Starbucks to enter digital music market with HP – will they use Apple iTunes?

“A partnership with Hewlett-Packard will see customers ordering songs-to-go with their java. It already has the labels singing a happy tune,” Stanley Holmes reports for BusinessWeek. “Here’s a deal: Sip on a mocha latte while using headphones to listen to any of 250,000 songs you call up on a computer. Then order the ones you like — burned on your own CD — to go. Who’s the dealer? Starbucks.”

“BusinessWeek has learned that on Mar. 16, the Seattle coffee giant will unveil an in-store music service allowing customers to do just that, using Hewlett-Packard tablet computers to make their choices. The first musical Starbucks opens in Santa Monica, Calif., and the service will expand into 2,500 stores over the next two years. ‘This is not a test,’ says Starbucks Chairman Howard Schultz. ‘We’re going for it,'” Holmes reports.

“With 30 million weekly customers who trust Starbucks not just for its many beverages but also for its ability to create an attractive lifestyle brand around upscale coffee culture, execs think they see a huge market for selling music,’ Holmes reports.

“Ultimately, CDs will be a thing of the past, so Starbucks will have to keep a wary eye on its digital competitors such as Apple’s iTunes… Starbucks foresees its music-customer base centered among middle-age javaholics, many of whom don’t even go to music stores, let alone download songs. Prices will be comparable to Apple’s iTunes service: $6.99 for five songs, the minimum purchase. Albums will cost $12.95. To appeal to a younger set, Starbucks will ultimately offer wireless downloads to laptops or portable players,” Holmes reports.

“With partner Hewlett-Packard supplying the high-powered CD burners, the special printers for the CD covers, the tablet PCs, the digital storage, and the army of servers, Starbucks figures it is taking the best of the digital world into the coffee shop,’ Holmes reports.

Full article here.

MacDailyNews Take: This BusinessWeek article seems to assume this Starbucks entry will be an Apple iTunes Music Store competitor. But, HP and Apple are already partners with HP bundling iTunes and the included iTunes Music Store on all HP consumer computers. In addition, HP’s forthcoming digital music player is a rebranded Apple iPod. So, what are the chances that Starbucks and HP are actually using Apple’s iTunes or would they waste the time to try to completely reinvent the wheel? Keep an eye on this one.

[UPDATE, 11:08am: Wi-Fi Networking News, in their article, “Starbucks Serves Music A La Carte,” speculates, “Since HP is the partner, and is reselling their own version of the iPod, it’s possible that the ultimate digital delivery system will be a version of the iTunes Music Store.” Full article here.]

Related MacDailyNews articles:
Hewlett-Packard to bring Apple iPods to China’s 1.3 billion consumers – March 11, 2004
HP considered Napster deal before Apple’s iTunes; Napster ‘is losing money, top executives’ – February 19, 2004
Woz: HP iPod brings ‘the expediency of iPods to the Windows world, benefits both PC users and Apple’ – February 07, 2004
Why Hewlett-Packard took Apple’s iPod shortcut – February 02, 2004
MusicMatch CEO: HP, Apple music pact ‘a tactical mistake for HP that will mushroom into a strategic blunder’ – January 20, 2004
NY Times: with HP iTunes deal, Steve Jobs injects Apple’s QuickTime, Rendezvous into PC world – January 18, 2004
The height of irony: Microsoft executive whines Apple-HP music deal ‘unfair’ – January 14, 2004
BusinessWeek: ‘the digital music game is Apple’s to lose’ – January 13, 2004
Hewlett-Packard: No WMA for iPod – January 13, 2004
Windows & .NET Magazine’s Thurrott ‘fears HP and Apple have just set back convergence an untold number of years’ – January 13, 2004

23 Comments

  1. My question is that the article specifically says that the user will be able to listen to the music then purchase if they want to? That’s contrary to how iTunes currently works (i.e.: 30 second clips). Unless they have a deal to open it up to Starbucks customers via rebranding then I don’t know if iTunes is coming into play with this. I would hope so.

  2. I’m guessing that it costs more because they burn the CD using HP hardware. They don’t actually buy a download of the song. You use their computers and their hardware to make your CDs…..

    Where the songs come from, we can all hope they come from the ITMS, but how would that work? It would go into iTunes and they burn and then the songs get deleted afterwards when the user is finished?

  3. Well, 7 dollars for 5 dollars worth of songs….sound like starbucks to me. Like paying 4 dollars for a 2 dollar cup of coffee. Did you know that thier french roast is 60% carbon. Carbon, that’s burn residue, not actual coffee.

  4. One thing not mentioned yet is that there is a $7/5 song MINIMUM. No buying on a per-track basis.

    This idea just strikes me as both silly and downright stupid. Who goes to Starbucks for music? Granted they play music there, and I could see SOME cache in being able to buy a song you might hear in their programmed background music, but forcing the buyers to pay $7 for 5 songs and $13 for a CD makes this no better than going to a decent CD shop, where you get the REAL thing. At least the ITMS is a la carte and cheaper.

