Starbucks and Apple

Starbucks has agreed to a partnership with Apple to collaborate on selling music as part of the "coffeehouse experience". In October 2006, Apple added a Starbucks Entertainment area to the iTunes Store, selling music similar to that played in Starbucks stores. In September 2007 Apple announced that customers would be able to browse the iTunes Store at Starbucks via Wi-Fi in the US (with no requirement to login to the Wi-Fi network), targeted at iPhone, iPod touch, iPad, and MacBook users.

The iTunes Store will automatically detect recent songs playing in a Starbucks and offer users the opportunity to download the tracks. Some stores feature LCD screens with the artist name, song, and album information of the current song playing. (Neumayr) This feature has been rolled out in Seattle, New York City, and the San Francisco Bay Area, and was offered in limited markets during 2007–2008. During the fall of 2007, Starbucks also began to sell digital downloads of certain albums through iTunes.

Starbucks gave away 37 different songs for free download through iTunes as part of the "Song of the Day" promotion in 2007, and a "Pick of the Week" card is now available at Starbucks for a free song download. Since 2011 Starbucks also gives away a "Pick of the Week" card for app downloads from the App Store. A Starbucks app is available in the iPhone App Store. Here is a look at the revenue model for the iTunes store from amazon. [pic]

Figure 1

These numbers are similar to what Starbucks is receiving revenue with.

There is a charge of .99 cents per download. If you purchase a CD, the charge is roughly about 10 dollars. Bringing in partners could even facilitate product sales, since these companies have different identities and, thus, to customers, it may not feel like Starbucks is pushing anything at all. Thus, this could be a win-win for both Starbucks and the content providers, which benefit from finding customers at a time when they historically wouldn’t have been thinking about buying things online. (Brewer 2010)

The only songs that are available for download are through the Starbucks application, and it only allows for the songs playlist for the day. Most of the benefit comes to iTunes media downloads. Starbucks’ indirectly gains revenue from paid advertisements on the Starbucks apps, as well as purchases made in the iTunes store. The Wi-Fi carrier benefit because they have contracts with Starbucks. These contracts guarantee the service will be delivered to all customers using the connection. The advertisers gain because users may click their ads and end up making purchases based off suggestions on the Starbucks applications.

Starbucks now faces heavy pressure from fast-food restaurants, notably McDonald's, which invested in coffee and specialty caffeine drinks during Starbucks' time in the wilderness. Even Starbucks' switch to an all-free Wi-Fi system from a convoluted mix of free (for AT&T customers) and limited service (for stored-value card-holders) appeared following McDonald's decision to do the same. (AT&T operates Wi-Fi service for both chains.) (Babbage 2010) McDonalds could benefit from a similar partnership with Apple. It could be similar to the Starbucks partnership. McDonalds could use the apple cloud service to stream media.

This would generate revenue for both the iTunes store and McDonalds. Another company that could benefit from a partnership similar to the Apple and Starbucks is Subway. Using the same model as previously stated, Subway could allow users to stream music from iTunes on a Subway application. Now streaming itself would necessarily generate revenue, however money from advertisers could. This would allow customers to and browse, which leaves the potential for online purchases.

References

Babbage. Coffe and Wi-Fi. A New Revenue drip for Starbucks. Retrieved from http://www.economist.com/blogs/babbage/2010/10/coffee_and_wi-fi

Brewer, Rueben G. June 2010. Research Hub. Retrieved from http://www.valueline.com/Stocks/Highlight.aspx?id=8842

Figure 1. Howe, Carl. Amazon’s New MP3 Store. http://seekingalpha.com/article/48419-amazon-s-new-mp3-store-no-threat-to-apple-s-itunes

Neumayr, Tom. Apple Press Info. Wirelessly fing and Buy Music at Starbucks. Retrieved from http://www.apple.com/pr/library/2007/09/05Apple-and-Starbucks-Announce-Music-Partnership.html