In October, Adobe Inc. held its annual event to announce new products. As executives stood onstage explaining changes to the company’s decades-old tools such as Photoshop that would make them more like that of Figma, the startup it had just agreed to acquire for $20 billion, some people watching the livestream expressed their concern that Figma would become more like Adobe instead. Messages like “#FreeFigma” and “Make Figma Great Again” dotted the comments section, while others groused about Adobe’s prices and shared tips about cheaper alternatives. Eventually a moderator chided everyone to “keep it civil in the chat.”
The event came a month after Adobe announced it was purchasing Figma, a deal it says is the centerpiece of one of the biggest transformations in its 40-year history. Adobe plans to complete the transaction next year, but that may be complicated by the revelation on Nov. 2 that the Justice Department is investigating the deal. The DOJ has begun talking to customers and rivals, suggesting a challenging regulatory review that could drag on for years.
The Figma deal had immediately drawn comparisons to Facebook’s 2012 acquisition of Instagram, another union of a small but rising competitor and the powerful incumbent it threatened to upend. Adobe rejects the comparison, saying the Figma design tool doesn’t compete directly with its most important products. Figma has said joining Adobe will give it the resources to accelerate development.
Still, many Figma users have expressed concern that Adobe is trying to buy continued dominance just as its grip is slipping. The company, which charges $55 per month for a bundle of desktop programs aimed at creative professionals, popularized many of the technologies that make the modern internet possible, including software that enables at-home printing, photo editing, document sharing and web animation. For many professionals in publishing and online creative industries, it’s been unavoidable. But in recent years demand has spiked for simple and inexpensive tools for content creation on web or mobile, while growth for Adobe’s flagship programs has steadily slowed. Sales, which had consistently grown more than 20% annually, are expected to slip below 10% this year, the lowest since Adobe began reporting the metric in 2015.
Smaller customers have increasingly taken to products from companies like Figma and Canva, an Australian graphic creation startup that now has 100 million monthly active users and has been valued at as high as $40 billion. XD, Adobe’s program for web and app layout that competes directly with Figma, brings in about $17 million a year in revenue; this year Figma is on track to make almost that much every two weeks. The startup has also attracted longtime Adobe customers, such as Major League Baseball, which uses Photoshop to build graphics, Premiere to cut highlight reels and Express to make easy templates for fans—but now Figma for product design.
Crucially for Adobe, many Figma users pay nothing at all; the company’s revenue comes from power users paying for premium features. This so-called freemium model is common in the modern software industry, but Adobe doesn’t use it for most of its products. A key reason Adobe was interested in the deal was to remake itself in the image of its more nimble competitors.
Adobe was already headed in this direction. In late 2021 it launched Express, a browser tool for quick multimedia creation that looks more like Canva than Photoshop—so much so that the startup’s co-founder groused in a recent LinkedIn post that Adobe’s product strategy was to “copy Canva.” Express offers basic features for free, with a premium annual subscription that costs $20 less than Canva’s corresponding product. “We were probably a little late,” Adobe Chief Executive Officer Shantanu Narayen said about web-based tools during the company’s analyst day in October. “But it’s here, and it’s awesome.”
About 20 million people have already signed up for Express, according to Adobe, but Canva overtook Adobe in total monthly web traffic in 2021 and continues to grow more quickly, according to internet analytics firm Similarweb. David Wadhwani, head of Adobe’s digital media business, says Adobe’s mobile and web media products already have a combined 250 million monthly active users. “The decade ahead is about getting billions,” he says.
At a recent all-hands meeting, Wadhwani compared the current moment to another big shift in Adobe’s history: its 2011 pivot from selling its software bundle as a one-time purchase for more than $2,000 to charging a monthly subscription fee for a suite of cloud-based services. Investors feared that the so-called software-as-a-service model, novel at the time, would slash income. Customers complained about having to “rent” software. An online petition protesting the change garnered almost 50,000 signatures, and the company’s growth sputtered.
But the lower upfront cost made Creative Cloud accessible to people who were previously pirating it or using cheaper options from other companies. It also allowed more frequent updates and smoother integration between products. Sales quadrupled in less than a decade, and Adobe’s stock grew faster than those of peers such as Microsoft and Apple, both of which later followed Adobe’s lead to subscription-only software services. Today the shift is seen as a tremendous success.
Adobe then used acquisitions to bolster its subscription bundles, while also moving into new lines of business, such as marketing and workflow services. Its last major purchase of a creative tools company was in 2005, when it bought Macromedia’s suite of web development software. Adobe knew back then it was testing the limits of what regulators would accept—the Department of Justice was concerned about how the merger might reduce options for designers.
But the deal was allowed to close without major divestitures after Microsoft Corp. announced a competing set of tools, weakening antitrust arguments by increasing competition, according to Bruce Chizen, who was Adobe’s CEO at the time. “We were lucky,” he says. “I remember going up to the local DOJ office with our lawyers, and I showed them what Microsoft had just communicated.”
After the deal went through, Adobe shut down Macromedia’s Illustrator competitor, FreeHand. No one thinks Adobe will do the same to Figma, but fans worry the pace of innovation will slow or prices will increase. Both Adobe and Figma have attempted to reassure them that this won’t happen.
Microsoft’s ambitions may help Adobe smooth things over with regulators this time, too. It recently announced it’s developing a web-based graphic design tool that looks a lot like Express and Canva. Antitrust concerns aside, this Adobe pivot may be more challenging than the last one, says Citibank analyst Tyler Radke. “Switching to the cloud was not an issue of competition and trying to win over new customers—they took a captive base where they essentially had a monopoly and moved it,” Radke says. “This is more like trying to change out the tires of a car while it’s still in motion.”
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