The $1 Billion Coca-Cola Machine

0:00 You're in the cinema about to watch yet

0:02 another sequel to a forgotten franchise nobody asked for.

0:06 You're getting popcorn and a drink to drown out

0:08 your Jared Leto induced sorrow with a sugar rush.

0:10 You pay and they hand you a cup.

0:13 Then you see it glowing red and chrome.

0:17 The Coca-Cola freestyle fountain.

0:19 Here you can choose between over 100 different flavors.

0:23 Cherry vanilla Coke, peach Sprite.

0:25 Maybe you'll go crazy and mix Fanta with Powerade.

0:28 Or maybe you just pick a classic.

0:32 But this machine is way more than just a soda fountain.

0:36 It's not just serving you a drink.

0:38 It tracks everything you do.

0:40 And while you're picking your favorite flavor, it's quietly collecting data.

0:44 Data that turns customers into test subjects.

0:46 Data that Coke will profit from tremendously.

0:49 The Coca-Cola company is said to have

0:51 invested more than $1 billion in this machine,

0:54 but they're very likely turning its capabilities into much,

0:57 much bigger savings and profits.

0:59 Today, we're diving into how a drink dispenser became a global

1:02 lab and what role you play in all of this.

1:07 Confirmed.

1:09 The Coca-Cola Company is one of the biggest beverage producers on the planet.

1:13 The conglomerate controls almost half of the global soda market,

1:16 making billions in revenue every year.

1:19 And one important way they sold their many drinks has long been soda fountains.

1:23 In the olden days, ordering a soft drink would work like this.

1:26 You'd walk up to the counter, place your order,

1:28 and someone would pour your drink into a cup.

1:31 Then self-service fountains arrived.

1:33 [music] Now you could fill your own cup at your own discretion.

1:36 When you were a kid, this fountain was everything.

1:39 You could mix yourself something truly undrinkable.

1:46 you.

1:47 However, in 2006, Coca-Cola and other

1:50 beverage makers noticed something worrying.

1:52 For the first time since 1985,

1:54 the sales volume of carbonated beverages had declined.

1:57 People started to focus more on their health and well-being.

2:00 They were increasingly looking for sugar-free drinks and low calorie options.

2:04 But Coke's fountains just weren't ready for that.

2:06 At that time, only about 1% of all

2:08 Coke fountains in the US even offer Diet Coke.

2:11 Meanwhile, the choice of sodas at convenience stores had increased dramatically.

2:15 Rows and rows packed with hundreds of bottles and cans.

2:18 But Coke fountains were stuck with the same

2:20 limited runup of kind of boring standard flavors.

2:23 So, they had to come up with an idea.

2:25 An idea that would change everything.

2:29 The Freestyle Fountain's design is interesting.

2:32 The red, [music] the chrome, the sculpted lines.

2:34 It kind of looks like it wants to become a Ferrari when it [music] grows up.

2:38 And that's not a coincidence.

2:39 It was developed with Pina Firina,

2:41 the legendary Italian design house that shaped the curves of Ferrari itself.

2:45 You slide your cup under the dispenser.

2:47 Now comes the fun part.

2:49 You see dozens of bubbles on the screen in front of you.

2:52 Each bubble is labeled with a different drink.

2:54 Mezo mix, Coca-Cola, Powerade, Lyft, Fuse Tea, and Kinley.

2:59 In total, you could choose over a 100 drinks.

3:02 Back when you were a kid, this would have been impossible.

3:04 Restaurants used massive 19 L syrup canisters for every single drink option.

3:09 Nowadays, all these flavors fit into just about 30 tiny cartridges.

3:14 The cartridge design is inspired by medical

3:16 tech where precise dosing is critical.

3:18 Just as insulin pumps deliver exact amounts of medication almost drop by drop,

3:22 the freestyle system carefully meters syrup and carbonated water for each pore.

3:26 In theory, every pore is perfectly measured drop by drop,

3:30 turning your drink into a precise masterpiece.

3:33 But Coke from a Freestyle fountain actually tends to taste

3:36 a little different from the one you buy in the supermarket.

3:38 In contrast to the old canister systems that premix syrup and sweetener.

3:42 Freestyle keeps flavors, sweeteners, and carbonated water separate.

3:46 Now when you press the button, the flavor,

3:48 sugar, and carbonated water are combined on demand.

3:51 This can make your Coke taste slightly different from other preparations.

3:56 Staring at the bubbly screen, curiosity kicks in.

3:59 You came in for your usual, but you got to admit some options here are tempting.

4:03 You tap the Power Eight bubble and suddenly a whole lineup appears.

4:07 Powerade raspberry, Powerade lemon, Powerade strawberry.

