Andrew Walmsley on Digital: Starbucks' grande strategy
A view from Andrew Walmsley

Andrew Walmsley on Digital: Starbucks' grande strategy

The coffee chain is using its new Digital Network to differentiate itself from otherwise similar rivals.

There was a time when buying a cup of coffee was a straightforward process. You went into a cafe, asked for 'a cup of coffee', handed over a small amount of change and sat down to drink it. OK, it often didn't taste much like coffee, but you had enough money left over to buy a pack of Spangles and a copy of Today.

Starbucks changed all that. With fearsome choice, baffling nomenclature and prices that seemed to defy some of the less well-known laws of physics, the company grew from a coffee-obsessed Seattle to 16,000 outlets worldwide.

The business has long been aware of the potential locked up in the time people spend in its stores, both in terms of the value of increased frequency and the value to others of exposure to that audience. It has experimented with kiosks, in-store download partnerships with iTunes and text deals with O2 where vouchers would be sent to the phones of passers-by.

The Starbucks Digital Network (SDN), launched last week in 7000 US stores, is its latest move to capitalise on the vast audience that uses its wi-fi network every week. Built and operated by Yahoo!, the site is presented to anyone signing in to the stores' wi-fi spots and carries content in several channels designed to appeal to customers.

The New York Times' subscription site is available free via the network, as is The Wall Street Journal. Children's content is supplied by Nick Jr, and a wellness channel operated by publisher Rodale supplies exclusive content from its publications, including Runner's World and Men's Health, with a custom-built app that allows users to plot a cycling or running route in their area.

SDN is expected to carry little advertising, but to earn revenue as an affiliate - taking a cut of subscriptions and purchases made through the system. So, as LinkedIn offers a 30-day trial of its premium service through the network, we can assume Starbucks gets a return when customers upgrade their subscriptions.

In-store media is booming, with private TV networks operated by Wal-Mart in more than 3000 of its outlets, and similar ventures in the UK from Tesco and The Co-op - although roll-out costs for Starbucks are far cheaper, as consumers bring their own screen in the form of a laptop or mobile device.

What's interesting about SDN is that although you can buy stuff on it, it's really aimed at improving the in-store experience, providing something exclusive and hard to replicate.

While some product uniqueness is possible at the weirder end of the moccaloccachocaccino spectrum, the tough thing about the coffee business is that in the core product set there's little differentiation to make people cross the street from their habitual route.

Traditionally, Starbucks supposedly sought to differentiate through its people and the experience they gave customers in store. But competitors have been upping their game here too, and the service gap has narrowed.

What Starbucks has lighted upon is a canny route to differentiation making use of its scale; an experience smaller coffee shops can't copy. It's a sign that the web can be more than a marketing channel and a channel to market - a significant player in the owned-media space, and a powerful demonstration of marketing as a service.

Here the process of marketing to consumers is indistinguishable from the entertainment they consume, while the ability to buy a coffee for a friend via Facebook creates an interesting social dimension.

The days when cafes had both types of coffee - black and white - are long gone; now you don't get change as you paid on your BlackBerry. No room for Spangles in this brave new world.

Andrew Walmsley is a digital pluralist

30 SECONDS ON ... STARBUCKS' ENTERTAINMENT SIDELINES

- Starbucks acquired the Hear Music catalogue company in 1999 and created a record label under the brand name.

- Hear Music has released albums by artists including Paul McCartney, John Cougar Mellencamp, Carly Simon and James Taylor.

- The label's biggest-selling release was Ray Charles' final studio album, Genius Loves Company, in 2004. Starbucks stores were responsible for about 30% of US sales of the triple-platinum-selling album.

- Starbucks Entertainment was created in 2006; it helped produce and promote feature film Akeela and the Bee the same year, and sold DVDs of the movie in its stores.

- In 2006, Apple partnered the chain to create an iTunes Store 'Starbucks Entertainment' area offering music similar to that played in the coffee-houses.

- Since June 2009, Starbucks has sponsored MSNBC's talk show Morning Joe - 'brewed by Starbucks'. The show's hosts previously drank Starbucks coffee on-camera with, apparently, no product-placement deal in place.