If you ask me, the antitrust environment right now is kind of nuts. I just gave a detailed example of this in my of the Broadcom-VMware deal, and in this piece I’m going to apply similar thinking to Adobe’s proposed $20 billion acquisition of Figma. The short version: I believe this deal is a sound one, and that regulators who are dubious about it are looking at the wrong things if they really want to promote innovation and protect customers.
This is such a pressing topic because of the increased M&A scrutiny coming from regulators in the U.S., the U.K., the EU, China, Japan and Korea. That scrutiny just led Britain’s Competition and Markets Authority (CMA) to nix Microsoft’s planned $69 billion purchase of Activision, a decision Microsoft is now appealing. And we’re in wait-and-see mode when it comes to Adobe-Figma.
Why Adobe’s acquisition of Figma makes sense
After researching everything I can find about this deal, writing about it last autumn and discussing it in depth with Adobe executives, I think the rationale here is compelling. For starters, Figma’s core market of interactive product design is an appealing category adjacent to Adobe’s main business in creativity apps. Customer overlap between the two companies is small, something like 10%. Meanwhile, Figma’s growth is big—it doubled its business last year. Even better, Figma is highly profitable.
To keep growing the business, Figma’s leadership wants the kind of global reach that Adobe can bring it. From the other side of the table, Adobe understands what a beloved product Figma is for its users, and it isn’t going to mess that up. As Adobe senior vice president and general manager for digital media Ashley Still had told me when the deal was first announced, “We want Figma to be a thriving standalone application 10 years from now. Thriving.” (Emphasis hers.) Adobe is ideally positioned to help scale Figma’s business, for everyone’s benefit.
Figma has also made waves with the FigJam whiteboarding product it built on top of its platform. This real-time collaboration app helps the company compete with the likes of Canva, Apple and Microsoft, and FigJam could end up as another big winner for both Figma and Adobe. Beyond that, now that Figma has done it once, who knows what other viral products the team might build on the platform?
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In the long run, Adobe also thinks it will benefit from bringing Figma’s collaborative DNA into the desktop-centric world of Adobe’s flagship products—Photoshop, Illustrator and so on. As pervasive as Photoshop and the rest are among creative professionals, those apps are not web-first collaborative tools. I will note that Adobe has made some progress towards moving towards the web & mobile (e.g. Adobe Express, Photoshop mobile, etc) but Figma can certainly help here. Applying Figma’s know-how in real-time collaboration to Adobe’s apps could be a major vector for both innovation and revenue growth for the combined company.
Adobe and Figma are in complementary, not competing, businesses
If we’re going to properly understand the likely impacts of this acquisition on innovation, competition and so on, it’s vital that we do a good job of market definition. The lazy way would be to say that Adobe and Figma both make “design software” and pretend that they operate in the same market space. But that would be misleading. In fact, the apps that Adobe sells to creative professionals and Figma’s main offering for product designers are in some ways complementary, but for the most part they’re used by different roles.
Graphic designers, multimedia editors, digital artists and the like use Creative Cloud to create pictures, videos, brochures and other digital assets. Meanwhile, product designers and the stakeholders who work with them—people like marketers and web developers—use Figma to create or give feedback on digital products like web-based or mobile apps. Sure, a collaboration space within Figma might include some digital assets made using Adobe tools, but the use cases for the apps are far from interchangeable. Just try making a wireframe for a webpage in Photoshop; you can kind of force it to work, but the results likely won’t be good, and the whole thing would be vastly easier in Figma.
The division of labor between these tools was recently brought home to me when I was reviewing plans for a revamp to the Moor Insights & Strategy website. All of the page designs came to me in Figma, while individual assets like header images, diagrams and videos were created on Adobe apps. It’s important to note that the Figma and Adobe contributions came from different members of my team, and that these experienced pros chose the most appropriate tools without input from me.
Bad argument 1: Adobe competes with Figma and is buying it to quash competition
The market reality I’ve just explained gives the lie to the idea that Figma is a “nascent competitor” for Adobe—a major area of focus in antitrust law today. Figma has been around for 10 years and Adobe for more than 40, so there’s no need to guess whether they compete in their well-defined markets. They don’t.
One objection to the deal has been that Adobe could build its own product that competes with Figma—or, in a more breathless version, that Adobe will buy Figma so it can kill off the upstart. But neither version of this makes any sense. The idea that Adobe would kill Figma or strip it for parts is ridiculous. Adobe is putting up $20 billion for a company with a product that inspires zealous loyalty from a user base that’s growing like kudzu. If you pay good money for a golden goose, you don’t throttle the goose.
