day in their US stores the Starbucks Digital Network makes a lot of sense, especially with the increasing prevalence of data enabled smartphones and devices like the iPod touch and the (wi-fi only) iPad.

Even a small % of those millions of people translates to a reasonably large audience.

With that many potential pairs of eyeballs the primary landing page of the SDN becomes a very valuable piece of online real-estate.

It's less about increasing the number of customers, or even increasing dwell time among existing customers and more about developing a new revenue channel and what's wrong with that?

They can become a very valuable partner for content brands (who frankly speaking need all the help they can get) as well a very effective promotional channel.

Great analysis, John.
The last stat I recall from a few years ago was that they were only selling a CD or two on average from each store. For that matter, they were removing CD racks in 2008.
This seems like a lot of work for something that doesn't have anything to do with coffee.

Narain ... if you haven't already, go into a SBUX and experience the SDN. I did yesterday. Landed on the SDN page, clicked on a few things, and then went outside the walled garden. I wanted to get back into the SDN walled garden but was stonewalled. There didn't seem to be an easy way to access the SDN once you left it. I had to view my browsing history to wedge myself back into the SDN.

The SDN interface is nifty. But I can get so much of this content elsewhere from tastemaker sources I trust more than Starbucks. It's a total "why bother" to me.

John, The big question is: does it fit the brand Starbucks brand promise of Howard Schultz' fabled "third place." I think it does. But is it really needed? Is this what customers really want? Of course not, that's not why Starbucks created it.

So, of course, you've hit the nail on the head. Everything Starbucks does these days is about selling more stuff, getting more revenue to please the stock price.

Back when I worked in sales for Clear Channel Radio, corporate urged us to find "non-traditional revenue." This was revenue that didn't come from advertising. It had nothing to do with the customer and everything to do with us just trying to sell more stuff to meet Wall Street's required annual growth expectations. This digital network is part of Starbucks' non-traditional revenue strategy.

Jay ... what Starbucks customers have clamored about, they got -- FREE WIFI. Kudos to Starbucks for realizing free internet at a coffee shop is a cost of doing business.

Building a proprietary content portal feels so 1998 and so unnecessary to me. There are so many trusted tastemaker online sites outside of the Starbucks Digital Network that do a better pointing me to cool things and cluing me in on local events/places. Not sure anyone truly needs or wants this from Starbucks given the great online options that exist outside of this network.

I'm all for non-traditional revenue to grow sales. I'm just not sold on using affiliate sales dollars as a way to monetize SBUX customers. To Geoffrey Moore's point, "If Starbucks is just trying to find more ways to monetize the traffic that comes through, this is a bad idea. At some point the customers will start to feel abused."

I wish someone could answer why they didn't just pony up for free wi-fi a long time ago... why wait so long?

what did it cost them in the meantime?

Oh well... good run down John...

Hogwash.

Sure, it's outside their traditional core. Yes, people are already there. But in offering things that aren't available elsewhere (free WSJ, extra iTunes freebies), Starbucks IS creating a reason to stay there longer, and maybe even to go there in the first place.

And in the scream of things, it's cheap. WOW, did you get this one wrong.

Jeff Yablon
President & CEO
AnswerGuy.com

Jeff, if it takes offering free access to the WSJ and freebie iTunes downloads to get customers to linger longer inside a Starbucks, then Starbucks has MASSIVE problems to solve about its core coffee business.

(Just so you know Jeff, the Starbucks Digital Network is not as CHEAP as you think it is. It takes time, money, and people resources to manage a program like the Starbucks Digital Network. It takes less time, money, and people resources to manage a free wi-fi access program. WOW, did you get that one wrong.)

Whether it is a failure or not, at least Starbucks is thinking outside of the box and trying new things. Not many companies can say that these days.

Tracy ... here's another way to look at outside-the-box thinking ... If you always have to think outside the box, maybe it’s the box that needs fixing.


I've argued before
that Starbucks needs less innovation and more renovation to find further success.

My comment is: why not?
Reason #1: The walled garden is where it's at (see Wired recent cover article (http://www.wired.com/magazine/2010/08/ff_webrip/all/1) AOL created it and dropped the ball. Everyone else wants to learn from their mistakes and jump in.
Reason #2: it fits with their overall brand strategy of creating meaningful experiences for customers. You should not discount this: successful companies like Apple, Disney, etc. keep a very keen focus on customer experiences that are consistent with specific meanings they want to evoke (e.g., Disney's is "wonder"). This is just another attempt at that brand "promise." Will it suck? Maybe, but you can't fault them for trying. It's not on your dime.

It's obviously a money making scheme and, worse, it's not authentic to the brand. A clear violation of the 7th rule of Reverse Marketing. Shame on a company who should know better.

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