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August 4, 2009

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The Starbucks API

Lots of people seem to think Starbucks’ new “stealth stores” are creepy

A Seattle outlet of the 16,000-store coffee behemoth is being rebranded without visible Starbucks identifiers, as 15th Avenue Coffee and Tea.

Two other stores in Starbucks’ native Seattle will follow suit, each getting its own name to make it sound more like a neighborhood hangout, less like Big Coffee, a Starbucks official told The Seattle Times on Thursday.

…but imagine that this was playing out differently:

What if Starbucks was offering up a Starbucks API—a set of hooks into a vast, efficient coffee shop support system with incredible economies of scale? You, the local coffee shop owner, simply plug in, and wham, your costs drop by thirty percent because you’re leveraging Starbucks’ insanely optimized supply chain. You can use as much or as little as you want.

The NYT cites the Huffington Post

You can imagine where this un-branding campaign could lead. A little neighborhood burger place run by McDonald’s? A little neighborhood hardware store owned by Home Depot? A little neighborhood five-and-dime operated by Wal-Mart?

…and I find myself thinking, uh, yeah, wouldn’t that be cool? Swap out “run” and “owned,” and put in “powered” and “supported.” Wal-Mart’s back-end is as innovative and important as its front-end. Why not offer it up to indie retailers?

I know it’s a stretch, but consider the analogy: Amazon’s web services have been absolutely transformative in the startup world. You can store files and spin up servers without buying, or committing to, anything. It’s easy to try things and cheap to fail. The notion of plug-in infrastructures just as flexible for other businesses—real-world businesses—run by other goliaths isn’t unsettling. It’s exciting.

And yes, I realize that’s not what Starbucks is doing here. But it’s what they should be doing!

Posted August 4, 2009 at 11:16 | Comments (22) | Permasnark
File under: Snarkonomics


There are a number of seemingly independent cafes that "proudly brew Starbucks coffee," that seem to be using a variant of the model you propose. But they tend to be of the hotel lobby variety rather than true local hangouts.

One problem with the sort of API that you suggest is that by taking advantage of the supply chain, the local cafes would be serving Starbucks coffee, or at least using the same brands of milk or chocolate that Starbucks puts in its drinks.

But part of what often sets local cafes apart is the use of unique or higher quality ingredients. When I go to Coffee Emporium or Rohs Street Cafe here in Cincinnati, it's not just because I want to support local businesses (although that's certainly a factor), it's because I want the particular coffee that they serve: the Emporium's own roasts, the quality of drink prep that Rohs Street does, etc.

Starbucks is fine for certain circumstances, but when I really want to enjoy my coffee, I'll go local.

There's a great scene in The Wire where Bodie, one of the corner dealers the audience follows for the first four seasons, gets confronted by Marlo, who's the new power in town. Bodie has no support - the entire organization he represented has been broken up, and most of them put in prison - and he's already been forced to leave a high-traffic corner for a less desirable one. But he's made it work. Finally Marlo comes to him in person and tells him that now that he's built up the corner - "you can either take my package or step off" - i.e., freelance for me, or we'll take you out.

You can imagine Wal-Mart doing something similar. "We like your hardware store. You've got a nice clientele, a great location, and we like the way you do business. So here are your options. Either you become our franchise, and make more money than you ever have before, or we'll open up a store around the corner that will just kill you."

Part of me says, "that's terrible." Part says, "that's brilliant." And the last part says, "this is the best of all possible worlds."

Fair enough -- I wonder what the other key inputs are, other than beans? Cups, sleeves, machinery... payroll? You could make everything /but/ the beans super-easy and ultra-efficient -- so local shops could /focus/ on that as their differentiator.

It depends on what you're buying when you go into a Starbucks. Are you buying the coffee, or the experience. Every Starbucks kind of feels like half-airport, half-shopping-mall.

The advantage that local coffee shops potentially have if they're supported by Starbucks (or whomever - I like Au Bon Pain) is that they can provide a locally tailored experience - not just the goods (which they can vary) but the atmosphere.

Re: Cups and sleeves

I think you're onto something with this part. If Starbucks adopted all compostable cups, lids, and sleeves (as have several of the local shops in the 'Nati) and made that available to coffee shops all over the country, they could use the massive supply chain network to reduce the cost of environmentally friendly products for all coffee shops.

