Starbucks' Odyssey into NFTs
Starbucks' Odyssey into NFTs
What we can learn from a company with a 50 year history as pioneers of mainstream technology and business ethics
Hi 👋 welcome to Brian’s Bulletin. I write essays about blockchains, cryptocurrencies, and NFTs to figure out what’s happening and where it’s going next.
"Get to know us and you’ll see: we are so much more than what we brew." - Starbucks
Earlier this year on March 9th, Starbucks sold out 2,000 of their latest NFT called The Siren Collection. Each purchased for $100, they're now selling for over $500 on secondary marketplace. In the midst of a bubble-bursting market downturn, with bankruptcies and botched corporate NFT drops, this success comes as a shining light. More exciting, however, is the profound story behind this drop. Starbucks is a deeply principled and long-term committed company. I wanted to know, how are they designing the NFT strategy to align to those commitments, what are their technical decisions, and what it could mean for corporate NFT adoption overall? Writing this essay opened my eyes.
Hot or iced? Room for milk? To be honest, I want the Mocha Frappuccino every time. While everyone has their own order, we can all agree that Starbucks is an iconic company. They have a track record of pioneering industries and technologies; from introducing America to the Italian-style coffeehouse, to innovation in corporate loyalty programs, mobile apps, retail stores designs, and restaurant product launches. One of their core values is "challenging the status quo and finding new ways to grow." It's in their DNA to be visionaries and leaders, and they have the business success to back it up. I think they could lead again with NFTs, in a way unlike anyone else in the industry today.
I'll show you why. Here's the plan:
Starbucks Heritage and The Third Place
Culture of Innovation
The Digital Third Place
Odyssey Stats and Technical Details
Why NFTs and Why Now?
Broader Implications
Starbucks Heritage and The Third Place
Starbucks is the largest coffee brand in the world. They have 33,170 stores. In 2022, they had record revenues of $32.2 billion. This is a global giant.
More importantly than their business power is their heritage and origin story. They bring something different than any other company building in web3.
The origin story centers around a trip that future CEO Howard Shultz took to Italy in 1983. He was marketing director for Starbucks who, at the time, was a coffee bean roaster with six stores in the Seattle region. Coffee was a commodity business then; you pick up your beans or beverage and be on your way . But in Italy, Howard fell in love with the Italian-style espresso bars that we know from Starbucks today. It was a daily ritual, a neighborhood hangout; what would later become known as The Third Place—a gathering spot between home and work. He decided to bring this back to America. He saw that the Third Place was a luxury that people would be happy to pay a higher price for. While the $4 coffee has been mocked through the years, Howard's original insight has remained fruitful as people continue to see the value beyond the beverage.
It's about community and culture. Yes, centered around coffee, but it's the experience that is the daily-ritualized product. Next time you walk into a Starbucks, notice how intentional everything is to create the neighborhood vibe: the long tables, barista greetings, local community notices boards, personalized loyalty rewards, and consistency across all their stores.
Their heritage also includes world-class leadership in ethical business practices. To name a couple, their coffee is verified 99% ethically sourced, as they're one of the largest buyers of fair trade coffee in the world. Also, they offer free college education to their employees through a partnership with Arizona State University. Their actions prove how they put their people and environmental sustainability top of mind.
It was this vision to see beyond the coffee that turned a small regional operation to a multi-billion dollar global enterprise.
Culture of Innovation
The Third Place insight was just the start of a long history of innovation. As stated before, it's in their DNA to challenge the status quo. Let's look at three more world-class examples.
Mobile payments. According to InsiderIntelligence, "the Starbucks app is the second most used mobile payment app for point-of-sale transactions in the US, right after Apple Pay. The coffee shop contender beat out Google Pay and Samsung Pay, and is used by over 30 million Americans." They accomplished this by prioritizing ease for mass audiences. Forbes explained that they "inverted the use case that most companies were using. By allowing the register to scan the 2D barcode rather than the user scan a 2D barcode. This was a maverick move at the time as most technologists were laughing at the 2D barcode and the way it was used." Their payments were smooth and easy. This, in addition to the custom features of their app, set the industry standard for retail mobile apps. They benefit in a number of ways, including avoiding credit card fees at each purchase, and collecting customer purchase information that allows them to optimize the loyalty program perks.
Loyalty program. Starbucks Star Rewards program has 30 million active members in the US alone. And these members drive around 50% of revenue, according to Axios. I listened to The Brainy Business podcast explaining all the ways they've pioneered methods in behavioral economics and psychology to create daily habits and keep customers coming back. In 2013, Howard Shultz said: "No single competency is enabling us to elevate the Starbucks brand more than our global leadership in mobile, digital, and loyalty."
Beverage innovation. Let's remember who we're talking about here: the company who built a $2 billion Frappuccino brand, who takes over each fall season with Pumpkin Spice Lattes, the company who makes headlines every year with red holiday cups, who introduced so many in the world to espresso and coffee. They know how to innovate, test, build hype, create scarcity, and drive headlines. All in service of long-term business growth.
