Lawrence Gee | Marketing, Internet, Creativity, Strategy

Betting on Cyberlattes

Starbucks announced today that it was switching its store wi-fi service from T-Mobile Hotspots to AT&T Broadband.  It will allow customers to have 2 free hours of access with a drink purchase.  Existing subscribers of AT&T Broadband or U-Verse will get unlimited access.  Alternatively, customers can purchase a two-hour session for $3.99 (might as well buy a latte) or a monthly membership would cost $19.99.  This is a substantila reduction from T-Mobile Hotspot pricing, which started at $9.99 per day and ranged between $19.99 and $39.99 per month.

Let’s examine some of the strategy behind their reasoning:

• To receive the free wi-fi, customers must purchase their drinks with a prepaid starbucks giftcard.  This will obviously increase the number of cards sold and tie customers to spend more of their “coffee dollars” at Starbucks.  Giftcards are basically forward selling future lattes — that is Starbucks gets cash upfront without having to deliver the goods until later.  The revenue generated from giftcards can be used as investments and Starbucks can benefit greatly from the interest.  Imagine if Starbucks sells a million gift cards with an average of $10 on each card.  That would give Starbucks $10M in capital to invest.  If they received a conservative annual return of 5%, that’s an instant $500,000 in added revenue.
• Starbucks is also builing on the Apple, iTunes, and now iPhone connection.  Everyone is probably aware that the iPhone is currently solely on the AT&T Wireless network.  Some tie-ins must be in the works.  Last fall, Starbucks had already given free wi-fi access to iTunes and offered customers the ability to instantly purchase music playing in Starbucks stores and other special Starbucks music collections.  With nearly 36 million unique users of iTunes, having a strong tie with the customer base is probably a good idea.  They target similar demographics and Starbucks desperately needs to gain some of its fashionable charm after going quite mass market.
• Starbucks is also hoping that free wi-fi also means that coffee house goers with sit on the couch longer and buy more lattes.  Maybe they’ll average 1.5 lattes a day versus 1.  This could add up to quite a nice bump in sales.

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And Then There Were Two? A Look at The Microyahoosoft

No, it will never really be called Microyahoosoft or Microsofthoo or even Yahoosoft but the proposed $44.6 billion bid by Microsoft for Yahoo! was definitely really big news last Friday.  It takes two huge Internet players and creates a beast of a company that just might have a chance at slowing down the Google machine.  So what’s the potential impact of such a merger?  Let’s take a look at some of the obvious and not so obvious synergies:

Search and Advertising Platforms

The most obvious outcome of the proposed merger would be to combine the #2 and #3 players in the U.S. Search Market.  According to a CNN article, Google holds approximately 58.4% of the U.S. search market, while Yahoo has 22.9% and Microsoft’s share is just 9.8%.  In terms of online display ads, combined Microsoft and Yahoo! would control around a 25% share.  This is big business especially since it’s projected that online advertising could reach $60 billion by 2010.  Both Microsoft and Yahoo! have been struggling to keep up with Google.  Both companies search marketing tools are inferior to Google’s on a variety of dimensions.  Combining forces could help both companies share existing research, development, and other resources. 

E-Mail and IM 

A Microsoft-Yahoo! marriage would combine to create a force in E-Mail and Instant Messaging.  Adding a strong Microsoft Hotmail to #1 Yahoo! Mail only creates an even more dominant player.  Combing both MSN Messenger and Yahoo! Messenger would allow more users to connect to one another.

Social Media

E-Mail and Instant Messaging creates instant networks that Microsoft-Yahoo! could tap into to use use to their advantage in the larger social network context. Also, a Microsoft-Yahoo! would have a much richer portfolio of web properties.  Combined you would have an interest in Facebook (which Microsoft has invested heavily in) and Yahoo! owned del.icio.us and Flickr.  Couldn’t you imagine a larger social network being developed that gets integrated with these web properties and overlayed by these e-mail and instant messaging networks? 

Mac vs. PC ads 

Yes,PC isn’t as cool as Mac.  But perhaps the proposed merger could give PC a flashy purple suit just as a shot of Yahoo! culture might be beneficial to Microsoft. 

All in all, just some food for thought.  We still have a bit of time to consider more effects of the proposed merger — if it does move forward, it probably won’t be finalized until the end of 2008.

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New Artwork Uploaded

Uploaded a few new and more recent pieces of artwork to my online gallery.  Hopefully, I’ll have a chance to throw up some more while finishing up my MBA.  Enjoy!

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CNN: Don’t be US Weekly

It a sad commentary on what we value in society when Britney Spears’ hospital stay is the front page story over a little thing like the INTERNET going down for part of the world…

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Wal-Mart Announces Price Cuts

The Fed had another rate cut this morning.  Will Wal-Mart do the same?  Last week, Wal-Mart annouced that it was cutting grocery prices some 10-30% in order to help consumers get excited about shopping again.  Just in time for the Superbowl, this smells alot like good ‘ol fashion marketing and promotions.  Known for Everyday Low Prices, Wal-Mart continues to build on its brand image as a low cost leader for the typical American family.  It also gets alot of free press by playing off of the Fed Rate Cuts.  Free, positive news when recession looks loomingly close is great, but will it bring the shoppers out?  I’m not sure if I would make an extra trip out to Wal-Mart but when I’m buying chips and sodas for the NY Giants victory  (ahem, cough, cough) this weekend, it’s definitly top of mind….and that’s exactly what Wal-Mart wants. 

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