Overview

Starbucks has launched Starbuck Odyssey in a beta version. Odyssey is a web3-powered extension of Starbucks’ existing U.S. Rewards programme. The Rewards programme has 27.4m members (to E0 Q2 2022, having grown by 13% year-on-year), and accounts for 53% of U.S. revenue. Therefore, there is significant opportunity in encouraging the further growth of this scheme.

Initially, Starbucks is trialling Odyssey with a select group of waitlisted Rewards members and employees. Starting in January 2023, monthly invitations will continue to be offered to a wider group of Rewards members on the waitlist.

Medium

Starbucks Odyssey is available via a website (desktop and mobile), rather than mobile app. This avoids paying 30% of their NFT Market revenue to the likes of Apple. This is becoming an increasingly common approach in web3.

Onboarding

Starbucks Odyssey members will use their existing Starbucks Rewards login credentials to access the beta experience. They are aiming to reduce/ remove friction by not requiring users to have their own digital wallet. For example, if they don’t have a digital wallet, they are offered an option to create an account with Nifty Gateway.

Nifty Gateway is an NFT marketplace (more about that later) - https://www.niftygateway.com/. It also has its own digital wallet product, which allows users to buy NFTs without having to own any cryptocurrency (they can sign-up with a credit card, email, and password) - https://medium.com/nifty-gateway/introducing-the-nifty-gateway-wallet-bd55acf76cd0 . This means that the wallet technology can be abstracted away from the non-web3-native user.

However, web3-native members do have the ability to connect their own digital wallets (e.g. Metamask, or via Metamask) to Starbucks Odyssey. Over time, as members become more familiar with web3 technology, and the Odyssey Stamps (see later) become more valuable, they will be able to transfer these NFTs out of their Nifty Gateway wallets into hot or cold wallets that they (the member) own and control. This should be encouraged because Nifty Gateway is a custodial solution (backed by Gemini’s custody technology) - i.e. NFTs held in their wallets technically belong to them (“not your keys, not your Stamp”). Adam Brotman (Starbucks’ former CDO, whose company helped Starbucks with the Odyssey design and implementation), to his credit, describes this as a “bridge” for web3 newcomers to ultimately get to self-custody.

Web3 purists are unlikely to be thrilled by this approach. However, as Reddit have proven with the launch of their collectible avatars (aka Polygon NFTs), this is probably the best route to onboarding the first billion users into web3 - to date, Reddit have sold well over 4m of their digital avatars (with the vast majority buying and HODL-ing).

Journeys

Once they enter the Starbucks Odyssey, members are presented with a series of possible “Journeys”.  In the beta version, there are two Journeys available.  Starbucks make it clear that more Journeys will be coming soon:

Tasks

Journeys are composed of multiple interactive activities called “Tasks”.  There are two types of Task:

1. Engagement Tasks. For example, the Tasks in the live Coffee Heritage Journey range from taking a virtual tour of Starbucks coffee farm Hacienda Alsacia in Costa Rica, to trivia about Starbucks heritage, to playing interactive games (such as the seasonal Starbucks for Life).  These aim to emphasise Starbucks’ key selling points, creating a deeper connection with customers, and inspiring greater loyalty
2. Tasks aimed at driving more sales, and/ or getting customers to try new products.  For example, the existing Coffee Heritage journey requires members to purchase one of Starbucks’ Signature Drinks per week for five weeks straight.  A time limit is put on the Task - customers have one year to complete the five week streak

Stamps

Once a Journey is complete, members will be awarded with a collectable “Journey Stamp” and bonus “Points” towards their overall Point total.  Upon being earned, Points and Stamps are displayed in the member’s “Passport”.  Like Reddit digital avatars, Stamps are actually Polygon-based NFTs.  Once earned, Stamps are sent either to connected personal digital wallets, or custodied Nifty Gateway wallets. 

NFTs?  Wallets?  Whether they know it, or not, Odyssey members will be interacting with web3.  Although, for some users, the web3 technology is obscured by a web2 interface, sooner or later they will learn about the underlying technology.  This is what the start of mainstream adoption looks like. 

Polygon is an Ethereum layer 2, is scalable and has low transaction fees.  This provides Starbucks with plenty of headroom in order to onboard its entire Rewards community and continue to pay gas fees on behalf of the members (e.g. when they earn Stamps), reducing friction and improving the UX for their customers.   

The artwork for the first Journey Stamps is inspired by Starbucks history and classic designs, including Starbucks first location in Pike Place Market in Seattle, as well as this year’s “Gift-Wrapped Magic” holiday cup art and motif shapes.

