Starbucks Building AI Tools In-House to Cut $400M Software Spend

Starbucks is developing artificial intelligence-powered software internally to replace applications it currently purchases from major enterprise vendors, a move that sent shares of IBM, ServiceNow, and Salesforce down in premarket trading Thursday.

The coffee chain spends approximately $400 million annually on software and is building alternatives to systems from Microsoft, IBM, and Oracle as part of a broader $2 billion cost-reduction initiative, according to details first reported by Bloomberg.

Replacing vendor systems with custom tools

Starbucks is creating an alternative to a Microsoft inventory tracking system and an IBM maintenance management tool, with some of the internally developed software potentially rolling out by the end of next year pending testing results, Bloomberg reported, citing an internal presentation.

The company has also been working for several years on a point-of-sale system to replace Oracle Simphony, according to sources familiar with the matter.

Chief Technology Officer Anand Varadarajan told employees earlier this year that "clear opportunities to reduce the spend in software" exist, according to a recording of an internal meeting reviewed by Bloomberg. The company is examining "every contract and service" as part of the cost-cutting effort.

Budget cuts already underway

Starbucks' enterprise technology team is on track to reduce its budget by approximately $30 million in the fiscal year ending in late September, including roughly $10 million in software spending reductions, the internal presentation showed.

The market reaction was immediate. IBM shares dropped 3% in premarket trading, ServiceNow fell 3.5%, and Salesforce declined 4% following the report.

Why it matters

Starbucks' decision to build rather than buy represents a significant threat to the traditional enterprise software model. When a company spending $400 million annually on software decides to develop AI-powered alternatives in-house, it validates concerns that generative AI tools are lowering barriers to custom software development. For enterprise software vendors already facing pressure from AI-native startups, the prospect of large customers becoming competitors adds another layer of disruption. The trend could accelerate as AI development tools become more accessible and companies seek to protect margins during economic uncertainty.

Broader industry implications

The Starbucks development adds to mounting concerns facing software companies over competition from AI-built products developed by startups or their own customers. This trend has weighed on software stocks throughout the year as investors reassess the defensibility of traditional enterprise software businesses in an era when AI can accelerate custom development.

Details of Starbucks' software development plans and cost-cutting targets were first reported by Bloomberg.