Last week, the Adobe Max 2019 conference took place in Los Angeles, CA. Those in attendance at the annual event include Adobe partners, developers and creative professional customers that all come together to see the latest solutions. This year around 15,000 in total descended on LA to attend. As an amateur content creator, digital media and entertainment (DM&E) industry veteran and former CEO, I wanted to share my perspective on Adobe’s product announcements, as well as its financial outlook communicated at the conference.
Adobe (ADBE) has been around for close to 40 years—since 1982. In a highly volatile and fiercely competitive software development world, that is an eternity. During this time, it established itself as one of the digital content creation and management powerhouses. Two of its flagship products, Adobe Photoshop and Premiere Pro, are used by many professional photographers and videographers in the world. Almost everyone in the business world is familiar with Adobe Acrobat and the PDF (portable document format) files for document distribution and management. Many of its creative applications are industry award-winning and used in the creation of Hollywood blockbuster projects, most recently Terminator: Dark Fate. Over the past few years, Adobe introduced versions of its professional class products targeted at consumers. These are professional-grade products that have had their rich features reduced to mainstream usage requirements to align with the needs of the everyday consumer.
In the digital transformation age, maintaining a competitive cutting edge often requires acquiring new technologies and capabilities. Adobe is a company with an active acquisition strategy to maintain its competitive edge. Take a look at Figure 1, and you can see a summary of the acquisitions over the past 10 years.
Around the timeframe of 2012, the company went all-in on the cloud business model. I recall some naysayers about the move at the time; there are none found today. Take a look at Figure 2, and you can see the company’s total revenue since FY10. The forecasted revenue for FY19 disclosed at Adobe MAX is more than $11B. The move to the cloud allowed Adobe to change its revenue stream to a recurring software-as-a-service model. The move is a bonus value proposition to its customers as well. Customers can now have affordable access to the entire portfolio of Adobe software and cloud offerings; this brings a capability to a broadened set of creative professionals and consumers that was not possible before. More on this in the business update section.
Adobe reports its overall business revenue in three large buckets, which I will refer to as verticals:
- Creative Cloud (CC): All the photos, videos, graphics creation, and editing tools ( ex. Photoshop, Premiere Pro, After Effects, Lightroom, etc.)
- Document Cloud (DC): All the Acrobat and PDF document management services
- Experience Cloud (EC): All the marketing and data analytics tools
If you are a creative person, the Adobe products are compelling. If you are a product line management person, you are mesmerized by the sheer task of managing such a large portfolio, and if you are a financial or operational management person, the DDOM (Data-Driven Operating Model) that the company uses to run its business is impressive. Because I am equally fascinated and intrigued by all three, I broke this report on the Adobe MAX event into two major areas: 1) Product Update and 2) Business Outlook.
Adobe has more than 100 applications in its total product portfolio. To rise above the trees so we can see the forest, reference Figure 3 above. The diagram shows how the overall product portfolio fits together to form the world of Adobe. Across the top are the three vertical business buckets: Creative, Document and Experience. Cutting across the business verticals are three horizontal categories: Applications, Services and Platform. The horizontals stack together to create the total Adobe Cloud-based product solution offerings. The horizontal layer Adobe Sensei is an artificial intelligence (AI) and machine learning (ML) technology. As each application in the portfolio is updated, and as AI/ML becomes more pervasive in all applications, the Adobe Sensei technology will be utilized.
Zooming in a little on the Creative Cloud vertical, we see many of the applications in the library with descriptions and the general categories they are in—see Figure 4. This view helps with understanding the comprehensiveness of the Adobe family. As mentioned before, the Imaging/Photography and Video categories have won many industry awards over the years. You can do real professional-grade projects with these tools, and the cool thing is that, with the cloud-based delivery model, they are all available to a broader array of users, professionals and consumers than ever before.
The highlights of the application updates from Adobe MAX that I will briefly cover are in the Creative Cloud business vertical portfolio. The summary updates follow:
- Adobe XD is an all-in-one UX/UI solution for designing websites, mobile apps and more. The newest version allows multiple designers to collaborate on the same project simultaneously. The productivity boost comes from multiple designers having their projects open at the same time, and as they make changes, everyone sees it in real-time. It is cloud-based so the individual designers can be in the same room, same building, or on the other side of the globe—no difference. The feature gives the potential to improve creativity, shorten design cycles or both. It is now available worldwide.
- Photoshop on iPad is perhaps the most well-known and used photo editor for the desktop. Adobe claims to have given the app an extensive overhaul to optimize its use with touch UI and Apple Pencil. Given this is the first version, I would expect some limitations. Future versions will evolve into more powerful features for your iPad. Photoshop on iPad is now available and included with Creative Cloud subscriptions
- Fresco on Windows is an art app introduced first for the iPad, now available for PC on Windows. The goal is to make a touch surface behave as close to the canvas as possible for creatives to draw or paint on. The demo was impressive and showed a painter using brushes and canvas painting techniques on the app. Initial Windows platforms supported are limited, but Adobe says it is working on expanding the list. It is available now worldwide for Microsoft Surface Pro X and Wacom MobileStudio Pro.
- Aero on iOS is a new app in the augmented reality(AR) category. The demo showed an animated character being added to a photo of physical space and interactively moved around. The release is a first-generation version of the app, and it is a free download. It is now available worldwide for tablets and smartphones.
- Illustrator on iPad is a long-standing vector graphics editor leader on the desktop that is now being ported over to the iPad. It received a makeover to take advantage of the iPad touch UI and Apple Pencil. It will be available in 2020.
- Photoshop Camera is an app for the Smartphone camera. Within the app is Adobe Sensei, an artificial intelligence (AI) and machine learning (ML) engine. The AI and ML platforms perform numerous intelligent actions on photos, such as complex subject recognition. It is somewhat surprising this didn’t come out earlier given the multi-billion unit installed base of smartphones. It will be available in the first half of 2020.
In a separate meeting at Adobe MAX, Shantanu Narayen (CEO) and several of the executive staff met with financial analysts to share an overview of the outlook for the industry and Adobe’s participation in it for the next 2-3 years. The three-hour presentation flow and content were logical and comprehensive. I summarized below what I believe to be the most critical information.
Given that the Adobe business is generally growing and operationally functioning well, the area of focus for the business outlook was how the overall market was going to grow in the coming years. The primary demand driver for Adobe applications is users. To create a forecasted total user opportunity measurement, Adobe synthesized multiple sources of information, including International Labor Organization, US Bureau of Labor Statistics, Business Software Alliance and its own data.
Figure 5 shows the forecasted total users available for Adobe products in the 2022 timeframe in both the Creative Cloud and Document Cloud vertical.
Adobe takes the estimated total potential users from Figure 5 and further estimates the revenue potential by each customer category. These dollar figures add up to the Total Addressable Market (TAM) calculation and are the revenue dollar opportunity potential. Figure 6 shows Adobe’s estimated TAM value for the markets it participates in for the 2022 timeframe. The TAM presented is $128B across Adobe’s three vertical business units. The confidence factor for these forecasts can be debated and routinely are. One point for the future expectation of Adobe is if the TAM forecast has a moderate margin for error when contrasted against Adobe’s previous 5-years of actual growth, the confidence in its financial health through 2022 would still be solid. Adobe’s assertion at the event was that with the digital transformation dynamics cutting across all industries, there has never been more opportunity for the company than the foreseeable future.
As I mentioned earlier, the Adobe portfolio includes 100+ products. This means Adobe MAX 2019 was predictably jammed with product launch announcements, demos and testimonials from creative users. As a former product leader, I have to wonder: is there not a simpler way to run the portfolio and reduce the complexity? To Adobe’s credit, it is investing in tools to manage the portfolio from a customer experience (CX) perspective, and it has an entire organization dedicated to it. Regardless, having 100+ two-letter simple icons reminds me of chemistry class and trying to memorize the table of elements. It seems like reducing the quantity and consolidating product logos would make marketing communications and customer retention of the message higher, which could lead to a positive impact on revenue.
Regardless, Adobe appears to be protecting its incumbent positions. It is intelligently acquiring new technologies and aggressively updating its portfolio with relevant features. Given all the new products, I would expect to see Adobe maintain and grow its relevance in the digital content creation and management world over the coming year. It’s an exciting time for the industry and Adobe.
Disclosure: Moor Insights & Strategy, like all research and analyst firms, provides or has provided research, analysis, advising and/or consulting to many high-tech companies in the industry mentioned in this article. The author holds no investment positions with any of the companies cited above.