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A Deep Dive into Adobe’s Acquisition of Figma – Futurum Tech Webcast Interview Series
by Daniel Newman | September 29, 2022

On this episode of the Futurum Tech Webcast – Interview Series I am joined by Ashley Still, Senior Vice President Digital Media/Marketing, Strategy & Partnerships for Adobe. Our conversation takes a look at Adobe’s acquisition of Figma, which was announced earlier this month.

In our conversation we discussed the following:

  • Why Figma will be an excellent addition to the Adobe Creative Suite
  • What this move will mean for competition in the design space
  • A look into the financial aspects of the deal
  • What benefits customers can expect to see from Adobe and Figma

During the conversation, Ashley also shared more about Adobe’s new idea of “ushering in a new era of collaborative creativity on the web.” It was a great conversation and one you don’t want to miss.

If you want to learn more about the acquisition, check out our coverage here.

Watch my interview with Ashley here:

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Disclaimer: The Futurum Tech Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.

Transcript:

Daniel Newman: Hey, everyone. Welcome to the Futurum Tech Podcast. I’m your host, Daniel Newman, principal analyst, founding partner at Futurum Research. Excited for this episode of the Futurum Tech Podcast interview series. I have Ashley Still, senior vice president at Adobe, joining me today to talk about a tremendously big announcement that the company made last week, the acquisition of Figma. But before I dive in, because I’m really excited to have this conversation, I want to do a quick introduction to Ashley. So Ashley, welcome to the show.

Ashley Still: Thank you, Daniel. Thank you for having me. It’s great to be here.

Daniel Newman: Yeah, very excited to have you. I’m glad you were able to join. I appreciate Adobe and the partnership putting you on this week. It was a big week, it was an exciting announcement. You had earnings. Of course, earnings were very much muted by this announcement, which kind of took front-and-center stage. It was a really exciting announcement. Before I go into this, can you just kind of give everybody a little bit of the background, Ashley, on yourself and the work you’re doing at Adobe?

Ashley Still: Absolutely. Happy to. And, yes, everything feels inconsequential when you announce the transformative acquisition like we did. So my role at Adobe is to lead marketing growth and partnerships for the digital media business, which is Creative Cloud and Document Cloud. And that is all of our categories around creativity and documents, whether it’s photography, imaging, illustration, video, animation, 3D, and, of course, pdf. So I think a lot about our business strategy and growth, which is one of the reasons why I am so incredibly excited to be here today and talk to you about Figma.

Daniel Newman: Yeah, it is really exciting. Growth is really one of those things that has been a little bit tabooed in the larger market right now. You and I have had the chance to have a couple of conversations offline, behind the scenes, and figured I’ll bring this right out to the front for everybody that’s listening in on the show. A year ago, an acquisition like this would’ve probably been lauded. Everybody would’ve been very excited. No one would’ve questioned the size of the deal. Everybody would’ve just said, great company acquiring a super exciting, fast-growth startup.

Now, when you and I spoke offline, you said something to me about rare companies, and that ended up making it in some form or iteration into my MarketWatch oped, where I basically said, there is a very justifiable way to get at this valuation. And despite the fact that the market has kind of gone a bit cold on growth, cold on basically anything that’s not earnings and driving earnings, which is all short-term thinking, isn’t necessarily popular, but Adobe is clearly thinking bigger than that. So maybe I’m leading the witness here by asking. Let’s just start with that question. Why Figma? Why now?

Ashley Still: Yep. It is always a good time to build the future, right? It is. And, as you said, no two companies can do what Figma and Adobe can do together and bring a decade of innovation to market as a combined entity. So, first, let me start with Figma and why Figma is unique. Figma is in an incredibly fast-growing category that’s adjacent to Adobe’s core business. So Figma really saw the opportunity with product design, as software grows in importance and more companies are building software applications, mobile applications, digital experiences.

Five years ago, you might have had 50 or 100 engineers and one designer that’s thinking about what the user experience is going to be. And obviously that’s changed. As user experience becomes more important, the product design part of software development has exploded, right? Those ratios have decreased. In some cases now, there’s one product designer to every five front-end software engineers at some companies, right?

