Making Sense of the Adobe-Figma Breakup
As you probably already know by now, the Adobe-Figma deal has come undone. Regulators in the European Union where never convinced that this was a good thing and Adobe knew that they were running out of time. However, the world has changed dramatically in the last fifteen months and this is a missed opportunity for Adobe. When I began the fall semester in September of 2022, the deal had just been announced and I told my students that the design community on Twitter was up in arms about how Adobe would ruin Figma.
But then it was off to the races with Dalle-2, Midjourney, ChatGPT, and all the others. By mid March of 2023, the deal was in regulatory limbo and Adobe was announcing Firefly, its’ first foray into generative AI tools. Summer brought us RunwayML, Pika Labs and quantum leaps in quality from Midjourney as well as host of other AI driven design tools. Autumn ushered in text generation from Ideogram and Dalle-3 and the whole dramatic cycle began again with the one year anniversary of ChatGPT.
Adobe originally wanted Figma for two reasons; primarily because they were a competitor who was gobbling up too much market share, but also to get a chunk of the collaborative workspace. Their own screen design product, Adobe XD, never really caught on and the pandemic had made online, realtime, collaboration a fact of modern office life. Adobe realized that even if they were paying a hefty premium for Figma, once acquired, it would give them an insurmountable advantage. Too bad the EU regulators felt the same way.
By combining these two companies, the proposed acquisition would have terminated all current and prevented all future competition between them. Our in-depth investigation showed that this would lead to higher prices, reduced quality or less choice for customers. ~Margrethe Vestager, EU
Adobe now has $6 Billion to burn, most of which they will probably sink into new AI products or features in existing tools. They still have their old problem, that Figma is an incredibly popular platform with a built in advantage; most of us have been collaborating with it for the last three years. In order to gain some of that market share, Adobe needs an amazing screen design product, and an amazing collaborative tool. These don’t have to be the same product, but they’re probably not going to build it from the wreckage of XD. To complicate matters, Adobe has an even more dangerous competitor on it’s other flank in the form of Canva. The Australian startup has a much smaller market share, but more momentum and more advantages with AI features. It’s also very popular with generation Z and people who are clever enough to understand “Design” and not have to hire a graphic designer.
Adobe has already started to meet this head-on with their Express tool that uses AI (or a series of templates) to allow untrained people to design quickly. However, based on how quickly the world has changed, they need a double, or even a triple win in these spaces. Part of my research is currently focused the “AI of UI” or “text prompt to screen design”. There are a few experimental early movers here, but I haven’t seen anything amazing yet. Adobe must sense this opportunity and realize that if they can make a tool with the collaborative qualities of Figma, the generative power of ChatGPT, and the accessibility of Canva, they could get that market share they are after.
And what about Figma? With an extra $1 Billion as their severance clause, they’re in the driver's seat here. In proportion to their existing budget, this is much more meaningful than Adobe’s pile of cash and they already have a head start. They’ve made huge strides with AI with Figjam and it seems reasonable that they will be investing more in AI as well. As a smaller company, Figma is also more nimble and can innovate more quickly than Adobe can. If they play there cards right (in a generative AI world), they can build a larger product ecosystem just like Adobe did.
The design software firm expects to finish this year with over $600 million in annual recurring revenue, an increase of more than 40% over the past year, people familiar with the matter said. The San Francisco–based company has also been generating cash for a few years, the people said.
One other option for Adobe is just to acquire another company, but there is nothing like Figma. Sure, there are other collaborative platforms like Miro and InVision that Adobe could buy, but it won’t get them much market share. So without further jabbering, I offer three bold predictions, for how Adobe might try and get their thunder back in 2024. Hopefully, one of these come true so I can say I predicted it.
Web Publishing. We’ve officially entered the era of “no code” tools and Webflow and Framer are easy to learn and fun to use. If Adobe acquired one of them, it would make a nice addition to their collection.
Generative Video. Both Premiere and AfterEffects have AI features, but as Pika Labs and RunwayML explode in popularity and capability, Adobe won’t be able to resist snapping one of them up.
Text in AI generated images. Dalle-3 can do it, Ideogram can do it, and Midjourney 6 (due this week) will be able to do it. Google’s Imagen (due in January), is rumored to have this ability as well. Adobe cannot afford to be without this ability in their lineup of AI tools. Obviously, Google and Open AI won’t be selling their tech and Midjourney is famously independent, so expect to see Ideogram as the next acquisition target.
Figma is the real winner here and has a huge opportunity to steal Adobe’s lunch. While Adobe has made some strides in AI tools in the last year, they’ve had 20 Billion sitting on the sidelines and now have a lot of catching up to do.
Additional reading: Techcrunch