Starbucks Corp. is developing in-house tools with the help of artificial intelligence that could replace some software applications it now buys from companies such as Microsoft Corp. and International Business Machines Corp.
The coffee chain is building alternatives to a Microsoft system that tracks inventory and an IBM tool that manages maintenance, according to an internal presentation reviewed by Bloomberg News. Some of the Starbucks-developed software could roll out by the end of next year, pending the results of testing.
For years, businesses were tethered to their technology vendors due to fear of business disruption and the complexity of building in-house tools. Now AI is shifting that calculus as it makes it easier to develop applications from scratch and as companies push workers to use the technology.
Leading software companies face mounting concerns about whether they’ll be able to fend off competition from products built by upstarts, or their own customers, using AI. This phenomenon has weighed on software stocks this year, with Microsoft and IBM both trailing the S&P 500.
Shares of both companies fell during premarket trading on Thursday, with Microsoft down about 1.5% and IBM sinking 4%.
Starbucks spends about $400 million a year on software alone, Chief Technology Officer Anand Varadarajan told workers in an internal forum earlier this year. “There’s clear opportunities to reduce the spend in software,” Varadarajan said, according to a recording of the meeting reviewed by Bloomberg News.
In-house software can be cheaper, an incentive for companies such as Starbucks, which is looking to cut $2 billion in costs as part of a broader turnaround effort. Though in the long run, building can lead a company to pay higher maintenance and labor costs.
When it comes to technology, the company is reviewing “every contract and service,” according to the presentation. In some cases, that includes building products to replace software that its engineers have to heavily tailor anyway.
Starbucks has been working for several years on building a point-of-sale system that would take the place of Oracle Simphony, according to people familiar with the matter who weren’t authorized to speak publicly.
The coffee chain declined to comment. In a blog post earlier this year, the company said AI and other technology advancements will support its long-term growth and free up baristas to focus more on customer service.
Spokespeople for Microsoft, IBM, and Oracle didn’t provide comment.
AI-assisted coding was key to developing the platform that could replace the IBM tool, according to the internal presentation. Starbucks has been pushing tech workers to use artificial intelligence, even factoring usage into their bonuses, Bloomberg News has reported.
There’s skepticism about how much, or how quickly, AI can speed up and automate work. Starbucks recently pulled an AI-powered system to track inventory at stores, reverting to manual counting. It also continues to use software from third-party vendors, including from companies such as Microsoft.
The Starbucks enterprise technology team is on track to reduce its budget by about $30 million in the fiscal year ending in late September, according to the internal presentation. That includes cutting about $10 million in software spending.
Another $13 million will be saved mostly by cutting back on contractors from professional services firms and backfilling some roles with its own staff. Starbucks is setting up offices in Nashville and India that will house some tech workers, while others will remain at its Seattle headquarters. The company has cut about 2,300 jobs since February of last year, including many in tech.
Sirtori and Ford write for Bloomberg.
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