Starbucks Odyssey team's thoughts on Web3: from shop-to-earn to participate-to-earn

Original Title: “From shop-to-earn to participate-to-earn: Starbucks Odyssey Team's Thoughts on Web3”

Author: starzq(This article is reprinted with the author's permission)

TL;DR

After 3 months, Starbucks has finally launched the Odyssey Beta version, and 50% of previous speculations have been realized: enhanced member experience + digital collectibles + lowered user barriers to using NFTs.

At the same time, Bankless's NFT podcast Overpriced JPEGs conducted an in-depth interview with the leading team behind Odyssey, Forum 3, titled Most Important NFT Project This Year, which included:

1. The vision of Forum 3: to reshape brand loyalty programs through web3, transforming shop-to-earn into participate-to-earn.
2. Why Digital Collectibles Matter, the use of NFTs / Digital Collectibles will become a game changer.
3. Customer strategy first.
4. Leading other web2 brands into web3.

During the more than one-hour podcast, I took over 5000 words of notes while listening. What made me happy was that many of the thoughts aligned with my previous analyses. At the same time, I must say that the narrative ability and depth of thought of these leaders are indeed strong, which was a learning and summarizing experience for me and is worth the attention of all web2 brands.

Let's quickly review the predictions made about Starbucks three months ago, then see what the Odyssey Beta version includes, and finally, I will share the thoughts of the leading team Forum 3 and discuss the outlook for the next bull market.

• Will digital collectibles still lead the way?
• Infrastructure with strong business integration like Polygon/Nifty Gateway will play an important role.
• New community forms will emerge.

Previous Context

Three months ago, Starbucks announced the launch of the Odyssey program to enter web3, combining membership and NFTs. At that time, I wrote two articles: one specifically analyzed Starbucks's plans and their impact on the industry, and the other explored why brands should engage in web3 from a philosophical perspective:

“Starbucks Enters Web3, Marking the Next Milestone in the NFT Industry”

• Why is Starbucks launching membership NFTs at this time? ------ It must be done to break the challenges of brand aging and the sharp decline in offline business due to the pandemic.
• How will Starbucks implement NFTs (bold speculation): membership cards + metaverse + digital goods + community branding.
• What impact will Starbucks have on the NFT industry?

1. Lowering the barrier for users to use NFTs, leading to a tenfold increase in NFT industry users.
2. Establishing collaborations with existing web3 brands to enhance the rights of existing NFT users.
3. Setting benchmarks for innovation in various aspects, encouraging more web2 brands to enter web3.

“Building the Soul of a Web3 Brand: 3 Questions - Why, What, How”

• Why: Why must brands engage in web3? ------ Because only web3 brands can meet the integrated needs of "sovereign individuals" for "consumption + assets + digital identity." Web3 branding is not just a change in marketing methods or revenue structures; it fundamentally meets new user needs and represents a shift in mindset, building or reconstructing brands from the essence of users.
• What: What types of categories are suitable for web3 branding?

1. Community-driven categories that require extensive testing of products. More specifically, apparel, food (beverages), and theater works are perfect fits.
2. How: How to build a web3 brand, including mindset shifts / skill trees / case studies.

Odyssey Beta Version

1. Summary of Beta internal testing

• Previous speculations: membership cards + metaverse + digital goods + community branding, lowering user barriers to using NFTs.
• Currently realized:
• Enhanced member experience.
• Digital goods.
• Lowered user barriers to using NFTs.

1. Enhanced member experience

Enhancements come from two aspects: gamified member experience; NFT tradability.

3. Gamified member experience

We will repeatedly see two terms, Stamps and Journeys. Stamps are essentially NFTs based on Polygon, but Starbucks used the term "stamps" instead of "NFTs" in the product interface to lower the user's understanding cost. At the same time, Starbucks designed different Journeys, which are actually a combination of interactive games, activities, and consumption.

Members earn points by completing journey tasks, which can then be exchanged for stamps (500 points). At any time, there will be at least two journeys available, currently Coffee Heritage and Holiday Cheer.