And so as that’s happened, this is just a huge market that’s growing incredibly quick, and Figma really pioneered web-based design as part of this new market. And that’s unique in a number of ways. Everybody has access to the source of truth. So it’s not just product designers that are working in Figma. It’s software engineers, it’s product managers, it’s product marketers, it’s everybody that’s part of the ecosystem of making sure that that user experience is going to be the best that it can be before they start writing code. And so, again, it’s very complimentary to Adobe’s existing portfolio. Photoshop is for image editing, right? You don’t design software applications in Photoshop. Illustrator is for vector graphics. You don’t design software applications and digital experiences in Illustrator. But a lot of times people are using Photoshop in conjunction with Figma or Illustrator in conjunction with Figma. So they both built a great product that is also a phenomenal business.

They started making money in the back half of 2017, and, as we stated publicly, they will cross over 400 million in total ARR expected this year. That is rarefied air, right, in any business to grow that fast. And they’ve done it through mostly viral growth. Because of the platform that I talked about, everybody’s working in that product and inviting each other in that’s part of the team. And they land in companies and they grow. So it’s a growing category. The product is great. The way that the business grows is largely viral, and they’ve continued to grow in what you said has been a challenging environment over the past year. Again, as we said publicly, they’ve doubled the business in the past year. So unique company, unique product, unique market opportunity.

Daniel Newman: Yeah. And I’m going to come back to economics a little bit, because I have some perspective on that as well. And so I want to circle back because I think that’s a lot of what drew some of the ire. I don’t think anybody’s looked at Figma and was like, oh, what is that? Why would they buy that? I think everyone’s like, that’s a super hot viral technology, I think, coming up with valuation. And again, more because of the external macro market conditions-

Ashley Still: Yeah.

Daniel Newman: And like I said, we’ll touch on that. But competitively, that’s another thing that a lot of commentators came out with, and well, Adobe has a solution for this and XD. And, of course, I don’t think it was focused on it the same way Figma was focusing on it, but is this a competitive issue? Is there any real reason that regulators would need to look at this?

Ashley Still: Yeah, no. I mean, I think it’s pretty clearly an adjacency. We did have, you mentioned Adobe XD. That was a product that we did enter the market with in the product design space, but a completely different product approach. Desktop application, really focusing on the design part, versus really where Figma pioneered is the collaboration. And that’s why I kind of discussed in detail the criticalness of the collaboration for product design where, yes, you need tools to lay out the buttons and the images and the graphics, but it’s really about making sure everybody’s on the same page.

And Adobe XD does not have that capability. Efforts that we made to bring collaboration to a desktop application really were not successful. And Adobe XD is really in maintenance mode today for… And we continue, of course, to support customers that are using that product, but mostly they’re doing offline just design work. And so it’s really not a meaningful competitor. As I said before, the core of Adobe’s business is really in image editing, photography, illustration, video. And all of that’s complimentary. Those are all really important media types that are incredibly complimentary to the design kind of layout platform that Figma has built.

Daniel Newman: Yeah. I didn’t even comment on the antitrust environment, and that’s something, by the way, Ashley, I’d love to comment on, because it didn’t actually bubble up, in my opinion, to being worthy of putting too much opinion on. One, because of what you said, not really… This wasn’t like you had a huge market share and you’re buying the rest of the market share. It’s also a fairly new category.

Ashley Still: Yes.

Daniel Newman: There’s nothing really to stop other companies from coming up with their own versions of collaborative design environments. So it just didn’t appeal to me as something… There’s some definite things out there that need to be looked at. I just don’t necessarily think this was it. So I want to come back to the valuation for a minute here. I did a little bit of research, and in my MarketWatch piece, I looked at some of the various cloud economics. And you mentioned the 400 million number. But I think there was two things that really stood out to me about the economics and why this valuation could work. One was the speed of growth. So with cloud scale SaaS, the real growth isn’t to look at from the inception of the company, but it’s usually to look at from the first dollar of revenue. And then from the first dollar of revenue, the path to this 200 and now 400 million was one of the shortest in history that I could identify.