Beyond that, Adobe has publicly committed to leaving Figma freestanding, just like Ashley Still said above. In fact, Adobe leaders think it would be a bad idea to require anyone to buy a Creative Cloud bundle just to get Figma, because they believe that not many people would buy it that way, simply because most Figma users aren’t Creative Cloud users and vice versa.
As for making a competing offering, Adobe tried for five years to get into product design software with the Adobe XD app, but the company’s own execs are remarkably candid about how that attempt failed. At one point, XD had 200 people working on it, but the product lacked the real-time collaborative element that drives Figma’s success, and sales never took off. Adobe ultimately reassigned more than 90% of the people working on XD; fewer than 20 work on the app now, and their job is just to keep it running smoothly to fulfill existing contracts. By the way, those contracts account for less than $20 million of Adobe’s $13 billion annual revenue—not even enough to be a rounding error. Meanwhile, Adobe’s product-development plate is very full with its down-market Adobe Express initiative and its Firefly generative AI tool.
To review, let’s say you identify an attractive product category adjacent to what you already offer, so you try to build something organically in that category. But your product never catches on, you miss the market and other competitors blow past you to the point that it’s impossible for you to catch up. M&A 101 says that if you still want to be in that market and you can’t build it, you buy it. That’s exactly what Adobe is doing with Figma.
Bad argument 2: Figma would compete with Adobe if given the chance
A second objection—one that also doesn’t make sense—is that Figma might create a “Photoshop killer” or some other product that competes head-to-head with Adobe’s flagship wares. It honestly perplexes me why any regulator would spend more than five minutes determining that this one’s a non-issue, but then again none of the regulators have ever designed or launched a software product, have they?
Adobe’s been building and improving Photoshop for something like 30 years. There is nothing in the Figma product that suggests it would be any good for the kind of deep-dive image creation where Photoshop reigns. (The same observation extends to competing with the functions of Illustrator, Adobe Premiere, Acrobat and so on.) Figma simply doesn’t do what any of the Photoshop flagship apps do. On top of that, there is no engineering effort underway within Figma to mimic those functions. So why would Figma divert resources from their rapidly growing core business to compete, or try to, with a highly successful and entrenched company that’s doing something Figma can’t do at all?
Bad argument 3: Adobe is overpaying for Figma because it fears competition from it
A third objection to the deal is that Adobe’s valuation of Figma somehow indicates cause for concern from an anticompetitive perspective. By this point, the underlying illogic of this one should be clear. Adobe’s in no position to build a hypothetical new product-design app that would compete with Figma. Conversely, Figma’s in no position to build a hypothetical new “Photoshop killer” or whatever. The deal isn’t anticompetitive.
So what about that hefty $20 billion price tag? Seems quite sane to me, for two reasons. First, it’s not every day that you get the chance to buy a company dubbed “Design’s Hottest Startup” by Forbes. According to that Forbes article, a June 2021 funding round valued Figma at $10 billion. Since then, as mentioned earlier, its business doubled. Plus there are the other benefits likely to accrue that I explained above under “Why Adobe’s acquisition of Figma makes sense.”
Sometimes you pay a lot because a thing is worth a lot. That’s the simplest explanation here.
My second reason to believe this valuation is sensible is that Adobe is a mature company with sober leadership that has done plenty of acquisitions before. You better believe that hard-nosed finance types at Adobe and at their banks have looked at this deal six ways from Sunday. From everything I’ve seen, I believe that the math works.
An overemphasis on hypotheticals
I’ll return to something I’ve said before: Too many regulators seem to be enamored with the idea of preventing maybe-someday-possibly barriers to competition or innovation. But Figma simply isn’t a “nascent competitor” for Adobe—something that only gets clearer the more you understand about the products the two companies make and the different customer bases they serve.
All the antitrust or anticompetitive concerns I’ve heard about this deal don’t amount to much when we focus on the market realities that will be created by the combination of these two companies. If anything, I’m excited about all the innovation this could unlock in the years to come.
If the regulators want to start from an antagonistic position—maybe one that distrusts any tech deal that involves a big tech company buying a small one—and build a narrative from there, I can’t stop them. But it would be much better for all concerned if they grounded themselves in the realities of these markets to see the clear logic of this deal.
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