4:10 So many choices.

4:12 Which one to pick?

4:13 You even mix a drink that doesn't exist before.

4:16 You could create your own secret flavor.

4:18 And won't that make you special?

4:24 The Freestyle Fountain is fun.

4:26 It lets you explore.

4:27 It bewilders.

4:27 [music] It sparks curiosity.

4:30 It might even provoke play.

4:31 And that's exactly the point.

4:33 Coca-Cola doesn't just want to sell you a beverage.

4:36 It wants you to feel something.

4:38 This technique is called experience marketing.

4:41 Right here in front of this machine, you're not just choosing a flavor.

4:44 You're interacting with a brand.

4:46 You are literally experiencing it.

4:48 Every tap, every bubble,

4:50 every choice pulls you deeper into the Coca-Cola universe.

4:54 And that matters because moments like this make you remember Coke.

4:57 not just as a drink, but as a feeling.

5:00 And ideally, it wants you to go home

5:01 and tell your friends about that insane machine that lets

5:04 you mix your own Coke and offers that amazing

5:06 weird new flavor they so got to try.

5:09 And Freestyle isn't the only example for Coke's experience marketing.

5:13 Think about Share a Coke.

5:15 Different campaign, same idea.

5:17 And it's all part of Coca-Cola's bigger play,

5:19 shifting from being just a product brand to an experience brand.

5:24 Anyways, you ultimately [music] go for a Sprite.

5:26 You didn't even know Sprite Cherry existed.

5:29 Time to give it a shot.

5:30 You press the pour button, then you take a sip.

5:34 Not half bad.

5:36 You're not the only one who was curious about Sprite Cherry.

5:39 All over the world, people have made the exact same choice.

5:42 Obviously, Coca-Cola didn't offer you this new flavor just for fun.

5:46 The freestyle ecosystem is basically a giant testing lab.

5:49 Every pour, every mix,

5:51 [music] every flavor you try feeds into a massive experiment,

5:54 a sampling program on a global scale.

5:56 And with this particular new flavor, the experiment actually worked.

6:00 But this is just the tip of the iceberg.

6:05 When Coca-Cola launched the Freestyle in 2009,

6:08 they packed it with cuttingedge technology.

6:10 Reliable wireless networks like the ones we have today weren't exactly standard,

6:14 so Coca-Cola built their own.

6:16 [music] The network they created links every

6:18 freestyle machine directly to Coca-Cola's backend systems,

6:21 which are managed through SAP software.

6:23 Think of it as the company's brain.

6:25 It keeps track of everything happening across all departments in real time.

6:29 Every single day, over 50,000 freestyle machines send data back to this brain.

6:34 [music] They report everything that's going on inside them.

6:37 Which flavors are being poured, what time of day they are consumed,

6:40 or how much syrup is left.

6:41 You might not experiment with your drink choices, but many other people do.

6:45 That is how Coca-Cola discovered that people really like Coke orange vanilla,

6:49 Sprite cherry, Sprite strawberry, and Coke cherry vanilla.

6:52 Some of these flavors started as user creations.

6:55 Combinations people kept mixing again and again at the freestyle machine.

6:58 Others like Coke Orange vanilla were developed by Coca-Cola.

7:02 The more people got these, the stronger the signal became,

7:05 and what started as a tiny bubble

7:07 on screen ultimately moved into full production.

7:10 Sure, you could argue the company might

7:12 have released these flavors eventually either way.

7:14 But with Freestyle, those decisions happen faster than

7:16 before and might be grounded in better data.

7:20 But there's more.

7:21 Before Freestyle, staff had to manually check those giant syrup canisters.

7:25 They probably used inventory sheets, maybe did a bit of guesswork,

7:28 and called or emailed Coca-Cola to reorder.

7:31 Freestyle completely transformed Fountain Logistics.

7:34 Every night, the system collects data from this exact machine and figures out

7:38 how many units of each cartridge needs to be delivered to the cinema.

7:42 And it's not just based on what you and your friends poured yesterday.

7:45 Algorithms predict demand and even factor

7:47 in plan promotions for specific beverages.

7:50 The system calculates which cartridges need

7:52 refilling and automatically creates the restocking orders.

7:56 Those orders are sent straight to the distribution center,

7:58 and from there, the cartridges are shipped directly to the founding locations.

8:02 Every Freestyle machine on the planet is quietly sinking.

8:06 Think about how smart this is.

8:08 With Freestyle, Coca-Cola can optimize their entire fountain supply chain,

8:12 streamline inventory management, make restocks more efficient,

8:15 and even improve their production schedule.

