Since 1982, Adobe has dominated the software market. Responsible for such products like Illustrator, Photoshop, After Effects, and inventing the PDF. But, what if I told you that half of those products I just listed were acquisitions? In fact, in its 40-year-plus existence, Adobe has acquired over 50 companies.
Just recently, Adobe announced they would spend $20 billion to acquire Figma, four times the price of their next highest purchase. History tells us that Adobe will adopt Figma as one of its own and that Figma fans have nothing to worry about in regards to the product being shut down. Or, does it? In this episode, we’re going to look at two key acquisitions made by Adobe that differ wildly with the eventual fate of the product. From there, we can draw insight on what lies ahead for Figma, Adobe, and the greater SaaS world.
There's divided opinion about whether the Figma multi-billion acquisition is good for the SaaS industry. Lack of competition means Adobe continues to dominate the industry, and Figma will now have to succeed in concert with Adobe, not in spite of Adobe. Whether this acquisition will have a PhotoShop outcome or a FreeHand outcome, remains to be seen.
Experts warn, however, that if the current generation of SaaS startups keep entering into mergers and acquisitions with the same legacy companies, they'll never be able to break the hold that entrenched platform companies have over the enterprise software market.
Still, there's a lot we can learn from both Adobe and Figma.
Today, Adobe is worth about $160 billion to date, and with its recent acquisition of Figma, it’s set to continue on that path. I think we can all agree that Adobe is a behemoth in the visual design industry. And whether you love it or hate it, one thing you can’t deny is that for the past 40 years Adobe has been very wise and forward-thinking when it comes to their business decisions.
Every move and every acquisition, whether the objective was to eliminate the competition or expand its offering, it has been very strategic and has ensured its continued growth and expansion.
What we can learn from Figma is how far drive and focus can take you, even in a short period of time. Figma’s purpose wasn’t to compete with Adobe, its purpose was to create a product that made designing and collaboration easier and better. It succeeded and because of that it was able to take on Adobe and give it some serious competition — worth $20 billion.
In 1987, Thomas Knoll was attending the University of Michigan when he decided to distract himself from his studies with a coding project that would display grayscale images on a black and white monitor. He called this program “Display”. Thomas’ brother, John, worked for a little company known as Industrial Light and Magic (ILM). John asked Thomas if he could help him program a computer to process image files digitally, and Display seemed like a perfect starting point.
Thomas worked on Display adding all sorts of capabilities like color processing as well as the ability for users to change features like color balance, hue, and saturation. Thomas kept looking for a new name to use that would set the product apart but each time, the name appeared taken like ImagePro and PhotoHut. Eventually, the brothers settled on a name that would stick until this day: Photoshop.
John traveled all around Silicon Valley searching for an investor that would help them distribute the product. Eventually, it caught the attention of the executives at Adobe. At the time, Adobe was in agreement with a different image-editing program known as ColorStudio. Convinced that Photoshop was better, Adobe worked out an agreement with the Knoll brothers to distribute the product in return for royalties. It would function as a companion product for Adobe’s Illustrator, a vector graphics editor released in 1987.
Photoshop version 1.0 shipped in February of 1990 at a list price of $895 exclusively for Macintosh. This was before SaaS so the on-prem software would be iterated several times until its current form in the cloud.
Photoshop’s dominance was massive. It became a verb. I’m sure if I told you something is “shopped” you know exactly what I’m talking about. In 1995, Adobe bought out the Knoll brothers’ royalty agreement for $34.5 million. Adobe had clearly realized that acquiring Photoshop would be lucrative not only in dollars and cents, but also in the minds of its customers.
By adding Photoshop to Adobe’s product offering, they would create a strong foothold in the image processing industry. It became a bedrock for their creative ecosystem. Photoshop joined, in-house created video editor, Premiere, and was later itself joined by further acquisitions of After Effects and Audition. The Knoll brothers also benefited. In addition to their generous sum, they ended up working with Adobe for years after the acquisition. At the 2019 Oscars, the two received a Scientific and Engineering Award. But perhaps best of all, whenever you open the Photoshop program even to this day, you can still see their names.
But not all of Adobe’s acquisitions end up so rosy…
In 1988, two corporations, Aldus and Altsys, reached a licensing agreement to release a vector graphics editor named FreeHand, and graphics program, PhotoStyler. FreeHand and PhotoStyler competed with Adobe’s Illustrator and Photoshop respectively.
The firms tried to top one another by going back and forth with different feature releases over the next several years. The ensuing battle would not last long as in 1994 Adobe Systems announced that they had an agreement with Aldus Corporation to merge in a $525-million deal. But our acquisition of focus wouldn’t occur just yet. Because of the competition between their two main products, Altsys sued Aldus over a non-compete clause within the FreeHand licensing agreement.
FreeHand’s dedicated customer base had cause for concern as the merger would result in Adobe killing the PhotoStyler product, ending all competition with Photoshop. FreeHand users were assured by Altsys CEO and founder, James Von Ehr, that “no one loves FreeHand more than we do. We will do whatever it takes to see it survive.”
In October of 1994, The Federal Trade Commission ordered that Adobe divest FreeHand in order to prevent competition from ending. They further ordered that for a period of 10 years from the date on which this order became final, respondents shall not acquire any professional-illustration software or enter into any exclusive license with a professional-illustration software.
Altsys retained the rights to FreeHand but instead of keeping it in house, decided to sell it to a different company: Macromedia. Macromedia was able to bolster its product offerings and 200,000 FreeHand customers came with it. James Von Ehr joined as well, becoming a vice-president of Macromedia.
