Community Interview Synopsis

Adobe – Figma acquisition and generative AI

  • Public Equity
  • TMT
  • North America

In this investor-led Community Interview, the investor spoke with a former business development executive at Adobe to understand the company’s motivations for its proposed acquisition of Figma and, separately, the potential risks – and opportunities – of generative AI to Adobe and the wider industry.

Starting with the motivations for the acquisition, the Interview highlighted that, faced with stiffer competition in product design from InVision and Figma, Adobe launched Adobe XD. However, a critical decision “kept the product from becoming what Figma became”, the specialist said. That was the move to build XD as a downloadable product as opposed to a web-based product that enabled greater workflow collaboration. “That one decision really is the crux of why one company wins and then two of them fail.”

Other catalysts for the Figma deal include Adobe reaching “some saturation levels” across Photoshop, Illustrator and InDesign, while competing increasingly “head-on” with Canva in the growing non-professional market. Acquiring Figma might help to offset some of these challenges and accelerate Adobe’s web-based offering by adding “proven architecture” and experienced developers. What is really needed, the expert said, is more componentised products – and “Figma’s engineering talent will be a large part of how they address that”. 

In recent weeks, it has been reported that the deal faces a merger review in the EU, with a 7 August 2023 deadline to decide whether to investigate deeper or approve it.1 The deal being blocked would be a “real blow” to Adobe, according to the expert, who added that the company may have to rethink how to reignite growth organically. However, the specialist outlined why they believe the deal is likely to get the green light. 

The Interview also discussed how generative AI tools have taken the creative market by storm. A “doomsday scenario” for an Adobe could be that “the generative AI of a text-to-image variety becomes so good that you no longer, or you need far, far less creative people building and using creative software”. However, this assumes two things: Adobe does not create its own widely adopted generative AI capability, and certain legal and trademark and copyright issues as they relate to AI are addressed in the market. “My most expected scenario is that generative AI will find its way into the creative toolset, and it can and should be part of the creative process,” the expert said. 

Looking ahead, other possible growth drivers include stock photography and imagery, as well as 3D and imaging, the Interview suggests. “The 3D and imaging piece is probably one to keep an eye on because that is definitely growing and is starting to be a more material piece of the revenue.” Meanwhile, the non-professional market also “absolutely” must be part of Adobe’s growth story as a critical source of new users. 

Regardless of whether the Figma deal is approved, the expert believes that Adobe needs to expand beyond the confines of downloadable software, or it may lose market share to newer, more componentised products.

Community is Third Bridge’s investor-led transcript product, part of our integrated research offering that also includes: Forum, analyst-led Interviews; Maps, a value chain product; Primers and Tearsheets, for fundamental information on private companies; and Connections, an expert network service.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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