Ode to Odyssey: What Sports can Learn from Starbucks' Web3 Strategy

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Introduction

👋 Welcome back to another edition of Sporting Crypto!

I’m back from NYC after a few days at NFT NYC.

Suffice it to say the sentiment toward NFTs is still lagging compared to the rest of the Web3 market. I expect this lag to continue for the next few months, and although I don’t expect to see the NFT market as euphoric as it was yesteryear — NFTs are certainly not going away.

Not from the conversations I’ve been having, anyway.

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For recent subscribers, you may be asking:Why is a Sports x Web3 newsletter talking about Starbucks?

Often, I like looking at case studies by huge brands outside of the sports industry and thinking about the learnings.

Whenever I mention brands like Adidas, Nike or Starbucks — the ears of sports executives perk up. It’s no longer this weird crypto thing. It’s the thing that Adidas, Nike or Starbucks are exploring seriously.

Recently, Starbucks shut down their Web3 loyalty program Odyssey, which has been one of the most lauded case studies for consumer crypto applications.

Since then, there have been a variety of ‘takes’ around the feasibility of Web3 programs for big brands. The reality is, there is so much nuance to this and there is no one singular answer as to why the program was shuttered. In this edition, I’ll try my best to answer the ‘why’ and also ‘what we can learn’ without any sensationalist analysis like: “I told you NFTs were dead”, “what now crypto bros?” or “Web3 native brands will win”.

Discussed in this edition of Sporting Crypto:

1. Starbucks Odyssey Overview☕a) The Product b) Why did Starbucks Create a Web3 Loyalty Program?c) How well did it do?

2. Why Was it Shut Down? 🤔a) The Macro Outlookb) The Finances

3. The Impact on Web3 Loyalty 📱a) Is Loyalty Still the Holy Grail?

4. What Sports Can Learn? ⚽a) Execution vs Product Market Fit b) Where are the key differences?c) The Sports Industry has Digital Gaps

5. Concluding Thoughts & Analysis 🧠a) What was done well?b) What could have been improved?c) AOB

Starbucks Odyssey Overview ☕

Starbucks Odyssey was the coffee giant’s attempt at a Web3 loyalty program.

It was powered by Layer 2 Blockchain Polygon (who reportedly paid $4m for the privilege) and partnered with NFT marketplace Nifty Gateway to onboard users from an infrastructural perspective (wallets, secondary trading, etc).

The program was simple.

Members engaged in ‘journeys’, a series of activities, such as playing interactive games or taking on fun challenges to deepen their knowledge of coffee and Starbucks. They were rewarded with a digital collectible ‘journey stamp’, in the form of NFTs.

The more stamps collected, the more ‘Odyssey Points’ earned, which in turn unlocked access to digital, physical and experiential benefits, including virtual espresso martini-making classes, exclusive events, trips to Starbucks roasteries and coffee farms.

The aim for Starbucks?

‘To extend its concept of a ‘Third Place’ within its brand — enabling new ways to engage with its members beyond the simple act of purchasing a coffee.

This made big headlines in late 2022 when it was announced, for good reason,

Starbucks are a massive player in the loyalty space. As per the image below, Starbucks holds more cash on their loyalty app than most banks do in the United States. It’s astonishing, but true.

Starbucks have a seriously engaging customer loyalty application with well over 30 million users. At this sort of scale, loyalty schemes become pivotal to your business. Take airlines for example, who often use airmiles as collateral for loans.

For many huge brands, loyalty has become fundamental to the business model, rather than auxiliary and a ‘nice to have’.

With 30 million users and strong Web3 brands like Polygon and Nifty Gateway involved — there were enough ingredients for this to be a successful proposition.

Per this article by Steffen Boffer, through 24/03/2024 — Starbucks earned a total of ~$1.4m from the Odyssey program, ~$1.2m from direct primary sales of NFTs and ~$150k from secondary market sales. The loyalty program reportedly had over 58,000 active participants at one point.

As Steffen puts it, considering Starbucks’ total revenue was ~$36.69 billion in 2023, this was likely a drop in the ocean for them.

Of course, Polygon also reportedly chipped in with $4m of funding so you can imagine the economics most likely made sense for its 15-month lifetime.

