Starbucks Offers Free Wi-Fi -- Would You Like Some Digital Media With Your Latte?
Starbucks' (SBUX) decision to offer free Wi-Fi in all its locations was a no brainer, precipitated by increasing competition from big brands like McDonald's (MCD). But the company is capitalizing on this necessary expense by offering online extras ranging from local news to free music. This will allow Starbucks to tap new revenue streams from digital media and location-based services.
Speaking yesterday, Starbucks CEO Howard Schultz said that McDonald's free Wi-Fi was stealing cost-conscious consumers away from his chain. It seems laughable that Starbucks would try to compete with McDonald's for value shoppers. But the company's old Wi-Fi system was atrocious, given that it imposed a complicated sign-in process on customers and could cost as much as $2 an hour. With most independent coffee houses now offering free Internet access, it was way past time for Starbucks to make this change.
Along with Wi-Fi, customers who log in will have access to a smörgåsbord of free content on a new Starbucks Digital Network. Yahoo (YHOO) and AOL are being tapped to offer local news that will only appear in Starbucks. Flickr will serve up area photos and Foursquare will award neighborhood badges. Customers will also get some non-local benefits, like free access to the normally subscription-only Wall Street Journal and some free iTunes downloads.
With respect to e-commerce strategy, Starbucks is apparently going to throw everything at the wall and see what sticks. The local news being served up by Yahoo and AOL's hyperlocal venture, Patch, could very easily turn out to be crap. Both firms are trying to reposition themselves as journalistic endeavors scaled to fit the web, but it's hard to imagine these massive corporations really getting a feel for local news. The offerings from iTunes and Foursquare, on the other hand, seem like sure winners. Some customers will download free iTunes tracks and then pay for more music by artists they discover they like. Foursquare has the right mix of location based gaming to entice customers into trying new discount drinks or coming back repeatedly during a single week to win a prize, virtual or otherwise.
The heftier offerings, like free WSJ access, will surely appeal to an important and growing demographic for Starbucks: freelancers and the unemployed. As the NYT put it:
In January, the company announced that same-store sales increased 4 percent after months of steady declines. Starbucks attributes the improvement, which came before consumer spending rebounded as a whole, in part to its role as an office for the unemployed.So far the company hasn't said who will pay for these offerings or how revenue sharing will work for purchases made on the Starbucks network. Overall, however, this feels like a good first draft. Free Wi-Fi was a necessity for the company, but certainly will impact the bottom line. Layering services on top of this network is a good way to counteract those costs and establish Starbucks as the best office space -- outside of a real job, that is.