8:17 It's probably safe to assume that this alone saves

8:20 the company millions and millions of dollars along the way.

8:23 If even Coca-Cola is tracking your data in real life,

8:26 you won't be surprised to learn that your data is exposed everywhere,

8:29 and there's nowhere to hide.

8:30 every click, search, and form you fill reveals tiny pieces of who you are.

8:34 That you had to look up how to spell

8:35 bushwis six or seven times for your online comet war.

8:38 That you don't understand the 67 meme.

8:40 Or that you enjoy mixing Sprite and Fanta.

8:43 Disgusting animal.

8:45 With data breaches rising every year, your personal information is at risk.

8:48 Shady data brokers sell it, scammers use it, and even steal your identity.

8:52 Not that anybody would want your particular identity,

8:54 but you know, theoretically, if they did,

8:57 they could take out fraudulent loans, open accounts in your name,

9:00 and cause serious legal and financial headaches.

9:02 This is where Incogn comes in.

9:04 It tracks down your personal data across hundreds

9:06 of sites from data brokers to people search platforms,

9:09 and removes it repeatedly.

9:10 With a custom removal feature,

9:12 you can even send links to websites exposing your info,

9:14 and Incogn will handle it for you.

9:17 Just create an account, authorize Incogn,

9:19 and take back control of your personal data.

9:21 Get 60% off with our code Fern TV at the link below or scan this QR code.

9:26 Go protect yourself.

9:28 Let's get back to Cook's Genius Machine because well, there's more.

9:32 The data streams don't only report back.

9:35 Marketers at HQ can push new campaigns straight to the freestyle.

9:39 It took a while to get to this level.

9:41 Whenever Coke wanted to push a new campaign or change content,

9:44 it required a full software update during

9:47 which the machine couldn't pour a single drink.

9:49 Not exactly ideal considering many fountains

9:51 are located in hightra fast food chains.

9:54 So in the mid2010s, Coca-Cola integrated AirWatch,

9:57 a modern device management platform.

9:59 Now instead of sending out a massive software

10:01 update whenever marketers want to roll out a campaign,

10:04 they could push tiny data packages.

10:06 While receiving the configurations,

10:07 the machines most likely stay fully operational.

10:10 They simply download and display the new content, like this Halloween special.

10:15 What happens next is called nudging.

10:17 A new flavor might be the first bubble you see,

10:20 or a short teaser video might just catch your eye.

10:22 You're still free to pick whatever you want,

10:24 but those gentle nudges make you more likely to experiment.

10:28 Thousands of individual recorded choices to try some bizarre Halloween flavor,

10:32 all feeding directly into Coca-Cola's product development.

10:35 But wait a minute, there's a little black dot up there.

10:38 Is that a camera?

10:40 Is this thing recording you?

10:43 Well, Coca-Cola did plan to install camera in one of their freestyle models.

10:48 They've included it in their spec sheet and described it

10:50 with the words future capability for motion sensing and facial recognition.

10:54 This way, the company could have tracked every smile when you mix flavors,

10:58 every frown when it doesn't taste right after a little test sip,

11:01 literally observing which combos make you happy or annoyed.

11:04 Every reaction is data.

11:07 But could they really pull this off?

11:09 At least in theory.

11:10 In Europe, for example, strict data protection laws such as general data

11:14 protection regulations would likely not allow this to happen.

11:17 In the US, however, businesses and event venues are increasingly

11:21 experimenting with facial analysis and recognition technology in public spaces.

11:25 So, hypothetically, it might be feasible there.

11:28 According to Fortune, in early 2024,

11:30 AI company Quantify referenced a facial recognition project tied to Freestyle.

11:35 In a now removed entry on their website, it reportedly said,

11:38 "Each vending machine comes with a camera installed in which

11:41 an image is captured for every customer interacting with the machine.

11:44 Coca-Cola's marketing team aspired to use these images

11:46 to generate insights on consumer preferences and usage patterns.

11:51 Reportedly, Quantify built a machine

11:53 learning model to detect customer demographics.

11:56 Basically, the Coca-Cola company could know you're a guy in your 20s

11:59 standing here grabbing that Sprite cherry." After Fortune asked questions,

12:03 the post seemingly vanished.

12:05 A spokesperson for Coca-Cola said cameras in freestyle fountains were

12:09 just tested in a laboratory setting from 2018 to 2019.

12:13 When we asked Coca-Cola about this, they did not respond.

12:17 The creepy camera hole aside, the technology is pretty impressive.

12:22 A single globally deployed machine expanding flavor variety,

12:25 strategically pushing experience marketing,

12:28 enabling hyperdetailed flavor testing, micro campaigning,

12:31 and optimization of the supply chain.