Over the next decade, Macromedia became Adobe’s new foe. Already supported by other competitive products like Flash and Dreamweaver, Macromedia had plenty of incentive to keep the game going. The two sparred back and forth, continuing the battle that Altsys had started years before. Meanwhile in 1997, James Von Ehr left Macromedia to start a new venture, which left the door open for something drastic to happen in 2005.
On April 18 of that year, Adobe announced they would acquire Macromedia in a stock swap of $3.4 billion. They had waited just over the 10-year limit imposed by the American government and with FreeHand champion, James Von Ehr, no longer present, users were on edge. In 2006, the FreeHand community protested Adobe's announcement of discontinuing development with the "FreeHand Support Page" petition. Soon after in 2007, the "FreeHand Must Not Die" petition was filed. Adobe assured users as late as June of 2006 that they continued to support FreeHand and develop it based on customer needs. But less than a year later, in May of 2007, Adobe announced the end of FreeHand.
Freehand users were incensed. In 2011, the Free Macromedia FreeHand Organization filed a civil antitrust complaint against Adobe Systems, Inc alleging that "Adobe has violated federal and state antitrust laws by abusing its dominant position in the professional vector graphic illustration software market."
In a bid to win over some of the protesters, Adobe opted for a settlement, where members of the Free Macromedia FreeHand Organization received a discount on Adobe products and a promise for product-development of Adobe Illustrator based on their requests. It was too late. FreeHand was finished.
As mentioned, Adobe has had dozens of acquisitions over the years, consistently topping billions of dollars. Photoshop and FreeHand were just two extreme examples of what Adobe is capable of. So now, let’s take a look at Figma.
In 2012, Dylan Field dropped out of Brown University and took $100,000 as a Thiel Fellow to start his own business. He was joined by fellow computer science student, Evan Wallace. Convinced that design is collaborative by nature, the two focused primarily on moving the process to the cloud and allowing maximum flexibility for teams to collaborate.
After launching in December 2015, Field asserted in a Tech Crunch Interview that his big competitor "doesn't understand collaboration" and the Adobe Creative Cloud is "really cloud in name only." He further noted that "Design is undergoing a monumental shift — going from when design was at the very end of the product cycle, where people would just make things prettier to now, where it runs through the entire process." The goal at Figma was to do for interface design what Google Docs did for text editing. And that's precisely what he did.
Over the years — and especially after the 2013 deprecation of Adobe Fireworks, more and more UX designers felt that the creative Cloud did not match market expectations. While Photoshop and Illustrator were powerful programs in their own right, they lack the in-browser functionality of Figma.
In the years that followed its launch, Figma built out the platform to expand access and usability for individual designers, small firms, and giant enterprise companies alike. The company launched plug-ins in 2019, allowing developers to optimize work, be faster, and more creative. Figma launched an educational platform called Community, which allows designers to publish their work for others to view, remix, and learn from.
Adobe tried to compete with their own product, Adobe XD that they launched in 2016, but whether through a lack of focus or not enough dedicated resources, they couldn’t compete.
By 2021, Figma was well and truly the king of the web-based design world, and by some distance. Among over 3,000 surveyed by UX Tools in 2021, Figma was the preferred UI design tool at 77%, up from just 11% in 2017. This is compared to Adobe XD, which has never cracked 25%.
In June of 2021, Figma had a valuation of $10 billion, quintupling its price tag from the previous year. But a few months later, Adobe proposed a deal to purchase Figma at twice that price in what is one of the biggest software deals in history. So what does this mean for Figma fans and the SaaS world?
Reasons for concern
With our two previous examples in Photoshop and FreeHand, we see contrasting stories. With Photoshop, Adobe incorporated it into their core offering and treated it as one of their own with its creator staying on to oversee the development of the product. I bet a few of you were surprised to hear that Photoshop was an acquisition in the first place. Additionally, there wasn’t much competition at the time, the folks at Adobe simply realized the potential for the software and capitalized on it.
With FreeHand, we see a multi-decade battle of Adobe zeroing in on its competition and tactically dismantling it in favor of its own, even with the promise to keep it going. And it wasn’t the only time Adobe has done this.
Adobe realized the potential with Figma, just like all the acquisitions they made before. They have a consistent track record of hitting on heavy bets as to where software and SaaS is going even if they weren’t the ones to develop the product themselves.
Many designers worry that Adobe won't let Figma flourish — as was the case with FreeHand. It's also one of the strongest rivals to Adobe XD, which hasn't been able to keep pace with Figma's innovations. In particular, there are concerns that Adobe's acquisition could result in Figma slowly shutting down its free membership, alongside losing the freedom to develop independently from Adobe.
Dylan Field is trying his best to ease concerns. In an interview with The Verge, he assured Figma users that he was going nowhere and that Figma was poised for even more growth inside Adobe. He explained, "First of all, we're gonna give our users a ton more functionality…There's not a price increase here — we're doing everything we can to keep prices the same… We're gonna continue to not just innovate, but innovate quickly… And that's a challenge, but it's one I'm down to sign up for."
Only time will tell if Figma will be a Photoshop or a FreeHand.
In general, there's divided opinion about whether this multi-billion acquisition is good for the SaaS industry. Lack of competition means Adobe can get away with a subpar product. Figma will now have to succeed in concert with Adobe, not in spite of Adobe. Hopefully Dylan Field sticks around in order to avoid a similar situation with FreeHand an James Von Ehr
Experts warn that the current generation of SaaS startups will never be able to break the hold that entrenched platform companies have over the enterprise software market, if they keep entering into mergers and acquisitions with the same legacy companies.
Will there be a new Adobe, Google, or Salesforce, or are all SaaS companies destined to be acquired by those who came before? Let us know what you think.
Who's up next week?
Next week, we take a look at how inbound marketing is dying.
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