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December 23, 2021updated 03 Feb 2022 9:42am

Fast Fail: McDonald’s sells off AI operation

By Giacomo Lee

McDonalds’ loss is Mastercard’s gain, as it’s been announced that the fast food stalwart will sell off its AI operation Dynamic Yield to the card giant for an undisclosed sum.

Announced on Tuesday, the deal will be a surprise to many considering the relative strength of the artificial intelligence (AI) theme in business at the moment. An even bigger surprise is that only two and a half years have passed since McDonalds’ original acquisition of personalisation platform Dynamic Yield for $300m.

Announced in March 2019, the purchase was McDonalds’ biggest company acquisition in almost 20 years. The deal was also one of the last under its previous CEO, Steve Easterbrook, who left the company in late 2019 after breaking its anti-fraternisation policies.

The sell-off however may be less a case of current CEO Chris Kempczinski clearing out the house, than the company keeping to what it knows best. It was only in October that IBM purchased McD Tech Labs from McDonald’s, a tentacle engaged in AI-enabled voice systems.

The IBM transaction, again for an undisclosed sum, is expected to close this month. The Mastercard deal meanwhile is anticipated to close in the first half of 2022.

”The notion of going into a store or opening a webpage to find an experience perfectly tailored to you is no longer farfetched,” said Raj Seshadri, President of Data & Services, Mastercard. “It’s a reality that more brands are deploying and more consumers expect.

“With Dynamic Yield’s expertise and our scale and relationships, we’ll be able to bring the connections between the end consumer and our customers to new heights.”

Dynamic Flop?

Headquartered in NYC, Dynamic Yield was formed in 2011 by Liad Agmon and Omri Mendellvich, figures from the thriving AI scene of Tel Aviv, Israel.

Offering a personalisation platform and decision engine, McDonald’s used Dynamic Yield to power drive-throughs, ordering kiosks and mobile apps to maximise sales. The $300m Dynamic deal though began to look undercooked in March of this year, with McDonald’s considering a partial sale of the startup. Media reports from the time suggested Dynamic Yield’s AI tech had not brought in the expected 1% sales boost, with grumblings from franchisees unhappy both with the solution and the corporation’s rising technology fees.

It was a more positive story in the press release accompanying the Mastercard deal on Tuesday, with the claim that Dynamic Yield “doubled its revenue and expanded its customer base across verticals” under McDonald’s ownership.

In addition, McDonald’s plans to “further scale and integrate Dynamic Yield’s capabilities globally and across ordering channels”, meaning it will keep the tech for its drive-throughs and kiosks.

What McDonald’s is letting go entirely is Dynamic’s SaaS operations, which have seen it work with brands such as IKEA, Tottenham Hotspur and Lacoste.

Aside from McDonald’s, Dynamic Yield’s biggest name client in the food field is arguably Ocado, the UK grocery and robotics company.

McDonald’s and the AI heave-ho

Alongside the speedy selloff of Dynamic Yield, this year has also seen McDonalds quickly let go of its McD Tech Labs division to IBM. The tentacle, formed in 2019, came with the purchase of US machine intelligence developer Apprente.

Apprente built the voice platform which has been trialled in automated McDonald’s drive-throughs following the IBM deal. While it keeps using technology to augment its stores, McDonald’s is seemingly less keen to be cooking up tech in its own kitchen.

McDonald’s fast AI fails may not necessarily mean that an “AI winter” – a period of downturn in AI investment – is looming.

For starters, McDonald’s is turning away from becoming a “food tech” brand and pivoting instead towards incubation. In its Q3 2021 earnings call Kempczinski was quoted as saying, “There are certain times when it may make sense for us to go acquire a technology so that we can accelerate the development of that, make sure that it is bespoke to McDonald’s needs.

“But at some point, that technology reaches a level of development where I think getting it to a partner who can then blow it out and scale it globally makes more sense.”

Selling to a company such as Mastercard is a logical move, with that company comparatively more comfortable in deploying in-house AI solutions. Prior to the Dynamic Yield deal, its previous acquisition was of Ekata, a digital identity company that utilises AI. According to the deals database from analytics firm GlobalData, the April 2021 deal was worth $850m.

AI can make good business sense: Forecasts from GlobalData suggest that the market for AI platforms will reach $52bn in 2024, up from $29bn in 2019.

But AI may not make much sense yet in the food and foodservice industries.

A 2020 survey on emerging technology trends by GlobalData revealed that the foodservice sector was the least ready for upheaval of the technological sort, with 35% of respondents admitting to being unprepared in the face of digital disruption such as AI technology.

Meanwhile, McDonald’s cutting tech fees to appease franchisees by 62% this summer is more proof that as of now, an AI autumn may have begun in food retail.