Their CMO says it best: "Starbucks has a history of taking leading edge technology, innovating and making it accessible and approachable for mainstream audiences. Our history... has taught us how to engage customers at scale to unlock opportunities."
The Digital Third Place
Last year, in their biennial Investor Day, Howard Shultz announced Starbucks' Reinvention Plan to spur its next phase of growth. One highlight was they're evolving the "Rewards program with Starbucks Odyssey, a Web3-enabled experience that will bridge the physical and digital customer experience. Through Starbucks Odyssey, customers will unlock a new generation of experiential benefits – both digitally and in-person – and become a part of a digital community built on human connection." This is a big deal; it's a strong commitment from the top executive to the shareholders.
Their CMO Brady Brewer added more details in an article where he explained the intention to "extend the Third Place Connection wherever customers experience Starbucks." In this program, they're asking "What if Starbucks could create a new, global digital community ... centered around coffee to start, and then perhaps expanded into the many of the areas Starbucks has played in over the years as a coffeehouse; art, music, books and beyond?" "What if we could create an accretive business – adjacent to our stores – that ultimately benefited our partners, community and business?"
To achieve this, they plan to create a series of branded NFTs that provide a digital art asset, a membership pass to the community, and access to exclusive experiences and perks.
While many companies use similar language for their NFT visions, this holds more weight coming from a company with such rich history of making cutting-edge technology approachable for the mainstream in a way that drives business results. They have the culture and global reach to pull the entire industry forward along with them.
Odyssey Stats and Tech Details
Starbucks Odyssey is an extension of their Reward program. Users collect NFTs through completing tasks or journeys that "deepen their knowledge of coffee or Starbucks" says Axios. The NFTs are called "stamps." Each stamp carries a point value which will unlock unique benefits and experiences. They say the "experiences could range from a virtual espresso martini-making class, invitations to exclusive events at Starbucks Reserve Roasteries, trips to Starbucks Hacienda Alsacia coffee farm in Costa Rica to access to unique merchandise and artist collaborations."
There are 6 stamps available today, which you can see above and on their market website. Previous collections vary in quantities from The Siren Collection with 2,000 editions up to others with 30,000.
The Stamps today are minted on Polygon blockchain, but they said the project is likely to be multi-chain in the future. Original listings are sold through NiftyGateway, where Starbucks is able to gate the purchases to those who have signed up for the Starbucks Odyssey program, which has a waitlist (that I'm still waiting to be approved on.) NiftyGateway has a mainstream-ready offering, where users can pay with credit card and do not need to have self-custody wallets; NiftyGateway will custody the assets for you. Users can withdraw to their self-custody wallet if they want to, and sell on other marketplaces like OpenSea.
Starbucks is advised by Forum3, a consultancy for web3 loyalty programs co-founded by Starbucks' ex-Chief Digital Officer Adam Brotman. It looks like they'll scale this playbook to other brands.
Why NFTs and Why Now?
The NFT aspect is needed for true ownership and composability, said Adam Brotman in his podcast on Overpriced JPEGs. The NFT assets can be held in self-custody wallets or trusted third-parties like NiftyGateway, which hosts the primary sales. The assets have their own value and are freely tradeable.
Composability is a benefit of building in web3 that allows for enhancements to owning an asset; the asset can be remixed through partner collaborations, and added to third-party experiences. Building on blockchains puts the data and software out in the public, so these enhancements can be provided by more than just the creating company. For example, if you wanted to sell your Siren Collection NFT, and didn't like the prices offered on the NiftyGateway marketplace where your original purchase is held, you could withdraw to your self-custody wallet and list the asset on third-party marketplaces like OpenSea. Composability is a competitive advantage as it adds value to your product without any additional effort.
And why now? Well, Starbucks knows the benefits of being early to tech trends. A Harvard case study explained a key reason to their mobile payment success was timing. They launched mobile payment in 2011, years before Apple Pay and Google Pay. "Since Starbucks launched its own branded mobile payment function before technology companies could successfully enter the space, many users became accustomed to mobile payments through Starbucks first." And 10+ years later, as mentioned, they remain the #2 retail payment app.
Are there benefits to being early to NFTs? There's already evidence of this; many early NFTs hold value better than others. Some examples are CryptoPunks as one the earliest created NFTs, CryptoKitties as one of the first NFT games, and Chromie Squiggles as the first ArtBlocks project. This could be related to the Lindy Effect, which states the future life expectancy is proportional to the current age; the longer something has been around, the longer it will stick around. For NFTs, it could mean the longer an asset has retained value, the longer we can expect it to in the future. So starting the timeline earlier will be a competitive advantage.
Broader Implications
Starbucks has the power to move industries. With NFTs, they can prove the use case for loyalty programs and customer experiences. If they succeed, many others will be watching to do the same.
And equally important, Starbucks can help rebuild trust that the NFT industry has lost through the mania and bubble burst last year. They're a trusted brand that's part of the daily lives of millions. They're long-term thinkers and global leaders in business ethics. They can introduce NFT technology to millions in an accessible and scalable way. The industry needs ethical champions to break through to new user bases.
It’s clear to see, for NFTs and so much else, Starbucks really is much more than what they brew.