As a company, Starbucks has taken to touting how much of a difference they make with charitable causes... If they took initiative here, the reduction of waste could be huge.

That's what Coca-Cola's B2B business, for example, has been doing for decades.

That is not new, and that's not an "API" as you describe. You could call the dairyman who sells the local cafe their milk an "API provider" with so broad a definition.

Posted by: greg on August 4, 2009 at 12:58 PM

Really, aren't all of these little cafes already powered by the Sysco or Costco API?

Also, I wanted to point out that SBux tried to launch an un-Starbucks in San Francisco (in that fuzzy area between the Mission and Po' Hill) a decade ago:

@greg: You caught me. I'm definitely guilty of buzzword-ism when it comes to "API." I want everything to have an API. I wants my pants to have an API.

They tend not to make a big deal about it, for branding reasons, but a model exactly like what Robin proposes is what Schuler Books took advantage of when they opened 25 years ago.

One of the great innovations of the original Ann Arbor Borders was its computerized inventory system. Before they started opening stores all over the country, Borders basically licensed its inventory system (and sold stock) to customer stores (like Schuler) as a way to expand its business.

Borders stopped adding customer stores when they started opening additional stores of their own, but all existing customer stores were grandfathered, and Borders agreed to not open branches within a certain distance of customer stores. There aren't many customer stores left, but when I worked there 5 years ago or so, Schuler still bought 80% of its book, CD, and DVD inventory from Borders. And this is why there are no Borders stores in Lansing.

In short, I think I'm saying what's old is new again, and Robin is correct that while a Starbucks customer store would still have a certain Starbucks-ish feel, there can be a lot of room for difference.

robin: isn't what you're describing basically a franchise? and wouldn't it run into the big, ugly franchise problem: the local "owner" doesn't really make enough money to get by, since the real owner (the corporation) is taking all of it. sure, eliminating that problem is easy enough: pay the local guy fairly. but what incentive does the corporation have to do that? i mean, besides, just being niiice.

Re: franchises --

One of the revolutionary things about Amazon's services is that they're ludicrously easy to try, and there's no up-front commitment or minimum scale.

Also, Amazon doesn't care what you use them /for/ -- and in fact, you have a strong incentive to find new, creative applications for the services. You wouldn't just re-sell them.

So, could you build an alternative to franchising around those principles?

The value of a franchise is two-fold (as I understand it): a brand, and a set of operating principles. And often, along with those principles, you get access to special tools, processes, ingredients, whatever.

So skip the brand, make the operating principles optional, and focus on providing the tools, processes, etc.

And make it much more flexible: It's not all-or-nothing, you-sign-the-Starbucks-franchise-contract-or-you-don't. Instead, it's a la carte, use what you need, scale up as you get bigger. And, of course, dump it entirely if it's not working for you.

@Gavin: SUPER fascinating point about Schuler! I had no idea. Built on the Borders API. Cool.

It's somewhere between a franchise and a wholesale operation like Sysco. The idea, at least, is that Starbucks is seeing that at least in some instances, there are diminishing or even negative returns to the Starbucks name/experience. At that point, Starbucks (or whomever) could franchise, or they could become the wholesaler. And the independent retailer can say, I'll do what I do best - creating a great, neighborhood-specific retail experience - and not do what I don't do well (haggling with paper manufacturers for cups). Together, they actually create MORE value, more revenue to share, than if either of them were to go it alone - and way more than if they opened up across the street from one another.

It's an acknowledgement that infinite retail expansion isn't always the best strategy for a company in the retail business, nor is perfect mom-and-pop purity. That there are efficiencies to be gained AND specificities to be respected...

None of this, of course, changes the fact that Starbucks's coffee is, um, kind of bad. At least compared with the wonder that is La Colombe.

La Colombe makes my favorite coffee, and they've actually adopted something like this strategy in Philadelphia. They have a handful of retail stores, but the bulk of their business is supplying coffee to other shops, caterers, restaurants, etc. They've even got a great button on their website, where one link is "for business" and the other is "for pleasure."

Snarkmarket is all about the transaction costs these days.

