Nick Martin, co-founder and CEO of Joe Coffee, is so concerned about the state of the economy that he’s looking for ways his company can save money. One main area for cuts: software.
Martin started the Seattle-based company with his brother, Brenden, to help local coffee shops better compete with Starbucks, by making it easier for them to fulfill mobile orders, track analyticsand automate their marketing.
While their 8-year-old business has held pretty steady through the economic dip that started in 2022, Martin said he’s seeing evidence that people are now buying fewer lattes than they did a year ago. Any consumer slowdown is a potentially troubling sign for Joe Coffee’s customers, and the company is proactively tightening its belt.
Martin, 38, told CNBC that Joe Coffee has reduced its number of subscriptions to HubSpot, a marketing automation software vendor, and is closely examining its spending with payment processor Stripe to see if its agreement with the company will be worth renewing.
“Every subscription we have is under a magnifying glass,” Martin told CNBC. “We have to have a really good business case to do new expenditures.”
The Martin brothers aren’t alone, based on the latest earnings reports from software businesses that serve small and medium-sized businesses (SMBs), which could be your local shoe store, a small restaurant chain or the neighborhood spa.
HubSpot, Bill Holdings, Paycom and ZoomInfo all warned investors of potential trouble on the horizon. Their comments reflect broader economic data, which shows that consumers are feeling the ongoing effects of inflation and high interest rates.
Retail sales for October fell 0.1%, underscoring pressure from higher prices. The consumer price index for last month increased 3.2% on an annual basis, according to the Bureau of Labor Statistics.
Joe Coffee founders Nick and Brenden Martin
Joe Coffee
Wall Street is on edge. While broad market indexes are up slightly since midyear, tech companies that specialize in the SMB space are hurting.
Paycom, which provides payroll and human resources software, saw its stock plunge 38% on Nov. 1, the day after the company said revenue growth in 2024 would be 10% to 12%, way below analysts’ expectations for growth above 20%.
Two days after Paycom’s drop, shares of Bill plummeted 25%. The company, whose software helps clients track and control their payables and receivables, reduced its profit and revenue guidance for 2024. Bill’s finance chief, John Rettig, said on the earnings call that the company is “operating in an environment of increasing economic choppiness and small businesses are under increasing pressure to adjust to the current realities.”
On the last day of October, ZoomInfo shares tumbled 16% on a weaker-than-expected forecast for the fourth quarter. CFO Cameron Hyzer told analysts that it “continues to be a tough world out there” for revenue retention. ZoomInfo helps sales and marketing teams track leads and customers.
HubSpot shares dropped 6.1% after its earnings report last week, though the stock has since recovered. The company’s outlook was largely in line with estimates, but growth is slowing and CEO Yamini Rangan described the environment as “choppy and challenging” with clients “continuing to optimize spend.”
“Sales cycles remain lumpy, budgets are still under scrutiny and buying urgency remains low,” Rangan said on the earnings call.
Representatives from Paycom, ZoomInfo, HubSpot and Bill didn’t respond to requests for comment. Since June 30, the stocks are down between 12% and 49%. The Nasdaq is up more than 2% over that stretch.
Fighting for the little guy
The sector of the market those companies serve is critical to the domestic economy. Over the past two decades, small businesses have accounted for 40% of U.S. gross domestic product, according to the Chamber of Commerce.They also employ 46% of the American workforce.
Jake Dollarhide, CEO of Longbow Asset Management, said results from Paycom and other SMB providers offer a window into the state of the economy.
“Anytime people don’t feel wealthy, they tend to pull back,” said Dollarhide.
The Martins know what it’s like dealing with the everyday challenges of making ends meet. Their father’s small business made sheds in their hometown of West Richland, Washington, about 200 miles southeast of Seattle, until bigger companies came into town and ran it into the ground.
“If America is really built on the backbone of small business owners, why are they the ones that never catch the break?” said Brenden Martin, Nick’s younger brother. “Why isn’t there anybody out there fighting for them? For us, that’s our primary driver.”
The Martin brothers have backgrounds in technology. They both worked at Microsoft, and Nick went from there to Zillow, while Brenden had jobs in product strategy and web development at various companies.
Zhang Peng | Getty Images
They also both loved the role coffee shops play in communities, having worked as baristas in the past, and wanted to help small cafes fend off Starbucks.
When Starbucks launched mobile ordering in 2015, Joe Coffee wasn’t yet up and running. But the brothers could see an imminent opportunity in the market.
“At first we were like, crap we missed our shot,” Brenden said. “And then we realized, well no, small businesses still need this.”
They got their big break in August 2018 at Coffee Fest, a venue for coffee brands to debut their products and services. Just before the event in Los Angeles, the Martins learned they’d received $1 million in funding, their first outside investment.
