International Business Machines Co. (NYSE: IBM) experienced a 2.5% drop in premarket trading on Monday after reports emerged that Starbucks is working on internal artificial intelligence tools that could supplant software it currently buys from IBM and other vendors.
An internal Starbucks presentation reviewed by Bloomberg News indicates the coffee chain is developing a replacement for an IBM application used to manage maintenance. The same presentation said Starbucks is also creating an in-house alternative to a Microsoft system that tracks inventory. According to the material, some of the internally developed software could be deployed by the end of next year, contingent on testing outcomes.
The disclosure amplified worries across software equities, as investors weigh the risk that large customers may build AI-enabled solutions themselves rather than purchase third-party products. The report noted that both Microsoft and IBM have lagged the S&P 500 this year amid these competitive concerns.
Starbucks Chief Technology Officer Anand Varadarajan told employees in an internal forum earlier in the year that the company spends roughly $400 million a year on software alone. "There’s clear opportunities to reduce the spend in software," Varadarajan said, according to a recording reviewed by Bloomberg News.
The in-house development push forms part of a broader turnaround plan at Starbucks aimed at cutting $2 billion in costs. While initial development of internal software can produce upfront savings on licensing and third-party fees, companies undertaking such projects may face higher ongoing maintenance and labor expenses over time.
Industry observers say the situation underscores mounting pressure on leading software providers to fend off competition from AI-powered alternatives. That competition may come from startups or from the vendors' own customers who choose to create proprietary systems tailored to their operational needs.
Summary
Starbucks is building AI-driven internal software that could replace existing vendor systems, including an IBM maintenance management tool and a Microsoft inventory tracker. Some of this software could be rolled out by the end of next year, pending testing. The reports coincided with a premarket 2.5% decline in IBM shares and have contributed to broader investor concern about customer-built AI solutions affecting software companies.
Key points
- Starbucks is developing internal AI tools that may replace an IBM maintenance tool and a Microsoft inventory system.
- Starbucks spends about $400 million annually on software, and the internal projects are part of a $2 billion cost-cutting plan.
- The reports have pressured software stocks, with Microsoft and IBM noted as trailing the S&P 500 this year amid these competitive worries.
Risks and uncertainties
- Implementation risk - The internally developed software is subject to testing and may not be deployed as projected by the end of next year.
- Cost trade-offs - While internal development can reduce upfront software spending, it may lead to higher long-term maintenance and labor costs.
- Market impact - Growing adoption of customer-built AI solutions could increase competitive pressure on established software vendors and affect their market performance.