Taking Coffee Heritage as an example, this journey is designed based on Starbucks's history and includes a series of tasks, such as:

1. Interactive games like First Store Scramble, where users learn about Starbucks's history through puzzles at the first store in Pike Place Market, Seattle.
2. Activities like Coffee Farm Tour.
3. Consumption like Try Our Iconic Drinks.

Stamps can unlock special experiences, categorized into three levels:

1. Online experiences (e.g., a virtual course on how to make an espresso martini).
2. Unique artist merchandise.
3. Real-world experiences, such as special events held at Starbucks's exclusive roasting facility or even trips to Starbucks's Hacienda Alsacia coffee farm in Costa Rica.

In the future, Starbucks will allow members to customize their Starbucks cards using stamp NFTs, which can also be printed on other merchandise.

It can be seen that Starbucks aims to enhance member engagement and emotional connection through gamified experiences, creating a positive flywheel through special experiences.

However, there is indeed significant room for improvement in the gaming experience. Quoting an internal tester EROD's tweet:

It's good, but it could be much better: The tour, puzzles, and quizzes felt like a chore, and the requirement to purchase drinks to complete a journey undermines organic brand interactions.
This is good, but it could be much better: The tour, puzzles, and quizzes felt like a chore, and the requirement to purchase drinks to complete a journey undermines organic brand interactions.

NFT Tradability

NFTs will be able to be bought or sold on the Odyssey marketplace set to launch in 2023. This part is supported by Nifty Gateway, with NFT ownership secured on the blockchain.

The significance of this is self-evident for those familiar with web3. Points can be exchanged for NFTs, and NFTs are tradable, essentially giving the points in users' hands a price and liquidity, turning them into real personal assets. In traditional customer loyalty programs, points can only be consumed by the user, leading to many high-value users having no opportunity to use their points, resulting in diminishing returns on points. Once tradable, users' idle points can be immediately monetized, greatly increasing their asset value.

On the other hand, in traditional customer loyalty programs, points are considered liabilities for the brand, and the calculation already takes into account the idle rate. Once liquidity is introduced, brands will need to redesign the entire points system to incorporate tradability.

Digital Goods

Stamps also provide a potential revenue source. Starting next year, Starbucks will issue limited edition stamps, which members can purchase to support various (public) causes. The artwork on these NFTs is co-created by Starbucks and external artists, and a "portion" of the sales will support causes chosen by Starbucks employees and customers (Starbucks has not disclosed how much of the remaining revenue it will retain). These limited edition stamps will be issued four to six times a year.

The interesting part is that Starbucks generates revenue, artists gain exposure and income, public causes receive support, and customers and employees engage in social good—truly a win-win-win-win situation. Similar initiatives are currently being undertaken by some NFT artist platforms, but Starbucks can elevate this to a new level based on its strong brand power.

Lowering User Barriers to Using NFTs

As mentioned above, stamps are essentially NFTs based on Polygon, but Starbucks used the term "stamps" instead of "NFTs" in the product interface to lower the user's understanding cost. At the same time, Starbucks does not require members to have a cryptocurrency wallet, own cryptocurrency, or have any understanding of the underlying web3 technology, significantly lowering the barriers for users to use NFTs.

Internal Testing Rhythm

On December 8, the first batch of internal testing invitations was sent to a small group of members on the waiting list. In January 2023, Starbucks will begin sending invitations to more waiting list members monthly. The more engaged and loyal members will receive invitations earlier. This reflects the point mentioned in the Forum 3 team's sharing: "They got a formula, loyalty program is baked into how to get into the loyalty program."

Team Thoughts

After reviewing the Odyssey Beta version, let's take a look at the thoughts of the leading team, Forum 3. The title of this blog post is The Most Important NFT Project This Year: Starbucks Odyssey, indicating the host's high regard for this project. Before sharing, let's recap the three co-founders of Forum 3.