Points

It is not currently clear how exactly the Odyssey Points will function. Per the above Coffee Heritage screenshot, Points appear to be earned for completing Tasks. However, per Starbucks’ documentation, it is only when Stamps are collected that members’ Points total will actually increase. When Stamps are sold (more about this later), the associated Points are transferred to the new owner along with the NFT.

At this stage, Starbucks appear to have been careful to equate Points with Stamps - i.e. “collected Stamps are worth ‘n’ Points each”. On face value, Points appear ideally suited to being issued as fungible (ERC-20-type) tokens. This would allow them to be awarded for the completion of individual Tasks within a Journey, to be traded, to be used as currency inside and outside the Starbucks ecosystem etc. This may be a plan for later. Remember that Odyssey is initially aimed at U.S. citizens. In the absence of a clear regulatory framework, there is considerable risk that the SEC (Securities & Exchange Commission) would choose to consider such a token as a Security. Therefore, it is no doubt safer to focus on Stamps/ NFTs (which are near-universally regarded as Commodities) and await regulatory clarity regarding fungible tokens.

What is clear is that Points will unlock access to benefits and experiences that are unique to the Starbucks ecosystem.

Benefits

Per Starbucks, there will be three levels of benefits and experiences that members can unlock with their Points, with the benefits and experiences becoming richer and more unique at the highest level.

At least in beta, the lower tier will be open to those members with between 1000 and 2999 Points. The middle tier benefits will be available to those members with between 3000 and 5999 Points, and the higher tier for those with 6000+ Points. For reference, 125 Points were awarded for collecting the Holiday Cheer Stamp.

Examples of benefits that Starbucks provide range from a virtual espresso martini-making class at the lower level, to access to unique merchandise and artist collaborations, to invitations to exclusive events at Starbucks Reserve Roasteries, or trips to Starbucks Hacienda Alsacia coffee farm in Costa Rica at the higher levels. Making these benefits attractive will be key to maintaining Stamp value and interest in the programme.

Market

Shortly after beta launch, members will have access to the Starbucks Odyssey “Market” powered by Nifty Gateway, Here, members can buy or sell Starbucks Odyssey digital collectible Stamps with other members - this is the birth of the secondary marketplace for Odyssey Stamps.

As the Market is powered by Nifty Gateway, Odyssey participants can purchase Stamps directly with a credit card – no crypto wallet or cryptocurrency will be required. Each digital collectable Stamp bought will include a bonus Point value that will go towards a members’ total Points, which (per the above) are used to unlock unique benefits and experiences.

Starbucks has brought a group of early adopters into this programme to earn Stamps.  It will be fascinating to see what happens when 10s or 100s of thousands of new members are dropped into the experience, particularly if Starbucks manage to establish their Stamps as desirable collectibles, status symbols, and if the benefits to HODLers are significant.  New joiners will have two options:

1. Complete Tasks/ Journeys themselves - earn Stamps and Points.  This takes time and commitment, particularly for those members that join after a large number of Journeys have already been released (and Starbucks will need to release new Journeys frequently in order to keep existing Odyssey members engaged)
2. Take a shortcut - buy someone else’s earned status

Per Jeff Kauffman Jr. at JUMP NEWS, these secondary purchasers would not be buying status from Starbucks.  They would be buying status from someone else who did the work.  This is the birth of user-generated-capital at scale.

In the first few days after launch, this prediction appears to be coming true.  Over the course of a few hours, the Market price of the Holiday Cheer Journey Stamp increased from $89, to $99, then $150, and later $250. 

Additional Revenue:

Starbucks’ primary aims appear to be to:

• Entice new members into their Rewards scheme.  The scheme drives a significant portion of their overall revenue.  Therefore, increasing the number of members drives top-line growth
• Deepen the connection between the company and its Rewards members.  If they can inspire greater loyalty, they can softly increase sales to this cohort
• More directly increase sales to Rewards members - i.e. require them to purchase promoted products in specified volumes in order to complete Journeys and earn Stamps/ Points

However, Odyssey will also lead to new forms of revenue for Starbucks.  For example:

• Starbucks will take a % of all secondary sales of Odyssey Stamps traded on its Market
• Per Starbucks’ announcement, from early 2023, members will be able to purchase unique, one-of-a-kind ‘Limited-Edition Stamps’ (NFTs) - layered pieces of digital artwork - through the Market 

However, to avoid it looking like a web3 cash-grab, Starbucks have announced that sales of Limited-Edition Stamps will include a charitable component, with donations to causes that matter to Starbucks partners and Starbucks Rewards members. 