Ashley Still: Yeah.

Daniel Newman: For the average company to get to about 10 million, I think, was about five years, 10 million in arr. And I looked at over 70 companies. And I put this all in the MarketWatch piece. You can hit that in the show notes. I’m not going to read the research back to everybody here. So that was one. And the other was, you said this earlier, but just the wild organic adoption. Meaning if you listen to any SaaS sort of VC that’ll come in and question a company about valuation, funding, rounds, they always look at things like burn rate and customer acquisition costs.

Ashley Still: Mm-hmm.

Daniel Newman: And so when you have a company that’s already… I believe they’re net cash flow positive, if not profitable yet.

Ashley Still: Completely.

Daniel Newman: And they have something like a 90-ish plus percent operating margin with almost all organic. Meaning they’re not spending money, they’re not buying ads, they’re not paying for billboards all over San Francisco. This is viral.

Ashley Still: Yeah.

Daniel Newman: And so they’ve gotten this far with no real cost. So the bottom line contribution with Adobe behind it just seems like it could instantly be really high value, which makes that 20 billion valuation start to make sense, even if it is an extremely high multiple in the current market environment.

Ashley Still: Yep. Absolutely. And to add a few… So I agree with all of that, and as I said earlier, they made their first dollar in 2017. And it wasn’t significant. And in 2022, they’re on track to end it over 400 million, right? That is incredibly fast growth. And to your point, they’re not doing it through massively scaled enterprise Salesforce, right? That is one way to think about cost. And they’re not doing it through billboards and lots of performance marketing or things like that. They’re really doing it through the power of the product that they’ve built. Another statistic or business metric that we shared is their net dollar retention is over 150%. And again for a SaaS company, that is just world class, right, in terms of both their ability to grow the business but also retain customers as well.

So to add a little bit as well to the valuation, there are a couple of… So that’s the core business. There are two other areas of kind of financial and strategic value that are clear reasons why we believe this is such a transformative and exciting combination in the market. First, they actually also have a second product called FigJam, and that’s a whiteboarding application. And they were able to look at the use on their platform and how many types of personas were using the product. And they were using it for design, but they were also using it to ideate and share ideas. And so they actually created a new product that’s built on the same platform, so it inherits all of the web-based, multiplayer environment collaboration, but it’s simpler and it’s purpose-built for ideation across teams. And, again, that’s a whiteboarding application called FigJam. That has seen very good early success. And, again, we’re not sharing statistics publicly, but a number of their customers have already adopted that new product.

And we see opportunity to actually integrate that FigJam whiteboarding product across the Adobe portfolio, whether it’s Acrobat or our creative applications, and so there’s opportunity there. It’s a very large market, if you think about whiteboarding. Apple has a whiteboarding tool. Microsoft has a whiteboarding tool. It’s becoming more and more common, particularly with hybrid work. And what we see happening is clearly a collapsing of productivity and visual communication. And so having not just this amazing Figma design product, but also the whiteboarding product within Acrobat or Adobe Express, which is our web-based, template and content-driven, simple way to create visual content for mere mortals like me and maybe you, all of those applications can benefit customer from having this whiteboarding capability as part of those product offerings as well. And then, third, we want and will and can co-create new experiences and new capabilities bringing Adobe’s decades of media experience, whether it’s imaging or illustration or video or 3D, and building, again, new capabilities on this web-based, collaborative platform.

And that is what we call collaborative creativity, and that is the explosive growth, again, that we can unlock and help Adobe capture our 60-some billion TAM even faster, right, is driving innovation, new applications. Imagine if all of these design teams, product design teams, had all of Adobe’s fonts and stock available within Figma Design. Imagine if we created a multiplayer image editing application. All of these things are what we can create and innovate together, and that leads to the conversation that you and I had last week, which is there are no two companies that can build that future together other than Figma and Adobe, given the complimentary, again, median technology expertise in AI that we have and the web-based collaborative platform that they’ve pioneered.

