Should Apple and Starbucks merge?

Should Apple and Starbucks merge?

Maybe not the most related of companies...to be sure. However, think of the following:

Lockheed makes weapons for the Defense Department...but they also process traffic tickets.

QUALCOMM develops the mail client Eudora...but they also install cell phone towers and build chipsets.

Disney makes movies, develops theme parks and hotels...but they also have a huge line of licensed products from shampoo, yogurt, and even Mickey Mouse hamburger patties.

In fact, one of the most diverse product brands out there now is Virgin. They have megastores, airlines, fitness clubs, mobile phone service, comic books, cosmetics, etc...

Besides, haven't you always wanted something more than service at the Genius Bar? Maybe a grande mocha while you wait?

So, I wouldn't be surprised to see announced--in connection with the release of the iPhone--that Apple and Starbucks could extend their strategic alliance which has already proven extraordinarily fruitful (no pun intended...)

Starbucks Chairman Howard Schultz spilled the beans (again, no pun intended...) when he discussed plans for in-store downloads to your MP3 player.

So, what could the impetus behind Apple's possible push into a coffee chain?!?

Simple economics, really. Not about mixing laptops and coffee per se--but about nabbing 12,000 retails outlets in one fell swoop--while maintaining two premium brands.

When Apple first started selling the iPod, it started hitting numbers like 125,000 in the first quarter of sales and about 376,000 in its first Apple fiscal year (2002).

By Apple FY 2006, that number had hit 39,409,000 per year.

And in Apple's Q1 of 2007, they sold 21,066,000 in a single quarter. This is based off a total sales presence of 40,000 outlets that sell iPods.

Now, lets factor in the iTunes Music Store...

Introduced in April 2003, the iTunes Music Store sold 50,000,000 songs up to March 2004. Nice start, but the anniversary of the store celebrated another 20,000,000 songs sold.

Per Wiki:

On September 1, 2004 the iTunes Music Store had surpassed 125 million songs sold.

On October 14, 2004 the iTunes Music Store had surpassed 150 million songs sold.

On December 16, 2004 the iTunes Music Store had surpassed 200 million songs sold. Ryan Alekman of Belchertown, Massachusetts, USA, bought the 200 millionth song, which was one of the tracks on U2's digital box set "The Complete U2".

On January 24, 2005 the iTunes Music Store sold a quarter of a billion songs worldwide.

On July 18, 2005 Apple announced that it had sold 500 million songs. Amy Greer of Lafayette, Indiana, USA, bought the 500 millionth song, "Mississippi Girl" by Faith Hill.

On October 31, 2005 Apple announced that iTunes Music Store customers had purchased and downloaded 1 million videos since the launch of video support on October 12, 2005.

On December 6, 2005 Apple announced that iTunes Music Store customers had purchased and downloaded over 3 million videos.

On January 10, 2006 Apple announced that the iTunes Music Store had sold 850 million songs and 8 million videos.

On February 23, 2006 Apple announced that the iTunes Music Store had sold 1 billion songs and 15 million videos. The billionth song was “Speed of Sound” by Coldplay, purchased by Alex Ostrovsky of West Bloomfield, Michigan.

On September 12, 2006 Steve Jobs announced in his "It's Showtime" keynote that Apple had 88% of the legal U.S. music download market, 1.5 billion songs downloaded and 45 million videos sold.

On January 10, 2007 Apple announced that the iTunes Store had sold more than 2 billion songs, 50 million television episodes and over 1.3 million feature-length films.

Ok...now we have the iPhone...

Steve Jobs usually sets a fairly conservative goal to reach for sales. Initial sales goals for iTunes Music Store were about 100,000,000 per year which they essentially reached, and then completely blew past.

Fast forward now to the iPhone goal--10,000,000 per year.

Pretty ambitious goal when you think that achieving 10,000,000 new customers per year requires a significant investment in time (signing up for Cingular, etc...) and money ($499 plus service minimum...)

Further, Apple and Cingular have decided (?!?!?) to restrict Apple Authorized Resellers and iPod sales outlets from offering the iPhone. This pushes even more of the sales responsibility back squarely on Apple's shoulders.

So, how can they co-opt a huge internal sales force and promote the use of the iPhone at the same time?

Easy--merge with Starbucks.

Folks--the only things that sell more independent units to individuals than cell phones are cups of coffee at Starbucks.

To the tune of 1.5 billion cups per year... It took Apple four years to achieve those kinds of numbers with items that only cost $.99 each. Starbucks does this each year with items that are $3-4 a pop.

To achieve sales numbers that Steve Jobs wants, they are going to have to put these things in locations that generate WAY more site traffic than the Apple Stores and Cingular stores.

And Apple has decided not to retain the services of Apple Authorized Resellers for this push, so they are already at a huge disadvantage since their most loyal sales forces outside Apple will have essentially no role in selling the device.

So, Starbucks would retain its brand and logo, but would benefit from way more exposure due to the Apple deal. And what exposure would this be? Buying your iPhone at Starbucks. And then pre-filling it before you even walk out the door.

Essentially, every Starbucks would have an iPhone/iTunes kiosk enabled to rapidly sell iPhones, service plans, and enable downloading via Starbucks massive wireless network.

No support staff needed--everything is done via the kiosk and supported via 1-800-SOS-APPL or Cingular stores.

A merger with Starbucks instantly nets 12,000 additional locations to sell iPhones. Even if Starbucks only sold two iPhone's per store per day, that is nearly 9,000,000 iPhones.

Going even further, if those two iPhone users bought and average of 10 iTunes tracks upon their purchase (the upsell!!!), that would be around 85,000,000 additional music downloads per year.

These kiosks would not only benefit Apple, but all sorts of Starbucks gear could be purchased there as well i.e. gift cards, vouchers for bags of coffee, Hear Music CD's, etc... And of course the kiosks could sell other things like headphones, remotes, cases, etc...

And conversely, I could see baristas and espresso machines going into Apple Stores worldwide.

It could be a huge win for both companies. And you would finally be able to get that grande mocha at the Genius Bar.

You heard it here first.

tl