1. Adam Brotman: Former Chief Digital Officer of Starbucks (2009-2018), he led the work related to the app during his time at Starbucks, reaching 50 million users globally and becoming the second-largest mobile payment app in the U.S. market (31 million users), second only to Apple Pay (43 million).
2. Andy Sack: An entrepreneur spanning Web1/Web2/Web3. Since 2015, he has served as an advisor to Microsoft CEO Nadella, helping with digital transformation and related innovations. He began exploring Crypto in 2021.
3. Joseph O'Rourke: A degen with a legendary background. A former sales director in traditional industries, he became fascinated with NFTs in 2021 and was invited to a top Web3 gathering, which conflicted with his job. So, he quit his job to attend the gathering and met Adam, leading to his subsequent career.

During the more than one-hour podcast, I took over 5000 words of notes, summarizing into four points:

1. The vision of Forum 3: to reshape brand loyalty programs through web3, transforming shop-to-earn into participate-to-earn.
2. Why Digital Collectibles Matter, the use of NFTs / Digital Collectibles will become a game changer.
3. Customer strategy first.
4. Leading other web2 brands into web3.

The Vision of Forum 3: Reshaping Brand Loyalty Programs through Web3, Transforming Shop-to-Earn into Participate-to-Earn

The slogan on Forum 3's official website is "The future of customer loyalty," with the footnote "We are building the first ever web3-powered universal loyalty platform for consumers and brands," which sounds quite grand and vague. This interview, however, is very specific, aiming to transform the traditional brand loyalty program's shop-to-earn into participate-to-earn (I truly admire the Western ability to coin terms).

Problems with Traditional Brand Loyalty Programs

Adam believes that brand loyalty essentially forms a positive closed-loop connection through brand rewards to users, but traditional brand loyalty programs are simply shop-to-earn games: the more you buy, the more points you earn, and then points turn into discounts. However, they face three problems:

1. User participation is limited to purchasing, lacking deep interaction with the brand.
2. Diminishing returns on points.
3. The "purchase-points-discount" mechanism is very linear (Too linear), and even when points reach a certain level, the discount return rate decreases, actually harming user interests. A common example is that 500 points can be exchanged for 5 yuan, while 1000 points often only yield 8 yuan.
4. Points can only be consumed by the user, leading to many high-value users having no opportunity to use their points, again causing diminishing returns on points.
5. Points are essentially liabilities for the brand, and creating and maintaining brand loyalty programs incurs expensive costs.

Participate-to-Earn: Making Brand Loyalty Programs More Engaging and Profitable

1. Engaging customers without relying on discounts is a good way to keep them loyal. Allowing users more involvement, rather than just relying on discounts, is a better way to maintain user loyalty (emotions can be more persuasive than money).
2. Transforming the simple and crude shop into a more multidimensional participate. Participation means being user-centered and interacting with the company and brand. It’s somewhat like GMV vs DAU, focusing more on user activity and interaction rather than just the final sales results (author's note).
3. Adam further explains that participation includes storytelling, more fun, and programmability.
4. In the context of the Starbucks Odyssey project, this translates to games (interactive games) and digital collectibles.
5. Using storytelling and games to enhance user participation and activity is a tradition at Starbucks, with the annual Starbucks for Life winter event allowing users to play mini-games to earn varying degrees of rewards.
6. This year's mini-game is Shake the Snow Globe, with prizes including 1 month, 6 months, or even 30 years of Starbucks, Delta flight tickets, 150, 500, or 1000 stars, Starbucks gift cards, and limited edition coffee brewing kits and cold brew sets.
7. The Starbucks for Life game can be played for free without placing an order, and users can increase their play frequency by ordering at Starbucks or playing mini-games.
8. Feedback from social networks shows that many users are participating (due to low winning rates, most are complaining lol).
9. Pokemon Go has always been a learning model for Forum 3.
10. Digital collectibles can be a profitable way to engage customers.

Transforming shop-to-earn into participate-to-earn, Starbucks has already been practicing this in web2, but it still holds significant reference value for other shop-to-earn brands. Let's continue to explore Why Digital Collectibles Matter, as the use of NFTs / Digital Collectibles will become a game changer.