12:33 You probably stood in front of one of those before and never even had a clue.

12:37 But there is this one central question we just couldn't shake.

12:40 Just how much are they saving and making with this?

12:42 In order to find out, we went down a rabbit hole.

12:45 annual reports, analytics, figures, and company filings,

12:48 only to realize there is no concrete data.

12:53 Sure, we found a few clues here and there,

12:55 but we could barely make anything useful out of it,

12:57 especially because gains from Freestyle are tangled up with other projects.

13:01 When we reached out to Coca-Cola for comment,

13:03 they didn't respond, so we had to call in backup.

13:06 Enter Yannik, the team spreadsheet wizard.

13:08 He dove into everything we could find out

13:10 about Freestyle and started making sense of it.

13:12 His analysis is split into three parts.

13:15 First, payback.

13:18 Let's start with Coca-Cola's assumed revenue from Freestyle machines.

13:21 To get a rough baseline, we looked at something similar.

13:23 Loyalty programs like Payback.

13:25 Payback usually returns an estimated.5 to 3% of your spending.

13:29 Sounds like a bad deal for them.

13:31 But here's the thing, it works.

13:33 Because when people get a little something in return,

13:35 they tend to spend even more.

13:37 And while they do, Payback [music] collects tons of data or what they buy,

13:41 when they buy, and where they buy.

13:43 You can't fully compare Payback to Coke Freestyle,

13:46 but both follow the same idea.

13:47 Encourage people to buy and learn as much as possible while they do.

13:51 The data collected through loyalty programs like

13:53 Payback enables targeted marketing and personalized offers,

13:56 helping deliver messages that are relevant to individual consumers.

14:00 Studies like this one show that loyalty programs

14:02 can improve gross margins by 2 to 4%.

14:05 Not simply because people buy more, but because companies can make

14:08 smarter datadriven marketing and product decisions.

14:11 Using that logic, we can conservatively assume

14:13 a 2% margin on revenue for freestyle.

14:16 This is a very rough estimate, but enough to get a sense of scale.

14:20 According to one source,

14:21 Coke Freestyle machines dispense around 4 billion drinks per year,

14:25 assuming an average of $2 per drink and a 2% margin.

14:28 That adds up to roughly $160 million in yearly gains,

14:32 well over a billion since Freestyle's inception.

14:36 Second, the value of data.

14:38 Back in 2015, Coca-Cola teamed up with Hivery,

14:41 a company focusing on AIdriven optimization.

14:44 Their mission was to optimize vending machine sales.

14:47 One of Hivery's clients was Rya's Coca-Cola Bottling Co.,

14:51 a US bottler with roughly 19,000 vending

14:53 machines in hospitals across California and Nevada.

14:56 Hivery software combines sales data with machine learning and some

15:00 algorithms to predict demand for every beverage in every machine.

15:03 Reportedly, Reya saw a 6% sales increase

15:06 and a 15% reduction in restocking trips.

15:09 These numbers suggest that datadriven supply chain management

15:12 can generate significant sales boosts and cost savings.

15:15 It is reasonable to assume that freestyle fountains could yield similar results.

15:21 Third, new flavors.

15:24 Some of the new flavors Coca-Cola [music] launched

15:26 based on their freestyle testing turned out about

15:28 as popular as the deeply disappointing and unwanted

15:30 sequel you're going to endure in a few minutes.

15:33 [music] Take Coke Cherry Vanilla for example.

15:35 Even though it was one of the most beloved freestyle combos,

15:38 Coca-Cola decided to not produce any more in 2024 due to declining demand.

15:43 Freestyle may help spa promising new flavors,

15:45 but it doesn't seem to be foolproof.

15:47 Out of four flavors brought to the market, two did not survive.

15:51 [music] This doesn't necessarily mean they were bad investments,

15:53 just that they weren't long-term hits.

15:55 [music] Coca-Cola may have overestimated how representative

15:58 Freestyle users are for the broader market.

16:01 Again, our request for comment went unanswered.

16:03 While Coca-Cola rarely publishes concrete sales data for specific products,

16:07 we found a number for one of their newer non-free

16:09 style Sprite products that shows the potential of this market.

16:13 Sprite Chill generated $50 million in sales in its

16:16 first 21 weeks in the North American market.

16:19 Again, it's hard to estimate the total

16:20 profit the company may have made through new

16:22 flavors that started on Freestyle and how

16:25 important the found data was for their success.

16:28 But looking at all three aspects of Yanuk's analysis,

16:30 one thing is relatively safe to assume,

16:32 the billion dollars Coca-Cola reportedly invested

16:35 into these machines has long been made back.