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

Evan Schuman | March 19, 2014
The coffee purveyor has indicated it wants to move in that direction. But so do other companies, and they all have some hurdles to overcome.

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.


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