Why Digital Collectibles Matter

• Consumers are changing: the demand for digital goods is increasing, and they wish to co-create and participate.
• 79% of American teenagers aged 9-12 are playing Roblox, and everyone increasingly appreciates digital goods.
• A specific user group has emerged, with some spending as much on digital fashion as on regular fashion, even more, as they purchase skins and other items for their gaming avatars.
• As a brand, you must recognize that your customers want to be more than just consumers; they want to co-create and participate, to be part of your brand story.
• User perspective: Digital Collectibles can precisely meet the above consumer demands.
• By integrating with blockchain, NFTs / digital collectibles are easier to authenticate, giving users a more genuine sense of ownership, satisfying the needs of "sovereign individuals" (Adam repeatedly mentioned the term sovereign in the podcast).
• The tradability of NFTs allows them to be priced, truly becoming personal assets.
• Digital collectibles have intrinsic collectible value while evoking emotional connections with consumers, providing emotional value to users.
• NFTs are public protocols with strong composability and programmability, facilitating user participation and co-creation.
• Business perspective: NFTs lower the barriers for brands/creators to collaborate while creating external positive effects.
• Based on the public protocols and composability of NFTs, collaborating with other brands/creators becomes very convenient, without the need for high-cost technical approvals and integrations, leading to more supply (those who have done cross-domain collaborations should understand how difficult it is to set up an API integration).
• The commercial value of users becomes public data, allowing all brands to target users for airdrops, even vampire attacks. This creates more external positive effects while also giving brands a sense of crisis.

These thoughts align closely with my previous analyses. Regarding digital fashion, I also shared Gmonkey's insights, and those interested can click the link to read.

He noticed that kids changed their skins every 15 minutes in Roblox to fit different digital personas, and these kids are so used to spending money on virtual outfits to build their social status in the digital world. Actually, stratification and social pressure have developed for these young generations, e.g., users who don't buy skins are named defaults.

In summary, young consumers have an increasing demand for digital goods and wish to co-create and participate, and digital collectibles can meet these consumer demands; from a business perspective, NFTs lower the barriers for brands/creators to collaborate while creating external positive effects, adding extra value to this ecosystem.

Additionally, Joe explained why they do not use the term NFT in the product interface:

We won't use the term NFT in the product, just like we wouldn't say we're listening to MP3s on Spotify. It should be the actual thing, like tickets/stamps/receipts. Even so, the educational cost is still high.

Of course, some users will be interested in blockchain and NFTs, and we will provide relevant knowledge, including self-sovereignty, decentralization, Ethereum, ownership, and some users will graduate into web3.

The host also added a point lol:

If brands use a lot of web3 language, they may just want to make a quick buck in the existing market, rather than engaging in dialogue with their current customers.

Customer Strategy First

The other three founders emphasized that they view web3 as a new digital tool to identify who the brand's customers are and how to conduct loyalty reward programs. For loyalty programs, the most important thing is "customer strategy first," and for Forum 3, it is essentially about helping brands develop customer strategies.

• Everything brands need to do is strengthen their connection with customers.
• Create a brand access pass to identify who your super fans are and create something special for them.
• Introduce more storytelling and special brand access, rather than just discounts.

Let’s elaborate a bit on Starbucks's loyalty program formula:

Loyalty program is baked into how to get into the loyalty program.
The customer loyalty program is baked into how to enter the loyalty program.

How to enter the loyalty program essentially involves categorizing users: who is most important to the brand?

• For Starbucks, employees (partners) and heavy users are the priority for brand rewards.
• For specific features, community-driven features are the highest priority.
• Any feature will start with a small group to gather user feedback and continuously iterate.

This echoes the previously mentioned participate-to-earn.

Leading Other Web2 Brands into Web3

Adam is very proud of Starbucks once again leading the trend:

1. Starbucks has always been at the forefront of the times, starting app development in 2009 and maintaining a leading position in mobile applications.
2. Marketers have always been focused on the use of blockchain technology.
3. Blockchain has also led to consumer evolution, with sharp companies like Nike announcing their entry into web3 opportunities (nike.swoosh).
4. Starbucks's approach will be emulated by many web2 brands, which is a good thing for brands integrating with blockchain.

