The Real Reason Behind Adobe's $20B Acquisition of Figma
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Chapter 1: The Acquisition Unveiled
The design community is abuzz with discontent. Adobe's recent purchase of Figma for a staggering $20 billion raises eyebrows. While Figma undoubtedly warrants its hefty price tag, one must ask: does Adobe truly deserve the loyalty of designers?
Adobe has a notorious track record of acquiring innovative tools and subsequently diluting their essence. Notable acquisitions include Frame.io for $1.3 billion, Magento for $1.7 billion, and Macromedia for $3.6 billion, but none rival the audacity of the $20 billion spent on Figma.
The strategy seems clear: if you can't outshine them, acquire them, and then dull their sparkle.
Adobe's approach can be likened to a multi-talented friend who dabbles in everything but never masters a single craft. Figma, however, has taken the design world by storm with its user-friendly interface, seamless collaboration features, and a generous free tier, making it a formidable competitor.
Figma has become the go-to UX design tool for professionals, leaving Adobe XD in the dust. Although XD had capabilities akin to Figma, it fell short in the intricate details vital to UX designers.
Initially embraced by design enthusiasts, Figma's user base expanded to professionals and educational institutions, ultimately attracting major brands. This growth didn't sit well with Adobe.
In a classic corporate move, Adobe enlisted legal experts to eliminate the "Figma problem," but the platform stood resilient. Figma offered designers a cost-effective alternative to Adobe's subscription model, despite lacking a direct replacement for Photoshop—most users only utilized Photoshop for basic tasks like background removal.
As simpler online tools for background removal emerged, Figma transformed from a nuisance to a significant threat for Adobe. The looming possibility of Figma going public prompted Adobe to act decisively, seizing the opportunity to acquire the platform during a stagnant IPO market.
However, this move has irked many investors.
Section 1.1: Investor Concerns
The math behind the acquisition is raising eyebrows. Adobe claims Figma's annual recurring revenue (ARR) is approximately $400 million and on a growth trajectory. To justify the $20 billion valuation, that translates to a 50X revenue multiple—an extraordinary figure.
Venture capitalists typically use a rough guideline for valuation based on growth rates:
- 10% to 29% annual growth: ARR multiplied by 1 to 5
- 30% to 99% annual growth: ARR multiplied by 6 to 10
- 100% to 400% annual growth: ARR multiplied by 10 to 20
Presenting a 50X multiple to investors is akin to claiming you've seen a UFO; skepticism is inevitable. This skepticism likely accounts for Adobe's stock price drop following the announcement.
Adding to the tension, designers took to social media, voicing their concerns in a fervent tweet storm—a space where both venture capitalists and designers often converge.
At the end of 2020, Adobe acquired Workfront for $1.5 billion, a move that didn't stir much controversy among investors due to its logical financials. However, it’s crucial to recognize that Adobe's motivations for purchasing Figma extend beyond mere ARR; they aim to leverage Figma's superior collaboration technology to enhance their own offerings and compete with platforms like Canva.
Adobe's acquisition also positions them to attract Figma's high-profile clients into their enterprise ecosystem.
Section 1.2: The Future of Figma
With these changes in mind, several questions arise:
- Will Adobe stifle Figma's creativity?
- Will they prioritize Adobe XD over Figma's unique features?
- Would designers consider switching to alternatives like Sketch?
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Chapter 2: Video Insights
The first video, Why did Adobe spend 20 BILLION DOLLARS for Figma???, delves into the implications and potential consequences of this acquisition on the design landscape.
The second video, Adobe Bought Figma... why and what might that mean?, explores the strategic motivations behind Adobe's decision and what it could mean for the future of design tools.