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Starbucks' Digital Tip Jar Turns Loyalty Into Money

NEW YORK (TheStreet) -- The big news out of Starbucks (SBUX - Get Report) was hardly mentioned in its analyst Webcast Wednesday.

Elvis has left the building, again.

Founder Howard Schultz, who returned as CEO when the economy was collapsing in 2008, has handed over daily operations to COO Troy Alstead, who handled Wednesday's update, and hardly anyone noticed.

Instead, everyone was talking about the company's iPhone app, which will add support for digital tips when its next version rolls out Wednesday, March 19.

This too, is a great piece of sleight of hand, because just two months ago the press was beating down Starbucks' doors, complaining that the app was storing users' information -- including their locations -- in the clear, without encryption. That flaw was quickly fixed. 

The tipping and payment features are both based on Starbucks' mobile loyalty cards. And for now, tipping only applies to Apple phones; an Android version is due out later this year. Still, the company said 11% of its U.S. sales are coming through its apps, which means 11% of sales are coming through its loyalty program. That should be the headline.

The tipping option is also available, initially, only in company-owned stores, which represent about two-thirds of its total. Some of the company's highest-trafficked stores, in airports, office buildings, and at other retailers, are franchised.

Starbucks has been getting its mobile apps from mFoundry since 2009. That company was acquired by FIS Global (FIS) last year.

The apps are subject to a lawsuit by Maxim Integrated, filed in 2012, relating to patents granted around the turn of the century. 

The technology itself is not bleeding edge.

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