They initially built a mobile-order-only platform, but the Covid pandemic created a whole new set of demands from customers who were struggling to stay afloat. In 2021, Joe Coffee, which now has 17 employees, created a full software and payments suite for coffee shops.
For Joe Coffee’s business to work, its technology has to create almost immediate revenue and profit gains for its customers, which are already operating on tight budgets. The company doesn’t charge a recurring subscription, but only a percent of each transaction.
‘Nice to have’
Nick Martin cited higher borrowing costs as a main reason that Joe Coffee has reduced the number of software products it buys. The company now has roughly six software subscriptions, down from 12 to 15, accounting for 3% to 5% of operating expenses, down from around 8%, he said.
Decisions on what to get rid of are based on whether a product is a “nice to have” or is essential to business operations.
“Can we get away with just doing this in a spreadsheet?” he said. That’s how the company decided which HubSpot services to cut. Joe Coffee is still a HubSpot subscriber but is paying for fewer seats and fewer tools, Martin said.
As for Stripe, which is privately held, Joe Coffee is looking for other payment processors that have lower fees, Martin added.
Stripe said it doesn’t comment on specific customers.
The macroeconomic story will show up differently for software companies, depending on their revenue models and their reliance on certain industries.
Bill could see a more immediate impact than others because more than three-quarters of its core revenue comes from the money it makes on transactions, while the rest comes from subscriptions, which are contract based.
“What Bill is more exposed to would be the payment volume that’s coming from those SMBs,” said Taylor McGinnis, an analyst at UBSwho follows Bill, ZoomInfo and HubSpot.
Investors across the sector are trying to figure out if SMB spending has bottomed or if businesses are still looking for opportunities to slim down their software portfolio should the economic picture dampen further.
“I think what we’ve learned, especially in B2B, is it’s more macro driven than we’re used to,” said Bryan Keane, an analyst at Deutsche Bank who covers software and payments companies.“If there’s another shoe to drop, there’s still going to be some downside risk.”
AppLovin CEO Adam Foroughi provided more clarity on the ad-tech company’s late-stage effort to acquire TikTok, calling his offer a “much stronger bid than others” on CNBC’s The Exchange Friday afternoon.
Foroughi said the company is proposing a merger between AppLovin and the entire global business of TikTok, characterizing the deal as a “partnership” where the Chinese could participate in the upside while AppLovin would run the app.
“If you pair our algorithm with the TikTok audience, the expansion on that platform for dollars spent will be through the roof,” Foroughi said.
The news comes as President Trump announced he would extend the deadline a second time for TikTok’s Chinese-owned parent company ByteDance to sell the U.S. subsidiary of TikTok to an American buyer or face an effective ban on U.S. app stores. The new deadline is now in June, which, as Foroughi described, “buys more time to put the pieces together” on AppLovin’s bid.
“The president’s a great dealmaker — we’re proposing, essentially an enhancement to the deal that they’ve been working on, but a bigger version of all the deals contemplated,” he added.
AppLovin faces a crowded field of other interested U.S. backers, including Amazon, Oracle, billionaire Frank McCourt and his Project Liberty consortium, and numerous private equity firms. Some proposals reportedly structure the deal to give a U.S. buyer 50% ownership of the company, rather than a complete acquisition. The Chinese government will still need to approve the deal, and AppLovin’s interest in purchasing TikTok in “all markets outside of China” is “preliminary,” according to an April 3 SEC filing.
Correction: A prior version of this story incorrectly characterized China’s ongoing role in TikTok should AppLovin acquire the app.
U.S. President Donald Trump speaks during an event announcing new tariffs in the Rose Garden at the White House in Washington, April 2, 2025.
Chip Somodevilla | Getty Images
President Donald Trump announced an aggressive, far-reaching “reciprocal tariff” policy this week, leaving many economists and U.S. trade partners to question how the White House calculated its rates.
Trump’s plan established a 10% baseline tariff on almost every country, though many nations such as China, Vietnam and Taiwan are subject to much steeper rates. At a ceremony inthe Rose Garden on Wednesday, Trump held up a poster board that outlined the tariffs that it claims are “charged” to the U.S., as well as the “discounted” reciprocal tariffs that America would implement in response.
Those reciprocal tariffs are mostly about half of what the Trump administration said each country has charged the U.S. The poster suggests China charges a tariff of 67%, for instance, and that the U.S. will implement a 34% reciprocal tariff in response.
However, a report from the Cato Institute suggests the trade-weighted average tariff rates in most countries are much different than the figures touted by the Trump administration. The report is based on trade-weighted average duty rates from the World Trade Organization in 2023, the most recent year available.
The Cato Institute says the 2023 trade-weighted average tariff rate from China was 3%. Similarly, the administration says the EU charges the U.S. a tariff of 39%, while the 2023 trade-weighted average tariff rate was 2.7%, according to the report.