    Regarding their coffee (which personally I don’t really like) and the carbon content, Cook’s Illustrated magazine tested various roasts and found that Charbucks, I mean Starbucks does actually over-roast their beans. Their regular roast is a roughly a French roast, the French roast an Italian, etc. Why might they do that? It’s usually done to cover up inferior beans (my speculation, not Cook’s).

  5. I think it is a good idea. I could see sitting in a coffee shop and sampling songs and buying them. Could avoid tons of costs and headaches by just having it be done through ITMS though. All set up and then just have HP to provide the hardware and iTunes for the burning. They would just have to provide broadband access for the downloading. The fact that they do not specifically say that it is with ITMS would seem to me that they are trying to set out on their own here. Well, it will really be interesting to hear how this all works out.

  6. It’s more expensive because it includes the blank CD and use of the machines and bandwidth. It’s different from a regular record store because you make your own compilation of songs. Your songs do cost more than 99c, but you’re not factoring in the cost of your computer and blanks (if you’re going to burn them) or iPod.

    You’re driving to a meeting 100 miles away. You stop off for a coffee and see that you can burn a CD to listen on the way. Maybe you use a computer at work or for work, but you don’t use it for music, you’re not interested in using it for music. iTMS is useless to you, but this facility in a coffee shop could be pretty good.

    You have a mac an an iPod and you have all your music in iTunes, then this service is quite obviously not aimed at you.

  7. I still can’t figure out how all these companies think they are going to make a profit…Apple is only breaking even on the music itself and the player is the only thing making this all worth it. Sure Virgin has a chance with their channels, but I am not holding my breath. Apple currently still is the only one with a complete solution and is the only one with their head above water. People don’t realize just how hard it is to make intuitive software that will work efficiently with all these music players out there. HP is smart enough to realize this…where are the others minds???

  8. Sounds like HP is just the hardware vendor and not the music store builder/operator. I doubt there’s going to be a tie-in with iTMS. There’s too much going on that different.

    Starbucks is smart though, to set their price higher rather than lower or equal to iTMS. First, their coffee isn’t cheap. Everything in their stores is horribly overpriced to begin with. So naturally they have an expectation that their customers will pay a premium for anything they offer.

    Second, people can buy and burn on the HP equipment. So part of what you’re paying is an equipment usage fee. And you can put a label right on your newly burned CD? I think people will pay for that. So it’s not just a fee for the music. They’re wrapping an experience into it and backing it with a product (coffee) that they already make money with. Then, they’re adding on a quasi-service: we’ll find cool new stuff that isn’t Britney f***in spears for you so that you can be the first to have it.

    Third, if they’re dealing with some artists directly, which it sounds like is the plan for the new cool stuff that nobody else has, they’re going to make a nice profit at their price point. Probably even at iTMS’s price point for that music. On the pop diva crap from the record labels they won’t make any money. But they’ve got another product that is making them money in their coffee. Much more an Apple set of circumstances than Virgin.

    I’m going out on a limb and predicting that Starbucks not only outlasts Virgin, but that it will be an order of magnitude more successful than Virgin, and exponentially more successful than Coke.

  9. “My question is that the article specifically says that the user will be able to listen to the music then purchase if they want to? That’s contrary to how iTunes currently works (i.e.: 30 second clips). Unless they have a deal to open it up to Starbucks customers via rebranding then I don’t know if iTunes is coming into play with this. I would hope so.” – Matt

    I don’t think that is hard to do and for a huge 3-way deal (Apple-HP-Starbucks), I’d bet Apple will be more than happy to change preview clips. After all they only need to stream the music that is already on the server instead of serving it up for download.

    I agree with everyone that says it is unlikely that HP will have their own store or they’ll partner with other music store. After all, they’ll be selling iPod. What is a worse way to ruin an iPod deal and not make money off the hottest selling gadget other than selling WMA files that doesn’t play on iPods? No, it’s got to be AAC/MP3 compatible. The way I see it, Apple gives a price break for HP which passes the break to Starbucks. Apple wins by selling iPods, HP wins by getting on the iPods bandwagon and having a cool image associated with it, and Starbucks wins by having more customers drinking coffee while listening to music previews and selling music downloads. Who cares if they get pennies for each sale? I don’t think direct profit is the basis of the deal.

  10. It seems obvious to me that iTunes will not be involved. HP is providing hardware only. If Apple and Starbucks have a deal whereby Starbucks gets a percentage of song sales, why only 250,000 songs instead of the whole library?

    I think they’re trying to re-invent the jukebox. Go to the joint, pay a little to hear some music, and leave the joint with nothing but a memory (unless you pay for a CD).

    Since they will be paying for tablet computers, my bet is that they are on board with Microsoft. It wouldn’t surprise me if Microsoft brought HP this deal in an attempt to “bring them back into the fold” away from Apple.

  11. Doesn’t sound like it’s using ITMS, and why should it? Apple already barely makes money from it, and their profits would be even lower if it had to share them with HP and Starbucks.

    And if so, who really cares? The cds people walk out with are going to be in .wav or .aiff format, whatever normal cds are. So long as more music is being bought that’s NOT in .wma format, I’m happy. (And Apple should be too.)

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