Daniel Newman: Well, you also are a mind-reader, because you did get a little bit ahead.

Ashley Still: Oh, sorry.

Daniel Newman: But I appreciate you kind of jumping… No, you jumped from kind of the deal and then talking about synergies, which I was going to mention just that very idea of, in most deals, there’s something called good will or there’s other sort of synergistic values. And of course, with the best companies, you’re going to pay a little bit more for that. That’s when a company’s growing fast and productive and doesn’t necessarily need to be acquired. This is not a company that was going to probably need to go for a down round. This is a company that had probably a lot of options, and Adobe looked at it and said, it might be expensive now, but how expensive would it be next year if it keeps growing like this? Let’s do this now while it’s ripe and while we can get our hands on it.

And you also talked about those synergies, which I was going to ask you about. Now, kind of a last maybe question, just as you mentioned this whole idea of ushering in this new era of collaborative creativity on the web and you explained it a little bit, but just for the audience, could you maybe provide a couple of examples of what you really mean by a new era of collaborative creativity? Because how does this differ from what we might be seeing from your Zooms and Slacks that are also offering… Et cetera, et cetera. Like there are people that are saying this is already out there.

Ashley Still: Sure. And yes, thank you for the question. Clearly, I don’t think anything like this is out there or could be out there without Adobe and Figma. So, as I mentioned before, first, there are many things that we can do to streamline the workflow of these product design teams, right? They’re working in Figma, but, again, they’re popping out to Photoshop or popping out to Illustrator to edit an image or create a graphic or into After Effects to create just that right animation and effect that they want to represent in the experience. And there’s a lot of back and forth and kind of lost productivity in that. Or also, font licensing is still really complicated, right, and Adobe actually owns 20,000-plus fonts. And if we did, as a step, nothing more than bringing fonts and maybe simple imaging and vector graphics workflows into Figma design, we would bring a ton of innovation and productivity unlocks to that community.

So that’s a very specific example of what we can do. And that would enable us to, again, capture the product design TAM and grow their business even faster. As I mentioned before, they have not only a product design application but also a whiteboarding application, and both of those are often used for presentations. And as we see this kind of collapsing of productivity and creativity, as more and more productivity is visual… Right? Here we are. You’re not just typing a research report. You’re doing a video broadcast, right, and every communicator, because of social media and because of the internet, and even just within companies, they’re communicating more and more visually, and they’re collaborating as they do that. So being able to add presentation innovation and whiteboarding capabilities into our Adobe Express product that’s purpose-built for communicators, into Acrobat, which is obviously used broadly by communicators, that’s actually a significant area of value expansion for our customers and area where we can bring innovation.

And then, as I mentioned before, specific examples of future applications or future workflows that we can bring is really reimagining our core categories. Right? What is image editing going to be in five years? Right? It is going to be web-based. It is going to be collaborative. And, again, if you think of the best minds in imaging at Adobe working closely with the best minds in web-based design and collaboration at Figma inventing the future of image editing, inventing the future of photography, inventing the future of illustration, that’s where I get just incredibly excited and why we think this is about the kind of strategic future of the combined company. And kind of going back to synergy and valuation, which are tightly coupled, we think this just makes all the sense in the world for Adobe and the market, right? It’s how we can bring the most amount of innovation to our customers.

Daniel Newman: Yeah, I appreciate you breaking that down. Like I said, I think when you’re doing some category creation or you’re bringing together categories, people being able to discern and differentiate is really important. So, Ashley, I really appreciate you taking the time here. Before I let you go, anything you want to ask the analyst?

Ashley Still: Yes. So I’ve been doing a lot of the talking, Daniel. What do you think? What do you think about the acquisition?