I think the Sysco angle is right, every business outsources some things and keeps others internal because of transaction costs. One day, it might be like a web business where you can outsource almost everything efficiently and just have ideas.

Right now, it makes sense at different levels of scale to use another company's POS system, another company's payroll system, or another company's food distribution network. When the time managing all this outsourcing drops and the price of the service drops, you have no reason to do it internally any more, its redundant innovation.

In Tim's mold, I could see a management company bringing together a rebranded package of "start you own business" tools and setting it all up for you (etsy?). Set up a third party computer to drop shop fresh coffee beans from indonesia when a new order comes in; head back to the pool

There was a good discussion of transactions costs and firms at econtalk a while back:

Actually, this one has more on how firms deal with internal transaction costs and is a much better episode:

Also, re: Robin's comment above, I imagine this scene...

Robin: Sorry, ladies... no client can have a monopoly on the data I keep -- IN MY PANTS.

Coder Girls (all): [Sighs]

This is a fun idea that makes me smile.

As people have noted, it's essentially the franchise model but without the corporate unification branding requirement.

I feel like there's a perpetual rolling back and forth on this. First someone's got a pretty good product or way of doing business, so they go "Franchising please" and that happens and then someone says "vertical integration" and pretty soon, Henry Ford is building a rubber plantation in the jungle. Then someone says "outsourcing" and the oscillation continues.

HERE's why the API doesn't quite work. Because APIs aren't "pay per function call" Any transaction with the franchise/vendor/thing that this Starbuck's API would involve would mean that. Which is where the tension comes in because franchisers demand total experience control for quality (consistency) purposes and vendors throw in add-ons and bonuses which can reduce your overall cost compared to a-la-cart. And now I've got you back on the tension between transaction costs and vertical integration and independent vendors.

(This comment brought to you by thinking as I type.)

Robin, I think you've become an expert at taking something that everyone is decrying and then making something positive out of it. That's quite the gift.

I like the vibe of this idea. I was thinking: to what extent is this sort of model based on gas/fossil fuel infrastructure - i.e. cheaply move things around from a few centralised locations to many smaller ones. Remember that Rolling Stone article from way back about the future without gas? I think that made me think about things this way.

More generally though, I like the 'API way of thinking'. Tangent: I've sometimes thought there should be a public library of 3d models. When anyone wants to make a video game or a virtual world, instead of painstakingly creating everything, they just download what they need from the library, modify it a bit and then go make something interesting and fun. That's what this post made me think of. In some sense, open source is a bit API-ish, isn't it?

@Nav It probably won't come as a surprise to you that there are indeed libraries of free models. Out there. Whole game engines in fact are available for free or small fees.

For utter cuteness you can't beat danc's free game graphics. [Fixed! -R.]

(do links work? I'm about to find out!)

(they do, but only if I type them correctly)

Let's try that again: danc's free game graphics.

I like the API idea, but I'm not sure how the analogy holds up in situations concerning rival vs non-rival goods. Does API presuppose that the "thing" being access approach zero-cost? Thus in cyberspace what you pay for is access to the "thing" not the "thing" itself. But in meatspace, that thing has a cost. The wizards-of-spreadsheets have fudged a lot of magic to make those "thing" cheap, but they are far from approaching zero-cost.

What I _really_ want to see is the big guys (walmart, starbucks, etc) start providing cradle-to-cradle [1] services so that sustainable (economic, environmental and social) practices become cost effective. Let this psuedo-corporate-locally owned coffee shop pickup fresh coffee/cups/napkins in the morning and swap the previous day's refuse, then the back end can implement some crazy insane recycling that is only cost effective at scale...


I wants my pants to have an API.

Coder Girls (all): [Sighs]

I suddenly have a vision of Robin hosting a Programming Swayamvara. Snarketeers trumpet the rules and recruit the brave from all over the net, Ladies of Code stream into San Francisco from the 8 quadrants of the globe, movable theme-based movable feasts are prepared. He releases the API at dawn, the 24-hour clock starts to tick, and the girl who has created the most Sloantastic Pants-based application before the next sunrise is declared to be his champion.

When you're ready to set this thing up, I can help you design the trophy flower garland--that's my specialty.

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