Starbucks uses AI to build software, cutting reliance on Microsoft and IBM in $2B turnaround

Starbucks AI Initiative Targets Microsoft and IBM Software

Starbucks is building in-house AI tools that could replace software applications currently purchased from Microsoft and IBM, according to an internal presentation reviewed by Bloomberg News 1

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. The coffee chain is developing alternatives to a Microsoft system used for inventory tracking and an IBM tool that manages maintenance management, with some of the Starbucks-developed software potentially rolling out by the end of next year pending testing results 2

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The move reflects how AI is fundamentally shifting the relationship between enterprises and third-party vendors. For years, businesses remained tethered to technology vendors due to fear of disruption and the complexity of building tools from scratch. Now Starbucks AI development demonstrates how artificial intelligence makes it easier to create applications internally, reducing dependence on traditional software providers 1

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Software Competition Intensifies as AI Lowers Development Barriers

The implications for software competition are substantial. Leading software companies face mounting concerns about whether they can fend off products built by upstarts or their own customers using AI-driven software capabilities. This phenomenon has weighed on software stocks throughout the year, with both Microsoft and IBM trailing the S&P 500 2

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. Shares of both companies fell during premarket trading, with Microsoft down about 1.5% and IBM stock sinking 4% following the news 3

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Chief Technology Officer Anand Varadarajan revealed that Starbucks spends approximately $400 million a year on software alone. "There's clear opportunities to reduce the spend in software," Varadarajan told workers in an internal forum earlier this year, according to a recording reviewed by Bloomberg News 1

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Cost-Cutting Strategy Drives In-House AI Development

The push toward in-house AI development aligns with Starbucks' broader cost-cutting strategy to reduce $2 billion in expenses as part of a turnaround effort 3

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. While building software internally can be cheaper upfront, companies may face higher maintenance and labor costs over the long term 2

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The company is reviewing "every contract and service" when it comes to technology, according to the internal presentation. In some cases, this includes building products to replace software that its engineers have to heavily tailor anyway 1

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. Starbucks has also been working for several years on building a point-of-sale system that would replace Oracle Simphony, according to people familiar with the matter 2

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AI-Assisted Coding Accelerates Development Timeline

AI-assisted coding was key to developing the platform that could replace the IBM tool, according to the internal presentation 1

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. Starbucks has been pushing tech workers to use artificial intelligence aggressively, even factoring usage into their bonuses, Bloomberg News has reported 2

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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. This includes cutting approximately $10 million in software spending to reduce 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 1

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Mixed Results Raise Questions About AI Implementation

Despite the ambitious plans, 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. The company also continues to use software from third-party vendors, including from companies such as Microsoft 2

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The development highlights growing pressure on traditional software vendors to defend against AI-powered alternatives, whether from startups or their own customers developing proprietary solutions 3

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. As more enterprises explore similar strategies, the software revenue models of established players face disruption. Watch how other major corporations respond to Starbucks' approach and whether this cost-cutting effort delivers sustainable savings without compromising operational efficiency.