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Starbucks considers licensing its mobile app

May 5, 2014

Through a special arrangement, presented here for discussion is a summary of a current article from Retail Customer Experience, a daily news portal devoted to helping retailers differentiate the shopping experience.

Tech companies and national retailers have approached Starbucks about whether the coffee giant would consider licensing or white-labeling its successful mobile application, CEO Howard Schultz revealed during the company's first-quarter earnings call.

Mr. Schultz reiterated the consideration last week to CNBC.

"I think you have to ask yourself, 'Why are they asking us to do this?'" Mr. Schultz said during the earnings call. "We have such a significant lead. There isn't a company that we can identify that is processing anything close to a million transactions a week, and we're now way over five million. Most of the national retailers did not invest ahead of the growth curve. They do not have the capability in-house at this point to really execute this and to fully understand it.

"Tech companies themselves obviously have the tech background and the insight but they do not have the interface on the physical side with the consumer to execute it. So we are in a very unique position having kind of [seen] the chicken-and-egg problem of both, the digital technology and obviously the interface with the consumer."

Mr. Schultz added that Starbucks has not made any decisions on the offers.

"We have not made the decision as to what we will do, but I can share with you that we are actively pursuing a number of conversations because we ... strongly believe that [having] one is a tidal wave of consumer adoption and smartphones and mobile commerce, and we are in the sweet spot of being in a position to take advantage of that in a very unique fashion," Mr. Schultz said during the call.

FINANCIALS:     [NASDAQ:SBUX] [ ]

Discussion Questions:

Should Starbucks license its mobile application to other retailers? What thought process should guide any decision by a technology first-mover to share technologies with potentially competing retailers?

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Instant Poll:

Should Starbucks consider licensing its mobile application to other retailers?

Comments:

CEO Howard Schultz continues to have more foresight while continuing to keep Starbucks a step ahead of all the competition, and for that matter, most other retailers and other types of businesses. The new Starbucks app is light years ahead with its conveniences and user-friendliness, and that's why it's producing over five million transactions per week even at the early stages. Starbucks definitely should license out the technology at a reasonable price and every business will benefit without having to re-invent a new wheel.

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David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates LLC

They could become the "platform" by which other retailers license the model - meaning the actual application along with how to apply this to the retailer's customer base. Seems like Mr. Schultz is sounding more like Larry Ellison of Oracle. Many of the platforms we use every day, Facebook, Twitter, etc. started off as apps.

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Zel Bianco, President, founder and CEO, Interactive Edge

By licensing its app, Starbucks gives up a significant long-term competitive advantage - something that is very hard to come by. True, it could make money in doing so, but could it make enough to have a meaningful impact on its profitability?

Alternatively, by licensing its app, Starbucks develops a second revenue stream. This provides the company with additional capital to continue to improve the app to maintain and sharpen its competitive advantage. As long as it doesn't license to its competitors (broadly defined) then it maintains its competitive advantage.

My take on the bottom line - don't license the app. Keep the advantage you have and continue to improve it.

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Steve Montgomery, President, b2b Solutions, LLC

Every retailer wants an app that has staying power, that provides genuine advantage to the customer, and that creates a lasting relationship. Starbucks has been able to do this. It only makes sense for them to share the mechanics with other retailers.

The next question, though, is whether customers are going to want a number of apps from different retailers, or a more predictable, single app that provides a framework for customer interaction.

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Cathy Hotka, Principal, Cathy Hotka & Associates

I think it is a smart idea. I have said before that if retailers want to compete in the digital world, they do need to create their own platforms that they can then sell to other retailers. Of course this assumes a lot of things. Did Starbucks build it themselves and did they use open source? If they used open source, a lot of open source tools claim you can't go repacking for profit.

Edward Chenard, Innovation Lab Leader, Target

The executives at Starbucks have considered this move. I think they just don't know how to share the software and what parts must be copyright protected and licensed for use. It might be a better idea to spin a portion of their Information Technology group off and make it a subsidiary allowed to market services and support for the company owned and licensed application. The time to make a profit is now. Talking about it just costs more money.

'gjarnoldjr'

I think it's a good app, and well ahead of others in the market. Perhaps though, software vendors should open coffee shops? As long as Starbucks has considered and understood what it takes to manage, maintain, support, enhance commercial software and are prepared to get into that business, it can work. Or should they do what they are good at and leave the world of commercial software to others? If I were them, I'd stick to running great stores and distributing products that support their brand.

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Peter J. Charness, SVP America, Global CMO, TXT Group

The number one core principle of any business is to be able to define what core business you are in. Coffee or app development?

Starbucks has the ability to extends its "third place" for consumers to be able to offer wine on the evening menus, and even extend its food services. But it would seem that Starbucks is first and foremost B2C ... not B2B.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Starbucks currently has complete control over their app giving them the ability to react quickly to do what's best for Starbucks. Selling the app requires them to take on other vendor-customers that will each have requirements that will sometimes be in line with Starbucks direction, and sometimes, not so much. Keep the app focused on Starbucks' core business of selling more coffee and let the payment guys slug it out for the next few years.

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Larry Negrich, Vice President, Marketing, nGage Labs

Easy answer, YES! In today's world of coopetition, Starbucks has a real opportunity to profitably diversify outside of their own stores and brand, and seems to have a very strong technological offering that could be the cornerstone of that strategy.

In terms of competitive advantage, when licensing they can not only pick and choose when and where to license, but also create a very profitable revenue stream to assist them in driving continued innovation for themselves. There are some great examples of companies that have used licensing to grow and thrive, including Symbol Technologies, who had licensing deals with most of their competitors and used it to drive ongoing innovation and success. For a more retail centric example - if Amazon can externalize their technologies to the market, i.e. web and cloud services, to anyone and everyone, Starbucks should be able to succeed in licensing as well.

Now Starbucks needs to ensure they have a technology leader for this business who understands clearly both the Starbucks vision and how to drive technology solutions business success.

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Verlin Youd, Principal, VPY LLC

Why not? I like the idea that they would be willing to share the technology. My guess is that there are some future versions of the software that Starbucks is going to eventually release (for themselves), giving them a leg up on competition. And if Starbucks doesn't share it, someone will surely create a competitive app. Starbucks has a proven track record with the app. And, it probably makes financial sense to license it to other retailers.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

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