Why Was it Shut down? 🤔

This is a question nobody but Starbucks knows the answer to, but nonetheless we can speculate.

I can imagine that there was not one clear reason, but a multitude of reasons why the program was shuttered…

1. Not enough revenue to make it worthwhile for Starbucks. Were they willing to move forward without the continued funding and support of Polygon? Was the program generating enough revenue to stand on its own two feet? Additionally Scaling programs like this to millions of customers is expensive on blockchains, as well. Even efficient Layer 2 blockchains like Polygon. The economies of scale were full of friction, and are full of friction, for any on-chain crypto application. (although this is getting better, as tech is upgraded).

2. We are in an era of generational corporate cost-cutting, even for the likes of Starbucks. Anything that doesn’t move the needle can easily fall by the wayside at this point. Cost-cutting and layoffs are happening in every industry globally. Funding for innovation is declining at companies internally. Although some numbers are green, many companies are still hurting.

3. Digital innovation for big corporations doesn’t always end well. Whatever makes the frontline and is shipped to customers has gone through rigorous processes at any big corporation. But every company, no matter how successful, has examples of failed innovation. Especially in digital. This could just simply be an example of one of them.

4. Starbucks have an exceptionally popular Web2 loyalty program. Focusing resources there is likely better for their bottom line. Simply put, if you have 30 million active users on a program that holds more cash in it than many banks, focusing resource there seems wise. For brands, I don’t believe there is first-mover advantage in Web3.

5. Starbucks are embroiled in a lawsuit regarding their Web2 loyalty program. Starbucks have been accused of rigging payments in-app for a near $900 million gain over 5 years by a consumer watchdog group. They say “Over the last five years Starbucks has claimed nearly $900 million in unspent gift card and app money as corporate revenue, boosting corporate profits and inflating executive bonuses.”. I think it’s unlikely this had anything to do with Odyssey shutting down, but it could still be a factor.

6. Are the regulatory hurdles worth it for a company of this size? Regulation in Web3 is still murky. Lawyers who specialise in this world are expensive and hard to find.

The Impact on Web3 Loyalty 📱

When I first wrote about Starbucks and Web3 loyalty I wrote the following:

There was an assumption after the NFT bubble that something more was needed, rather than just selling digital assets to your customers. Those assumptions were correct, and when the crypto markets tanked, the push from brands was to go down the ‘Web3 loyalty’ route.

This holistic approach makes sense, to some extent, because NFTs are a feature, not the product. 

Therefore if you build infrastructure to surround a program or campaign that involves NFTs, but that doesn’t revolve around them fully, there is some logic in presuming that program or campaign will be more sustainable.

The bad news for Web3 loyalty maximalists is that we have one fewer case study to reference. One fewer case study to grab the attention of a decision-maker within a huge company.

Starbucks Odyssey was often touted as a success and can now be held up as a failure in the face of the industry.

But taking two steps back, if we remove the big names involved in this project, and boil it down to the proposition itself — it was a coffee brand selling NFTs on an app they had created. I’m not being overly serious here, but when a brand simply wants to extract value from a community, and the basis of the proposition is based on people buying digital collectibles in the hope of future returns (and some for collectibility reasons)— there were enough holes in that strategy which meant the outcome we’ve seen was not overly surprising.

What Sports Can Learn? ⚽

Starbucks built their Web3 loyalty program because they wanted to engage with its customers beyond the transactional nature of their business.

This is pretty much identical to what all sports leagues and teams are thinking about: how do we engage the fans that don’t come to our games and events often, or ever?

The differentiator here, ironically, is that sports fans are fiercely loyal.

That loyalty may wane, rise and even eventually subside — but once you are a fan of a team that affinity stays with you for life, on average.

Additionally, the touchpoints for fans are far-reaching, in comparison to Starbucks. Starbucks customers interact through transactions, whilst sports fans interact through transactions, but also attendance, content consumption and more.

The ‘fan journey’ is vast.

Where the sports industry for the most part is lacking is in their capabilities from a digital perspective. They are, on average, miles behind e-commerce and tech companies.

