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Starbucks, Square: It's All About What Data Can Do

Stocks in this article: SBUX KR V MA GRPN WMT AXP FB

Finally, social marketing. This is the big one.

Right now, merchants using a system like Groupon (GRPN) or Scoutmob pay two fees -- one to the marketer and one to the customer. What if they didn't have to pay the discount?

Data give Starbucks the power to create a "virtual currency" around not just its own products, but around other products. It gives Starbucks a way to account for this currency. The problem with Facebook's (FB) virtual currency was that there was no real-world connection, no way to get a real pay-out.

What if there were? What if you could use your Star-Bucks to get real discounts from other merchants, starting with those tied to Square? What if a Square merchant could give you Star-Bucks as a sort of "green stamp" that would get you a discount on your next latte? What if merchants -- any kind of merchant -- built games with these Star-Bucks as prizes, games tied to loyalty or product knowledge?

Starbucks can use Star-Bucks to build traffic to its new wine-and-beer offerings, which promises to extend the time a store is open and busy by many hours. They can use Star-Bucks to surprise regular customers with free muffins, and know that offer is paid for. And they can build a network of merchants within each community, tied to Square, who can take this to "the next level."

Why hasn't Wal-Mart (WMT) or some other big merchant done this? Probably because they didn't buy into a processor. They just do deals with processors, like American Express (AXP), and thus lack control over what happens next.

The "next big thing" has always been connecting the digital world to the real world, in a meaningful way that delivers benefits to merchants, consumers and whoever was squirting the digital glue. Starbucks now has digital glue.

At the time of publication, the author had no investments in companies mentioned in this story.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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