In India, the Trump administration claims that a 52% tariff is charged against the U.S., but Cato found that the 2023 trade-weighted average tariff rate was 12%.
Many users on social media this week were quick to notice that the U.S. appeared to have divided the trade deficit by imports from a given country to arrive at tariff rates for individual countries. It’s an unusual approach, as it suggests that the U.S. factored in the trade deficit in goods but ignored trade in services.
The Office of the U.S. Trade Representative briefly explained its approach in a release, and stated that computing the combined effects of tariff, regulatory, tax and other policies in various countries “can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero.”
“If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair,” the USTR said in the release.
Microsoft CEO Satya Nadella speaks during the Microsoft Build conference at Microsoft headquarters in Redmond, Washington, on May 21, 2024.
Jason Redmond | AFP | Getty Images
A half-century ago, childhood friends Bill Gates and Paul Allen started Microsoft from a strip mall in Albuquerque, New Mexico. Five decades and almost $3 trillion later, the company celebrates its 50th birthday on Friday from its sprawling campus in Redmond, Washington.
Now the second most valuable publicly traded company in the world, Microsoft has only had three CEOs in its history, and all of them are in attendance for the monumental event. One is current CEO Satya Nadella. The other two are Gates and Steve Ballmer, both among the 11 richest people in the world due to their Microsoft fortunes.
While Microsoft has mostly been on the ascent of late, with Nadella turning the company into a major power player in cloud computing and artificial intelligence, the birthday party lands at an awkward moment.
The company’s stock price has dropped for four consecutive months for the first time since 2009 and just suffered its steepest quarterly drop in three years. That was all before President Donald Trump’s announcement this week of sweeping tariffs, which sent the Nasdaq tumbling on Thursday and Microsoft down another 2.4%.
Cloud computing has been Microsoft’s main source of new revenue since Nadella took over from Ballmer as CEO in 2014. But the Azure cloud reported disappointing revenue in the latest quarter, a miss that finance chief Amy Hood attributed in January to power and space shortages and a sales posture that focused too much on AI. Hood said revenue growth in the current quarter will fall to 10% from 17% a year earlier
Nadella said management is refining sales incentives to maximize revenue from traditional workloads, while positioning the company to benefit from the ongoing AI boom.
“You would rather win the new than just protect the past,” Nadella told analysts on a conference call.
The past remains healthy. Microsoft still generates around one-fifth of its roughly $262 billion in annual revenue from productivity software, mostly from commercial clients. Windows makes up around 10% of sales.
Meanwhile, the company has used its massive cash pile to orchestrate its three largest acquisitions on record in a little over eight years, snapping up LinkedIn in late 2016, Nuance Communications in 2022 and Activision Blizzard in 2023, for a combined $121 billion.
“Microsoft has figured out how to stay ahead of the curve, and 50 years later, this is a company that can still be on the forefront of technology innovation,” said Soma Somasegar, a former Microsoft executive who now invests in startups at venture firm Madrona. “That’s a commendable place for the company to be in.”
When Somasegar gave up his corporate vice president position at Microsoft in 2015, the company was fresh off a $7.6 billion write-down from Ballmer’s ill-timed purchase of Nokia’s devices and services business.
Microsoft is now in a historic phase of investment. The company has built a $13.8 billion stake in OpenAI and last year spent almost $76 billion on capital expenditures and finance leases, up 83% from a year prior, partly to enable the use of AI models in the Azure cloud. In January, Nadella said Microsoft has $13 billion in annualized AI revenue, more even than OpenAI, which just closed a financing round valuing the company at $300 billion.
Microsoft’s spending spree has constrained free cash flow growth. Guggenheim analysts wrote in a note after the company’s earnings report in January, “You just have to believe in the future.”
Of the 35 Microsoft analysts tracked by FactSet, 32 recommend buying the stock, which has appreciated tenfold since Nadella became CEO. Azure has become a fearsome threat to Amazon Web Services, which pioneered the cloud market in the 2000s, and startups as well as enterprises are flocking to its cloud technology.
Winston Weinberg, CEO of legal AI startup Harvey, uses OpenAI models through Azure. Weinberg lauded Nadella’s focus on customers of all sizes.
“Satya has literally responded to emails within 15 minutes of us having a technical problem, and he’ll route it to the right person,” Weinberg said.
Still, technology is moving at an increasingly rapid pace and Microsoft’s ability to stay on top is far from guaranteed. Industry experts highlighted four key issues the company has to address as it pushes into its next half-century.
Microsoft didn’t respond to a request for comment.
Regulation
There’s some optimism that the Trump administration and a new head of the Federal Trade Commission will open up the door to the kinds of deal-making that proved very challenging during Joe Biden’s presidency, when Lina Khan headed the FTC.