Additional Revenue

Starbucks’ primary aims appear to be to:

• Entice new members into their Rewards scheme. The scheme drives a significant portion of their overall revenue. Therefore, increasing the number of members drives top-line growth
• Deepen the connection between the company and its Rewards members. If they can inspire greater loyalty, they can softly increase sales to this cohort
• More directly increase sales to Rewards members - i.e. require them to purchase promoted products in specified volumes in order to complete Journeys and earn Stamps/ Points

However, Odyssey will also lead to new forms of revenue for Starbucks. For example:

• Starbucks will take a % of all secondary sales of Odyssey Stamps traded on its Market
• Per Starbucks’ announcement, from early 2023, members will be able to purchase unique, one-of-a-kind ‘Limited-Edition Stamps’ (NFTs) - layered pieces of digital artwork - through the Market

However, to avoid it looking like a web3 cash-grab, Starbucks have announced that sales of Limited-Edition Stamps will include a charitable component, with donations to causes that matter to Starbucks partners and Starbucks Rewards members.

Community

In the beta version, there doesn’t appear to be a specific community component to Odyssey. However, consider the following quotes that pepper their press releases and FAQs:

• “Starbucks Odyssey is an experience, surrounded by a digital community, where members can come together, interact, and share their love of coffee”
• “grounding the experience in coffee, connection, and community”
• “such as offering…a new digital community”
• “fostering connection over coffee, community, and belonging”
• “In this hyper digital era, we want to extend the community connection that Starbucks has always created to wherever customers experience Starbucks, and serving as the third place, a place between home and work to connect over coffee”

It seems that Starbucks is thinking hard about how to bring this aspect of Odyssey to life, and this makes sense. Mobile order and pay, drive-through and delivery drove 72% of its U.S. revenue in 2022. Starbucks is increasingly losing the opportunity to inspire customer loyalty with that personal touch in a store environment. Therefore, they need to make up for this in the digital realm.

The digital realm also provides them with a host of community-creating opportunities that they don’t have in-store. For example, in cyberspace (or the metaverse?) they can bring all of the participants in their community together - corporate employees, branch/ franchise owners and workers, growers, other suppliers, customers etc. They could even open-up the community to third parties - coffee machine manufacturers, tourism operators etc. - as long as there was a transparent benefit to customers.

Instead of a one-to-many relationship between Starbucks and its customers, creating such a digital community fosters many-to-many communication, creating network effects and exponentially increasing Starbucks-related interactions. Starbucks has the opportunity to actively curate this community, and to further turbo-charge its effectiveness over time (e.g. using web3 tokenomics, perhaps utilising their Points as a community reward and recognition mechanism, again following a model that Reddit have pioneered in the web2 space).

Future of Loyalty

Brand loyalty has always been a quid pro quo arrangement. The brand offers things like utility, convenience, rewards etc. The consumer provides frequency. For example, with Prime, Amazon invests in providing free and fast shipping, complimentary films and streaming etc., and their customers reciprocate by paying a monthly fee and often choosing Amazon over other providers of similar commodity products.

However, loyalty models are largely becoming stale and commoditised. There is a lack of differentiation. These types of schemes are now expected as the base case - providing it allows you to tread water, and if you don’t provide it you lose customers. Consumers (especially the younger ones, growing up with social media) want to have more of a participatory relationship with a brand. This is a much less transactional relationship than the traditional brand loyalty quid pro quo.

Starbucks Odyssey hints at a new approach, powered by web3. One that combines storytelling and imagery, engagement, gamification, collectibility, and exclusive access. One in which all members of an ecosystem can participate. Where companies can unleash the power of networks, and use transparent incentive structures to help steer the interaction. Where loyalty rewards are truly owned by the consumer, and where attention and active participation in a community can be monetised.

In these early stages, it seems that Starbucks are hedging. Odyssey works alongside their existing Rewards scheme. However, as it develops, as web3 UX improves, familiarity with the technology spreads, and regulatory clarity is provided, it is quite possible that this model will replace existing loyalty schemes (at Starbucks and beyond).

Useful Links

From Starbucks:
https://stories.starbucks.com/stories/2022/the-starbucks-odyssey-begins/ https://waitlist.starbucks.com/#/learnmore

Jeremy Olken:
https://www.linkedin.com/feed/update/urn:li:activity:7009935326030831616/

JUMP NEWS:
https://twitter.com/jumperstweeting/status/1605391418268205056?s=20&t=zxXC_SCU_tpDn vN2BL1XKA

Web3 Breakdowns Podcast:
https://open.spotify.com/show/4zQbeLbLgqKEyn7e2sKzez?go=1&sp_cid=11aa8693b61fa413d1ac1f 373c2483e2&utm_source=embed_player_p&utm_medium=desktop&nd=1

GeekWire:
https://www.yahoo.com/now/just-earned-sold-first-starbucks-210149843.html?guccounter=1