Another Coffee for the Road

sbuxStarbucks has made it its business to partner with lots of tech companies – Uber, Spotify, The New York Times – and the most recent addition to that list is Lyft, the popular ride-sharing service.

I think this partnership – along with Starbucks’s other deals – represents a new kind of dominance for the brand. In the 1990s and early-2000s, Starbucks aimed to expand through storefronts, with an outlet on almost every corner. Although the company’s rate of retail expansion is still high, I believe the brand has moved to dominate virtual real estate as well, by staking a green mermaid flag in as many hot apps and services as it can, as a means of driving traffic (sometimes literally) to its stores.

Thus, Starbucks remains a hot commodity by not only badging itself as part of the mobile-first economy through its own app, but integrating itself into the fabric of these firms and services. And in Lyft and Spotify’s cases, Starbucks has even tied its own rewards program into the firms’ respective payment ecosystems. I would not be at all surprised if an Airbnb coffee delivery service is in the works. Or at the very least, I’d want to place an order through Facebook Messenger. I certainly wouldn’t mind a macchiato in my rented treehouse.

Cutting Out the Media Middleman

1377580_10152203108461729_809245696_nThe New York Times today sheds light on rumors that Facebook has gone directly to media labels, offering to directly premiere and host music videos on Facebook, rather than on YouTube or Vevo, the traditional options.

If true, this strategic move echoes the news outlet deal Facebook inked back in May, wherein written content producers like The New York Times, National Geographic and the BBC would post their articles directly to Facebook. LinkedIn had pursued a similar strategy by getting CEOs and journalists to write posts on LinkedIn, rather than merely sending users to posts on corporate blogs.

With 1.4 billion users, Facebook has an enormous audience, and no doubt drives a very significant amount of traffic to sites like the Huffington Post or Spotify or YouTube. I think that Facebook’s next prerogative is to get users to stay within the ecosystem, rather than use newsfeed merely as a springboard to other websites.

Costco’s Volume


Most people consider Costco the place to buy bulk boxes of toilet paper or industrial amounts of Raisin Bran. But two interesting statistics I saw this week point to the fact that Costco is a player in both the automotive and organic food aisles:

Marketplace reported:

A growing number of Costco members are also turning to the company to score a ride. Costco has become a major player in the world of car sales. The retailer says it helped move about 400,000 cars last year.“Costco is essentially acting as a middle man,” says Jeff Schuster, senior vice president of forecasting at LMC Automotive. “They are working with the manufacturers to bring in vehicles and essentially set a price for the vehicle.” Costco negotiates price discounts that can save members $1,000 on average.

And the New York Times noted:

Costco has become the biggest purveyor of organic foods, selling some $4 billion worth in the last year, compared with an estimated $3.6 billion in organic sales at Whole Foods, according to Kelly Bania, an investment analyst at BMO Capital Markets.

It’s fascinating that, in nearly whatever growing market Costco enters, it uses its sheer size – and the tempting promise of 70 million members – to bring down prices from suppliers, and make products that were once niche, or pricy, more accessible.

It’s also equally interesting that Costco almost doesn’t bother playing with varying markups on items. It’s purely focused on offering dependable values to its enormous customer base, and winning their loyalty through its generous return policy and consistent pricing. Costco is likely one of the few firms that could raise its subscription fee – $55 and $110 for its two tiers – by 10% and see demand for membership continue unabated. Imagine if Netflix tried that with its plans. It’s no wonder then that Jet, the more-you-buy-the-cheaper-it-is competitor to Amazon, is also playing the Price Club card.

Fitbit vs GoPro IPO

downloadFitbit has announced plans to go public. Although the firm has first mover advantage in the wearable fitness space, I’m a little skeptical of its long-term prospects. Namely, I think that the days of the single-use device – and especially, wearables – are numbered. As the Apple Watch – and to vastly lesser extents, Android Wear and Pebble – slowly become more accepted, I think that it’s unlikely people will buy dedicated fitness trackers for any reason beyond a very low price or a very high resilience to sweat.

Fitbit’s plans reminds me of another recent IPO: GoPro. Like Fitbit, GoPro is a sports-centric, self-contained product whose functionality can be easily replicated by a smartphone. But I think there is a critical difference between GoPro and FitBit. GoPro has developed a following – and to a certain extent, a lifestyle – that makes the media its fans produce worth almost as much as the devices themselves. Indeed, even if GoPro were to eventually exit the camera business altogether and just make ski-themed apps or iPhone harnesses for extreme sports, the brand would still live on, if only as an extremely successful YouTube channel.

In contrast, I don’t believe that FitBit has an audience that is as large or as devoted as GoPro. And fundamentally, it’s hard to make fitness data sexy in the way that footage of jumping out of helicopters is. I do think that FitBit is a viable business over the next 2-3 years, but I’m skeptical of its long-run prospects, in the face of more refined wearables. Put simply, Nike pulled the Fuelband from the market for a reason, and it wasn’t FitBit. Given the gradual consolidation of connected fitness apps, devices, and sporting goods companies – namely the purchase of MapMyRun by UnderArmour in 2014 – I suspect the FitBit may eventually be an acquisition target for a second-tier fitness player like Adidas or Reebok.

You Can’t Really Hear Me Knocking

As a die-hard Stones fan, I was thrilled to hear that the band had put out a previously unreleased version of their earbud-shaking “Can’t You Hear Me Knockin’,” off of the band’s 1971 ‘Sticky Fingers” album.

Stones re-releases and alternate versions can be a lot of fun – think of the newly-released acoustic “Wild Horses,” or the lesser-known “Tumblin’ Dice” counterpart, “Good Time Women,” which featured on the 2010 re-release of ‘Exile on Main Street.’

The alternate version of “Can’t You Hear Me Knockin'”, is, unfortunately, a tantalizing disappointment.

This version has a refreshingly different samba backbeat, and retains the tight and practiced interplay between Keith Richards and Mick Taylor. The only thing missing is intelligible vocals. Where Taylor and Richards instill a sort of casual elegance into this seventies-style blues number, Mick’s vocals are frustratingly inscrutable. The original “Can’t You Hear Me Knockin'” wasn’t particularly clear, but this iteration has only five clear words – the eponymous title. It’s no wonder this version didn’t make the cut, but it’s still worth a listen, if only as an intro to its more polished counterpart.

Apple Pay’s Credit Card Reliance

Apple Pay

Juan Pablo Vazques has an article in Harvard Business Review about how Apple Pay’s reliance upon credit cards is ultimately iterative, but not disruptive. He writes:

Apple executives could have negotiated with retail banks, just as it did with the recording labels, to launch Apple Pay. If it had, Apple Pay would have been a substitute for credit cards, and would truly be disruptive to the credit card industry. Instead, Apple negotiated with the credit card companies, which is why you need to introduce your credit card number, instead of your bank account number, to configure the application. That merely positions Apple Pay at the end of the existing credit distribution value chain, as a reseller for the credit card companies.

Vazques draws the comparison between the inception of iTunes – wherein Apple inked aggressive deals with music labels – and the potential for it to have engineered comparable deals with banks. The thinking is, Apple could have cut out credit card companies entirely, and just engineered a system that withdrew funds from a consumer’s bank account and deposited it into the merchant’s, taking a cut smaller than Visa or American Express.

He is, in theory, correct. Apple is one of the few companies whose customers are ubiquitous, loyal, and tech-savvy enough to have conceivably gone through the steps of linking their checking account to their Apple Pay account (the others are Amazon, Google, and maybe Facebook). But there are a few roadblocks that rightfully prevented Apple from taking that leap:

1. Record labels and credit card companies aren’t in the same strategic positions. When Apple approached record companies in the early-00s, the labels were desperate to combat the effects of file-sharing and piracy. And not unreasonably. Single-song downloads presented far more convenience than piracy, and far less cost than a full CD. Credit card companies are not in the same position. Both Visa and American Express have had years of solid growth, and the legitimate cybersecurity threats they face are not existential in the same way piracy was a mortal threat to the music industry. Apple may have been able to use its massive user base as clout, but it’s not nearly as certain a case as it was fifteen years ago.

2. Fraud, fraud, fraud. The way things stand now, credit card companies absorb the cost of illegitimate charges on users’ cards. Unless Apple Pay were completely airtight, Apple would not enter the business of shouldering consumers’ risk, and doesn’t have the technical infrastructure to spot unusual spending, or the procedural means of chasing down fraudsters the way Visa and Amex have been doing for fifty years. The excellent podcast Exponent covers this aspect in depth.

3. Apple’s not in the value game. Cutting out credit card companies might save merchants – and eventually, customers – 5% or so on transactions. It would take a considerable amount of risk, and capital, for Apple to see meaningful revenue on Apple Pay transactions. And Apple doesn’t do low margin. If Apple were getting into the transaction processing game, it would likely want a higher percentage than retailers would be willing to concede.

I agree with Vasquez’s fundamental premise, but not his castigation of Cupertino. In the literal sense, Apple missed an opportunity to reimagine the mechanics behind mobile payments. But I think that Apple is a more conservative entrant to the mobile payments space, and that it is rightfully hesitant to expand from consumer electronics – and now, fashion – to financial services. It is eminently possible that, down the line, Apple will attempt to squeeze Visa and American Express out of the value chain. But I think that as long as fraud is a legitimate concern, Apple will sooner play it safe than play it cheap.