But regulatory uncertainty remains.
It’s not a new risk for Microsoft. In 1995, the company paid a $46 million breakup fee to tax software maker Intuit after the Justice Department filed suit to block the proposed deal. Years later, the DOJ got Microsoft to revamp some of its practices after a landmark antitrust case.
Microsoft pushed through its largest acquisition ever, the $75 billion purchase of video game publisher Activision, during Biden’s term. But only after a protracted legal battle with the FTC.
At the very end of Biden’s time in office, the FTC opened an antitrust investigation on Microsoft. That probe is ongoing, Bloomberg reported in March.
Nadella has cultivated a relationship with Trump. In January, the two reportedly met for lunch at Trump’s Mar-a-Lago resort in Florida, alongside Tesla CEO Elon Musk.
President Donald Trump shakes hands with Microsoft CEO Satya Nadella during an American Technology Council roundtable at the White House in Washington on June 19, 2017.
Nicholas Kamm | AFP | Getty Images
The U.S. isn’t the only concern. The U.K.’s Competition and Markets Authority said in January that an independent inquiry found that “Microsoft is using its strong position in software to make it harder for AWS and Google to compete effectively for cloud customers that wish to use Microsoft software on the cloud.”
Microsoft last year committed to unbundling Teams from Microsoft 365 productivity software subscriptions globally to address concerns from the European Union’s executive arm, the European Commission.
Noncore markets
Fairly early in Microsoft’s history the company became the world’s largest software maker. And in cloud, Microsoft is the biggest challenger to AWS. Most of the company’s revenue comes from corporations, schools and governments.
But Microsoft is in other markets where its position is weaker. Those include video games, laptops and search advertising.
Mary Jo Foley, editor in chief at advisory group Directions on Microsoft, said the company may be better off focusing on what it does best, rather than continuing to offer Xbox consoles and Surface tablets.
“Microsoft is not good at anything in the consumer space (with the possible exception of gaming),” wrote Foley, who has covered the company on and off since 1984. “You’re wasting time and money on trying to figure it out. Microsoft is an enterprise company — and that is more than OK.”
It’s unlikely Microsoft will back away from games, particularly after the Activision deal. Nearly $12 billion of Microsoft’s $69.6 billion in fourth-quarter revenue came from gaming, search and news advertising, and consumer subscriptions to the Microsoft 365 productivity bundle. That doesn’t include sales of devices, Windows licenses or advertising on LinkedIn.
“As a company, Microsoft’s all-in on gaming,” Nadella said in 2021 in an appearance alongside gaming unit head Phil Spencer. “We believe we can play a leading role in democratizing gaming and defining that future of interactive entertainment, quite frankly, at scale.”
AI pressure
Microsoft has an unquestionably strong position in AI today, thanks in no small part to its early alliance with OpenAI. Microsoft has added the startup’s AI models to Windows, Excel, Bing and other products.
The breakout has been GitHub Copilot, which generates source code and answers developers’ questions. GitHub reached $2 billion in annualized revenue last year, with Copilot accounting for more than 40% of sales growth for the business. Microsoft bought GitHub in 2018 for $7.5 billion.
Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event in San Francisco on Nov. 6, 2023.
Justin Sullivan | Getty Images
But speedy deployment in AI can be worrisome.
The company is “not providing the underpinnings needed to deploy AI properly, in terms of security and governance — all because they care more about being ‘first,'” Foley wrote. Microsoft also hasn’t been great at helping customers understand the return on investment, she wrote.
AI-ready Copilot+ PCs, which Microsoft introduced last year, aren’t gaining much traction. The company had to delay the release of the Recall search feature to prevent data breaches. And the Copilot assistant subscription, at $30 a month for customers of the Microsoft 365 productivity suite, hasn’t become pervasive in the business world.
“Copilot was really their chance to take the lead,” said Jason Wong, an analyst at technology industry researcher Gartner. “But increasingly, what it’s seeming like is Copilot is just an add-on and not like a net-new thing to drive AI.”
Innovation
At 50, the biggest question facing Microsoft is whether it can still build impressive technology on its own. Products like the Surface and HoloLens augmented reality headset generated buzz, but they hit the market years ago.
Teams was a novel addition to its software bundle, though the app’s success came during the Covid pandemic after the explosive growth in products like Zoom and Slack, which Salesforce acquired. And Microsoft is still researching quantum computing.
In AI, Microsoft’s best bet so far was its investment in OpenAI. Somasegar said Microsoft is in prime position to be a big player in the market.
“To me, it’s been 2½ years since ChatGPT showed up, and we are not even at the Uber and Airbnb moment,” Somasegar said. “There is a tremendous amount of value creation that needs to happen in AI. Microsoft as much as everybody else is thinking, ‘What does that mean? How do we get there?'”