Starbucks and HP: The Future of Digital Music

Last week I flew down to the launch of the new Starbucks music service and got far more out of the event than a cup of coffee and some free music. I got a sense of why Starbucks is as successful as it is and why HP is suddenly emerging as the company to beat in the technology space. I also went away with a better understanding of the future of music services.

The funny thing is, the only thing I didn’t get at that Starbucks was a cup of coffee.

Starbucks is one of those amazing success stories. Who would have thought something as inconsequential and common as a coffee service could grow into an empire of well over 7,000 stores? If someone had told me 10 years ago that a coffee-only outlet would be a better investment than McDonald’s, I would have figured they had sipped some really bad brew. Yet here we are.

Starbucks got to this position by seeing an opportunity and executing on it rapidly and effectively. The parallel in the tech industry is probably Microsoft more than any other vendor, because Starbucks actually defined the space it now dominates. Could it be that there is something in the beans in the Seattle-Redmond area?

Grasping the Future

Starbucks seems to grasp the future. Well before everyone else, Starbucks started putting WiFi in its shops and anticipated, once again, where the market was going. Now, when many of us travel, we seek out Starbucks locations to pick up a network connection — and we almost always buy a cup of coffee while we are there.

While Starbucks clearly uses technology to manage and run its stores, retail WiFi is probably the first use of technology as a retail service and the store as a channel for it. As I sat and watched the Starbucks chairman explain the “why” behind the company’s new moves toward offering downloadable music in its stores, I realized that what made Starbucks what it is — and what likely will keep it at the front of the pack — is a view of the future that is not only surprisingly accurate, but also one that the firm continues to evolve and embrace.

The company’s basic plan is to offer music downloaded off their localized servers that will be supported through a centralized server network. Initially, what customers will be able to get are custom CDs, which is why the CDs have no digital rights management built in.

HP, in the form of CEO Carly Fiorina, was on stage as well for this announcement, and I couldn’t help but focus on the similarities and differences between the two firms. HP once was a stick-in-the-mud company that couldn’t get out of its own way but now seems to be as forward-looking as Starbucks.

HP was the first company in its class to embrace the convergence of consumer electronics and high tech, and even the leadership of the company seems to be more dynamic and forward-looking than their global competitors.

Collective Synergies

I also couldn’t help but contrast HP’s CEO to IBM’s CEO and the changes there. IBM now seems to be slipping badly in advertising and corporate focus. The company missed the consumer-electronics convergence completely by exiting the market. On the other hand, HP has been aggressively recreating itself in light of the future vision that clearly seems to come out of the closely aligned offices of CEO and CTO.

Shane Robison, HP’s Chief Strategy and Technology Officer and once an Apple employee, helps drive this vision. His influence has a great deal to do with several of the amazing things HP has accomplished of late. Remember, HP is the only company to do a deal with Apple and gain access to the iPod — which leads its segment in the media-player space. Apple simply does not do deals like this, and HP’s ability to pull off this one showcases how unique and powerful this new, combined company is.

In the market where HP was and IBM seems stuck, Fiorina wouldn’t have been the right person. But in this new market, there isn’t anyone I can see who is better positioned for where we apparently are going. As a company, only IBM can match HP’s resources. But, despite IBM missing the consumer-electronics market, the company’s new CEO appears to be more focused on IBM’s past than our collective future.

Digital Rights and the Consumer

While I was excited about the online music services when they first came out, I have become less and less excited about them over time. The problem has been digital rights management. I, like many others, see DRM as a pain. I just don’t want to deal with it.

So I’ve gone back to ordering CDs from Amazon.com, ripping the CDs into MusicMatch and then putting the music any place I want — in my home, on my person or in my car — without violating the Digital Millennium Copyright Act (DMCA).

If you use an online music service, you quickly find that if you have iTunes, it doesn’t work with the increasing number of in-home or automotive MP3 solutions unless you strip off the DRM — which puts you in violation of U.S. federal law. With the other music services, you can’t use the best MP3 personal player: iPod. You can use the iPod with MusicMatch but not with downloaded DRM-protected music.

This makes it so you have to maintain a huge mental list with regard to what you can and cannot legally do. Plus, if you ever blow out your hard drive, or one of these services goes out of business, you run the risk that all of the music you purchased might no longer be yours to use.

CD Audio and DRM

At least for now, when you buy a CD, there is no DRM on standard AIFF CD audio, and you can use any service you want to manage the music, put the music on anything (including an iPod) and still burn a CD for every room in your house without worrying about the CD burn limit that most DRM-protected services enforce.

With the Starbucks service, you pay the same as you would for an Internet service, but you get a full Red Book CD audio — the original AIFF CD audio format — built on a custom CD made in a Starbucks store. This means that not only is it as good as any production-quality CD, but there is no DRM attached to it. Also, you have the CD itself, so if anything happens to your computer or hard drive, the CD is your backup.

You’ll have to go to a Starbucks to have the CD made — which is inconvenient — but because it avoids the much-more-inconvenient things I’d need to do to use DRM-protected music, I think it is worth the tradeoff.

Given that the RIAA is taking everyone it can find to court, I’m not even going to think about doing anything creative with the online services until after the DMCA is overturned — which I hope is soon.

Personal Music’s Future

Looking ahead, I expect the Starbucks service will have an online component that allows you to select your songs first from a laptop in the stores and then, in a future version, from your home. I expect the company will build a profile of what I like and make suggestions on the basis of those likes. I expect it will have a subscription model in which users will be able to bring in a hard-drive-based media player and simply “fill it up” with new selections and mixes while enjoying some good coffee.

Of course, Starbucks will likely implement some sort of loyalty program — frequent user points — that will keep you coming back for more.

For a guy who spends most of his time looking at the future, it is a real treat to see two companies that appear to share that view. The future is coming. Who would have thought a partnership between a coffee company and a revitalized tech firm would forecast the future of music?

We live in amazing times.