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Taking coffee- and more- on the go

It seems almost accidental that the purveyor of the world’s largest mobile payment network is the world’s second favorite mermaid: Starbucks.  While it is unlikely that Starbucks intended to create the leading system, the result is hardly accidental.

Whether consciously or not, Starbucks realized that the necessary pre-requisites for a mobile payment network had already developed: available infrastructure and consumer comfort .  Many people already have smart phones and building the rest of the technology structure should present little challenge.  In the standard method of app development, someone develops a platform, which another company can purchase to enhance, making app development easier and cheaper.  It is the equivalent of sites like WordPress.com, which create a blogging platform that allows less than tech-savvy writers to write about technology instead of building it.  While it has not yet been used to such a purpose, the new digital barcoding provides a natural infrastructure for mobile payments.  Not only does the barcode connect the product to the smartphone but, afterall, barcodes revolutionized payment methods many years ago.

In a way, consumers have been using mobile payments for years. Explaining a smartphone to someone usually involves describing the device as “a computer in your pocket”: some aspects of computer use and mobile use are comparable.  Many companies provide methods for online payment and many consumers expect that they can make their purchases online, whether its tickets to a movie or to Maui.  Finally, in an oft-cited survey, consumers report that they would rather lose their wallet than their mobile phone.  People recognize that a smartphone can do so much more than a wallet- with a Starbucks account phones can even prevent starvation.  People have already mentally replaced their wallet, now companies can catch up to physically replace it.

With such reasoning, mobile payments not only seem inevitable but overdue.  However, when creating a new process or product, the first mover rarely has the advantage : the first mover makes the mistakes and the followers learn.  Because Starbucks developed mobile payment system as a complement to their existing business it created a mobile payment model at a relatively low risk to themselves.  Now other companies can skim off the knowledge.

Starbucks provides mobile payments through a freely downloadable app, linked to a Starbucks account.  Setting up the account requires filling out a form with a username, password, email address, street address, all of which tie to a physical or digital Starbucks card.  To put money on a Starbucks card then requires linking a credit card to the Starbucks card through their online system.

The mobile payment system certainly adds ease; what really adds the extra shot is the rewards system. When a customer makes a purchase through a Starbucks account, she earns special deals.  With every mobile purchase, the consumer receives a virtual reward: a gold star and track how close the customer is to the next tangible reward. While a star has no “real” value, they provide positive feedback which can motivate further purchase.

While a standard model for mobile payment has yet to develop, LevelUp’s method seem promising.  Like the Starbucks app, the LevelUp app is free to both the business and consumer, which means initial use has a very low risk.  LevelUp improves over Starbucks with greater ease of registration.  The customer need only provide a username and the appropriate credit card information and the app prompts the user to take those steps.  Like the Starbucks app, LevelUp has a substantial rewards system.  LevelUp, in partnership with the businesses who accept it, provides first-time use discounts and additional discounts for continued use.  The consumer also receives constant, positive feedback, as the app tracks and displays the total saved by paying with LevelUp.

To the business, LevelUp’s provides customer information as its primary value-add: the service can track all details of a first and then subsequent purchases.  Given that Starbucks’ mobile payment system also provides detailed customer information, better customer tracking will likely be the value of the mobile payments system, rather than one company’s value add.

For an explanation of the difference between value and value-add see an earlier post.

Before clamoring for LevelUp’s immediate IPO, bulls should remember that competitors abound, most notably from GoogleWallet. A mobile payment system will prevail but the champion’s name is uncertain.  Starbucks should make sure that at the end of the day their coffee is worth the commute.

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  1. Pingback: Starbucks expanding mobile payment network « econobites - August 10, 2012

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