The host asked, "With Starbucks/Nike/Reddit/Instagram all entering web3, is this just hype?"

Andy’s answer is that it is far from hype. This will be a significant breakthrough for loyalty programs, and we are betting our careers on building experimental loyalty programs, including unlocking digital collectibles and collaborating with Starbucks, paving the way for various brands. That's the mission, and we're super early.

Outlook

Will the Next Bull Market Still Be Led by Digital Collectibles?

The initiator of the last bull market, NBA Top Shot, did not use the term NFT but instead referred to digital collectibles, while also supporting fiat payments to lower user barriers.

Interestingly, Nike/Reddit/Instagram/Coca-Cola have also recently used the term digital collectibles in their official announcements instead of NFTs. Could it be that the next bull market will still be initiated by Digital Collectibles? Coincidentally, Azuki's founder ZAGABOND recently tweeted about this issue, and I responded to him using Joe's earlier insights.

If the driving factors of the last NFT bull market were the Federal Reserve's monetary easing and PFPs initially hitting user demand, the next bull market must find substantial user scenarios for NFTs. Digital collectibles are essentially a more user-friendly term for web2 users, with a much larger user base for collectors than for traders (or speculators), and they require significant IP to drive them. History does not repeat itself, but it often rhymes; I look forward to seeing innovations and breakthroughs in this area.

In the Next Bull Market, Infrastructure with Strong Business Integration Like Polygon/Nifty Gateway Will Play an Important Role

Behind Starbucks are two major technological infrastructures: Polygon and Nifty Gateway. Polygon provides blockchain capabilities, while Nifty Gateway offers wallet, fiat payment capabilities, and NFT trading markets.

Polygon's motto is "Bringing the world to Ethereum." Besides Starbucks, Nike/Disney/Reddit/Instagram are also supported by Polygon.

I want to share two takeaways from a podcast episode I listened to with Polygon co-founder Sandeep take away:

1. The Mission of the Polygon blockchain. Polygon is most concerned with DAU; this is their mission. The entire web3 ecosystem must reach 500 million to 1 billion users in the next five years, or everyone will fail. Therefore, Polygon's strong BD capabilities are born from this, opening up the landscape.
2. The highlights of Polygon in the past few years. Sandeep believes that the most successful aspects over the past few years have not been fundraising or trading volume, but rather collaborating with numerous web2 brands (Instagram/Reddit/Disney/Nike) to bring more users into web3, which indeed aligns with their mission. Under this goal, Polygon will customize blockchains based on each brand's characteristics, ensuring that the corresponding blockchain meets brand needs while connecting as a public chain. I will share more information on how to customize this later.

Wallets are the infrastructure for web3 user products, and the current experience also hinders the majority from entering. Mnemonics, private keys, signatures, ERC20 tokens, gas fees, transaction confirmations… with each unfamiliar term, the user conversion rate drops by an order of magnitude. Just as Starbucks won't use the term NFT in its product interface, I also look forward to how Nifty Gateway will build a web3 wallet that can match the user experience of web2, which is key to creating value for web2 users in web3.

New Community Forms Will Emerge in the Next Bull Market

Regarding the importance of community, I have already provided detailed analysis in my previous two articles, so I won't elaborate further here. Currently, Starbucks's 24 million members in the U.S. are more brand members, and the connections between members are not tight, which can be described as a scattered state, with the only common connection being the Starbucks brand; if brand members upgrade to community members, this scattered state will transform into a highly cohesive network organization, with network value shifting from O(n) to O(n^2), bringing unimaginable power.

Currently, the most recognized valuable NFT community, BAYC, has only 10,000 members, yet it has given Yuga Labs a valuation of $4 billion. If this number were to multiply by 1000-2000, the picture would be too beautiful to imagine. Here, I pose a question: should all UGC communities be reimagined using web3?

Writing this, I finally understand why Bankless referred to Starbucks Odyssey as The Most Important NFT Project This Year; it indeed sets a benchmark for the industry and opens up infinite possibilities.

Finally, let's conclude with Andy's words: that's the mission, we're under the hype and we're super early.