Apple and Starbucks Brewing A Hot Idea

When I go to Starbucks, this is what I order: a grande, double shot, skinny, sugar free vanilla latte with extra foam. Back in my small-coffee-with-room ordering days, I swore I would never be that girl with the painstakingly specific order. But as my coffee order has evolved over time, so have my sentiments. If I’m going to pay $4 for a cup of joe, it better be what I want. I can get coffee for free from the coffee machine in my house, but I am willing to pay for Starbucks because it’s handy, it’s quality, and it’s in a convenient (and trendy!) portable container.

Those adjectives that I just used to describe my cup of coffee could be easily applied to another little something I often carry around with me—my iPod. Much of the appeal of the iPod and the iTunes store is that they are quick and easy to use. The music downloaded from iTunes is sure to be of utmost sound quality, and you can bring your music anywhere you want to go. Plus there’s the aesthetic appeal—those white ear buds and pretty colors sure do look cool.
iPods are surely popular with the 18-24 demographic, and in the last five years Starbucks drinkers between the same age have risen from 3% to 13% of their total consumers. So it’s a natural progression for Starbucks to collaborate with record labels to create Starbucks Entertainment and special coffee houses with in-house coffee bars.

The corporation started in 1990 and has progressed to include an XM radio station, numerous café-media-bars across the nation where consumers can burn CDs at the Starbucks store, in-store CD racks offering exclusive or unique compilations and releases, and most recently a Hear Music section at the iTunes store that offers coffee-house chill playlists and carefully selected music for Starbuck’s loyal consumers.

In the midst of a flailing record industry, Starbucks has embraced technology both in their stores and through the internet, and low and behold they are actually selling CDs. Executives at Starbucks Entertainment have reported that CDs in their stores “often account for 20 percent to 30 percent of the record's weekly sales, and sometimes as much as 50 percent.” Another top executive from EMI Group said that Starbucks was among the top four retailers for every single one of his label’s records sold at the store.

And not only are they selling CDs, but they are able to make quite a profit off of them. An example—Starbucks sold Beck’s “Guero” in their stores for $15.95, which is nearly 2 dollars more than the suggested retail price, but still managed to sell over “38,000 over a six-week period this spring.”

One could argue that consumers may be more willing to purchase something when they are already in the store buying something else—a pricey cup of coffee. But I think there’s something more to it.

While people may be willing to purchase CDs when what they want is a physical copy of the CD, when it’s just an extras-free burned CD, consumers just aren’t interested. They can get that on their home computers. So the in-store CD burning bars weren’t as big of a hit as Starbucks executives had hoped, and many have been demolished. But what's going to come in thier place?

Starbucks wasn’t afraid to abandon the CD and focus more on digital music, and their recent collaboration with Apple on the Hear Music section of the iTunes store reveals this. Check this statement from Starbucks chairman Howard Schultz, claiming that, “Within 12 months, probably, you're going to be able to walk into a Starbucks and digitally be able to fill up your MP3 player with music.” I think that soon enough there will be an in-store kiosk where consumers can connect thier own iPods to the iTunes store and purchase songs to immediately upload and listen. But with digital rights management, iPods are only able to connect to a limited number of computers and they aren't compatible with multiple playlists. This kiosk (under current laws) simply wouldn't work, but does the fact that this idea is clearly heating up insinuate that DRM may not last for much longer?

So let’s relay the facts—Starbucks and Apple have partnered and created a Starbucks-specific section of the iTunes store. Starbucks executives make claims of being able to use MP3 players in Starbucks stores within the year. And Apple executive Steve Jobs writes a letter urging lawmakers to do away with digital rights management laws that would inhibit connecting and buying digital music at a kiosk in Starbucks. All this is amidst a period of growth for a Starbucks Entertainment as a digital music provider, and after they have already established themselves as a prominent non-digital distributor.

It’s pretty clear that Starbucks and Apple are brewing something hot for the digital music industry, and so long as DRM is revoked it seems as if this iPod friendly downloading technology might be available in a Starbucks near you within this next year.