Daniel Newman: Well, if I can maybe replay, it’s only been a week and my memory’s still fresh, I remember you pulling forward the earnings, which generally always means something big’s about to happen, and I remember seeing that announcement. And first glance, I’ll be candid, I said, wow. I said, wow. And then, wow, was kind of a double entendre. Because the wow was like, wow, what an amazing acquisition, and then, Ashley, it was wow, what a price tag. And then I had to get the critical thinking brain, I had to take a step back. Because the media, we’re in this middle of this crazy rate-hike cycle, interest, and we got inflation and wars and earnings being… Everybody’s downgrading the future earnings, and I’m kind of trying to digest it all. So I stepped back and I looked at it through kind of two lenses.

I said, one, your firm has a very strong track record of making good acquisitions and thinking big picture. So I kind of zoomed out, and I said, is that happening here? And all I could think is absolutely. I mean, this is a technology. We all know the direction of collaboration. We know creativity. We know that the digital experience future is going to be massive. Even things like Immersive, Augmented, and Metaverse are going to be collaborated upon in an environment like what Figma is doing. And of course, you really cemented home for me, when you mentioned the idea of a rare company, it even made it into the headline of my MarketWatch piece, is that you’re buying a rare company. And I think rare companies… You don’t wait for good market conditions to make great deals for your business. And so me being someone that likes to straddle the line of technology and markets, that was kind of my initial assessment.

As I went down, I listened to some very credible SaaS thinkers. I listened to like David Sacks. I was listening to his analysis on the All-In Pod, himself. When I listened to the smart people in this space, the feedback was largely more positive. So, of course, you’ve got the naysayers, you’ve got the permabears and all the people right now that just believe that the world is coming to an end. My belief, Ashley, is collaboration is the future. Immersion and creativity are going to drive differentiation. We see and hear constantly companies saying, we want to compete on the experiences of the future. We want to differentiate on experience. Well, let’s be candid. Goes back to what I call the 80/8 rule. 80% of companies believe they’re differentiated, but only 8% of their customers do. It’s going to be in collaborative environments using the most prolific and capable tools that companies will truly build differentiated experiences.

So you have the tools, and if their growth rate continues, within one or two years, as I said in my piece, everyone’s going to look back and say, that wasn’t such a bad deal. And, in fact, some are even going to say it was brilliant. So if you don’t have some haters and you don’t have some naysayers and you aren’t taking some risks, you’re probably not thinking big enough. And most of the time those people catch up with you when it’s too late. And hopefully for you and, of course, for Adobe and all its customers and for the overall sake of the market, all these things I’m saying are right and you guys have a really bright future ahead of you.

Ashley Still: Yep. Thank you for that. And certainly, when we announced our intention to take all of our business to subscription and accelerate innovation way back about a decade ago, that was also met with great skepticism. And like we did then, what we will do now is just execute against… We’re incredibly excited about the strategy, and again, the proof will be in the execution. So we look forward to it.

Daniel Newman: Well, I’ll tell you this, and we’ll end on kind of a note, and it’s not to knock my profession, but it’s very easy as an armchair quarterback to sit here and tell every company what they’re doing right and doing wrong, especially when you’re looking very short term and you’re looking using very… you’re using historical data that is very rarely truly comparable. The conditions of the market require CEOs and leaders like yourself to take big risks, of course, very analytical and thoughtful and, of course, with your customers in mind. Hard to bet against Adobe. Company’s done a lot of things right for a very long time. Great leadership. And I continue to believe it’s got a bright future. And this market, it will pass. It always does. So, Ashley Still, senior vice president at Adobe, thank you so much for spending time with me here on the Futurum Tech Podcast. This was a lot of fun. I actually went longer than I usually do because you had so much good stuff to say. So I hope I can have you back some time soon.

Ashley Still: That would be great. Thank you for having me today, and I look forward to the next time.

Daniel Newman: All right. So everybody out there, hit that subscribe button. Check out Ashley. Follow her across the interwebs. If we can find those links, we’ll put them out there for you. I’ll share the show notes that’ll also include some of my commentary, the MarketWatch piece I referred to a few times so that you can read on that as well. Lots of good inputs and analysis out there on this deal. For now, I got to say goodbye. Thanks for tuning in. We’ll see you all really soon.

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio