Starbucks Schools Silicon Valley (Again) With Launch of iPhone Ordering

Payment happens in the app, not at the counter. Starbucks

Starting on Wednesday, if you open up the Starbucks iPhone app in Portland, Oregon, you’ll see a new tab that reads “order.” If you tap it, you can both order a latte and pay for it before walking into the nearest Starbucks to pick it up. You’ll never have to stop at the checkout counter, the company says.

The order-ahead feature sounds like a great way to streamline recovery from caffeine withdrawal. But it signifies something bigger than just skipping the line. By fusing mobile and physical commerce on a massive scale, a company better known for Frappuccinos is once again outpacing Silicon Valley.

Portland is the beta city for what Starbucks is calling “Mobile Order & Pay.” The company plans to roll out the feature city-by-city in 2015 (and make the order-ahead option available in its Android app). Starbucks is not the first to offer this kind of service. But like Apple with Apple Pay, it has a unique potential to change consumer behavior because of its massive reach.

App Everywhere

Starbucks says it has about 12,000 stores in the US, which puts it not too far behind McDonald’s. In those stores, Starbucks processes about 47 million transactions every week, and CEO Howard Schultz recently announced that 7 million of those are customers paying at the counter with their phones.

In other words, a full 15 percent of Starbucks purchases in the US are made with phones. That’s remarkable at a time when paying by phone is still the rare exception, Apple Pay or no. This also means, like Apple and iTunes, Starbucks has a coveted trove of linked credit cards, which it can turn from pay-in-store to pay-in-app.

By fusing mobile and physical commerce on a massive scale, a company better known for Frappuccinos is once again outpacing Silicon Valley.

That mass adoption puts Starbucks in a unique position to leap ahead on a problem Silicon Valley has been trying to solve for years: how to link up mobile phones to in-store retail. Take Square, a one-time Starbucks partner that long sought to foster the quasi-magical experience of buying something in a store without ever needing to pull out a wallet. The Square Wallet app worked by linking directly to stores’ Square point-of-sale systems but floundered as the independent merchants that make up Square’s customer base failed to adopt it. (Square now offers its own order-ahead service as a scaled-down version of Wallet.)

Starbucks, on the other hand, can effectively just flip a switch to launch order-ahead across an entire city. The new “Order” tab will simply appear in customers’ apps when they’re within a set of GPS coordinates where the service has become available. (Where it’s not, users will see a new “Menu” tab.) And it won’t even seem like a radical change. If you’re paying at the counter with your phone already, ordering with it, too, won’t seem any weirder than ordering from Amazon.

“We designed this mobile order-and-pay capability to just feel like a natural extension from an experience perspective,” Starbucks Chief Digital Officer Adam Brotman tells WIRED.

Coffee Fulfillment

Brotman believes ordering ahead will make going to Starbucks better by eliminating the “pinch point” of the line—and drive more business as a result. Coming soon, Starbucks will take the concept one step further by cutting the need to go to the store altogether. As Starbucks has announced previously, it will start delivering your lattes to you starting in mid-to-late 2015.

In some cases, Brotman says, delivery will work a lot like pizza delivery, where the orders come from the same physical stores that let you order at the counter. But in some locations, such as big office buildings, he says Starbucks plans to have the coffee equivalent of an Amazon fulfillment center—kitchens where baristas are slinging orders for delivery full-time.

In Silicon Valley, the typical recipe for success involves building a platform that other businesses use. Starbucks, by contrast, has succeeded by controlling both the coffee and the tech, the store and the app. It’s not clear yet whether Starbucks’ success offers an alternative model for other retailers, or if it’s an outlier because it sells a product that upon which customers develop a genuine physical dependence.

If Starbucks’ app makes mainlining caffeine easier, then no wonder it’s succeeding. But Silicon Valley would do well to think hard about why what Starbucks is doing is working, lest it wants a coffee company to eat its lunch.