If we consider:

1. Sports fans are loyal

2. Their fan journey is fragmented and spans a plethora of engagement mechanisms

3. Sports leagues and teams are digitally behind other industry brands with similar-sized customer bases

It makes me think that sports has the biggest product market opportunity in the ‘Web3 loyalty’ world, but has had the worst execution of any industry within Web3, whilst also bearing the brunt of technological debt from their existing digital systems.

That’s tough to crack.

When I last wrote about Web3 loyalty in sports, I said the following:

Not much has changed, since.

The digital experience for fans is incredibly fragmented.

The Web3 partnerships and experiences are a mixture of poor execution, focused on speculation or simply extractive.

Private equity money has come into sport in a big way over the last several years, with some in this sector hypothesising thesis that fans are not exploited enough commercially.

Fan-lifetime value should be a lot higher for a big sports team than it is for brands with similar-sized consumer bases. But until that incredibly fragmented, poor digital fan journey gets better — that extraction of value is far away.

In addition to this, there is a drive in sports to acquire and engage younger audiences. There is a dichotomy here because the younger fans that sports teams, leagues and federations are trying to compete for in the attention economy are used to flawless digital experiences in gaming, mobile and social.

Has the gap between the average digital experience in 2024 grown or shrunk compared to 5-6 years ago?

The gap feels bigger intuitively, and it’s difficult to imagine how it closes in the short term.

Concluding Thoughts & Analysis 🧠

Web3 for Starbucks was primarily (by what was delivered) an extractive way for the company to generate revenue without selling coffee. In fairness, it was also an attempt to engage a community that skews young and has deeper pockets; crypto natives.

When I think about Web3 innovation within brands, I think about where blockchain can add value in a way that orthodox technology cannot.

I think Reddit is a fantastic example of this. 

For the uninitiated, they took their Reddit Avatar Program and put it on-chain, making the avatars themselves NFTs. This unlock made the avatars tradeable and ownable. This was an example of blockchain completely changing the user experience, and it resulted in 35m+ claims from 20m+ unique accounts. Those numbers are no joke.

Reddit generates revenue by selling these avatars, and users can own them, experience digital ownership, and also trade them.

With all this in mind, I still think that Starbucks created a very good application here.

The user experience was very sleek and it was fairly easy to use. The digital journey for the consumer was pretty flawless compared to most Web3 native consumer applications, and they created a genuinely engaged community all connected by digital collectibles and the Starbucks brand.

I think there needed to be an answer to the question; what could Starbucks do with this technology that can’t be answered with other technological means?

Perhaps they were en route to finding that out, but we will likely never know.

Another obvious improvement was the lack of integration within the Starbucks native app. Again compared to Reddit, who integrated Reddit Avatar Collectibles into their platform, you can buy avatars directly on Reddit as well as make a custodial Web3 wallet.

A final point is whether or not Starbucks consumers wanted the experiences that were offered, whether there is that much affinity for ‘transactional brands’ and whether they translate in this manner (Web3). Do I have fierce passion and loyalty for brands like Starbucks?

The answer to most of us, however much we like the taste of the coffee is probably: no.

💡 Sporting Crypto Spotlight - Podcast Wrap-up!

We wrapped up Season 1 of the Sporting Crypto Podcast!👀 Check out our wrap-up trailer via the link here

👂 Subscribe and listen to the first season of the podcast here!

More Sports & Web3 Stories

• Candy Digital Announces Landmark Partnership With Gaming Publisher Kakao Games And Developer METABORA (Read more here)

• Japan’s Sony Bank tests yen-backed stablecoin for gaming and sports IP payments (Read more here)

• Fastex forges partnership with Olympionic Foundation (Read more here)

• Dream Sports Signs Five-Year Deal With Kiwi Cricket Team For NFTs (Read more here)

• FIFA+ Launch Extra Time Promotion (Read more here) 

General ‘Stuff’ that Could Impact You

• Sony (via Sony Bank) Doubles-Down on Web3 Strategy With a Stablecoin Trial on Polygon (Read more here)

• Avenged Sevenfold's Season Pass is Turning Heavy Metal Fans Into Blockchain 'Evangelists' (Read more here)

• Pharrell, Lil Wayne to Headline Doodles NFT Animated Film (Read more here)

• Coachella Launching Avalanche NFT Quests Game at Music Festival (Read more here)

• US PayPal customers will be able to use stablecoin for international payments (Read more here)

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