So this girl walks into a bar. She holds a tall iced coffee in one hand, and her blond hair is piled high in a ponytail, neon bikini strings peeking out from her tank top. At this bar, however, headphones hang above the stools, and computer screens are embedded in the countertop. The girl looks at the "bartender" quizzically. "So you can burn music here and it's, like, legal and everything?" she asks. The bartender smiles and nods. "Omigod, so you have, like, every song, ever?" Well, not every song, but quite a few: approaching 150,000 -- about 20,000 albums' worth. The girl settles onto a stool and grabs a headset, taking a long drag on the straw in her drink as she starts tapping away on a screen. "That's awwwesome."

It's awesome indeed, this new-concept music store on the trendy Third Street Promenade in Santa Monica, California. It's a beautiful space with warm lighting and wood paneling -- a place where you can buy regular old CDs, or linger with a drink while you listen to music and sift through thousands of songs stored in a computer database to create your very own personalized, mixed-CD masterpiece. In about five minutes, a freshly burned CD, complete with your chosen title and funky artwork on both the disc and the jacket (plus liner notes!) will be ready to take home. It all happens very smoothly, and yet it's a novel and startling experience. But what's most startling about this remarkable new place to buy music is this: It's a Starbucks.

The Hear Music Coffeehouse, as it's known, opened last March as the first of several fully integrated cafe-music stores that Starbucks is launching with its wholly owned subsidiary, retailer Hear Music. This August, Starbucks will install individual music-listening stations, with CD-burning capabilities, in 10 existing Starbucks locations in Seattle. From there, the concept rolls out to Texas in the fall, including Starbucks stores in the music mecca of Austin. With the help of technology partner Hewlett-Packard, Starbucks plans to have 100 coffee shops across the country enabled with Hear Music CD-burning stations by next Christmas, and more than 1,000 locations up and running by the end of 2005. Think iTunes meets Tower Records. With lattes.

"Great companies recognize who they are and who they are not. But they must have the courage to examine transformational opportunities."

Chairman and chief global strategist Howard Schultz's ambitions for this new business operation are vast; it's not just about selling a few CDs from a coffee shop (Starbucks has been doing that, successfully, for about five years already). Schultz wants Starbucks customers to make their own CDs, yes, but he also thinks they will someday use Starbucks' enormous Wi-Fi footprint to buy and store music from the network on any device imaginable -- from laptops and iPods to phones and PDAs. He hopes record labels will develop proprietary material just for the Starbucks network. And that Starbucks itself may help break new artists and develop original material. Indeed, Howard Schultz plans nothing less than to turn the entire music industry upside down. "We are the most frequented retailer in the world," he says. "With hundreds of thousands of songs digitally filed and stored, these Hear Music coffeehouses combined with our existing locations can become the largest music store in any city that we have a Starbucks in. And because of the traffic, the frequency, and the trust that our customers have in the experience and the brand, we believe strongly that we can transform the retail record industry."