How Adobe became the silent inventor of Silicon Valley

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B.Y SILICONTAL Standards, Adobe is a boring company. Nudging 40 it’s middle age. It doesn’t make the headlines with mega-mergers or has a bold CEO. “I feel very comfortable not being out there pounding my chest,” admits her boss Shantanu Narayen in a rare interview. Meanwhile, Adobe has quietly managed to adapt to the age of cloud computing. It may even have reinvented itself better than Microsoft, the tech industry’s best-known comeback kid. Microsoft’s CEO, Satya Nadella, is said to have taken a close look at Narayen’s manual work – and not only because he attended the same secondary school in India as the Adobe boss, albeit a few grades lower. Since 2007, when Mr. Narayen took over the helm, Adobe’s market cap has grown from $ 24 billion to $ 276 billion. In the past decade, it has outperformed both Microsoft from Mr. Nadella and Salesforce, another competing enterprise software maker.

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To most ears, Adobe is synonymous with desktop publishing. It was founded in 1982 and set important standards, particularly PostScript, which tells printers where to make the points, and PDF, the “portable document format”, which makes it possible to distribute printed documents online. Programs for editing digital content have also been developed. One, Photoshop, became a verb. Adobe’s expensive software was installed on desktop computers and updated with new versions about every year. In the late 2000s, this model looked like an update itself. Smartphones unleashed the creativity of people far away from the desk and cloud computing made it possible to offer software as a service over the Internet.

Instead of sticking to the lucrative old business, Mr. Narayen took the opportunity to “reinvent himself”. Putting Photoshop and other popular but complex applications like Illustrator entirely in the cloud would have been technically too difficult. But Adobe still found a way to use the cloud to improve its products. Today, Adobe’s two original software companies have transformed into two subscription-based “clouds”. The smaller “Document” cloud offers everyday services (converting PDF in a word processing file) up to the business-critical (administration of digital documents of authorities). All have seen a boom during the pandemic shift to remote work. The other, much larger, “creative” cloud allows users to edit all types of digital content, from websites to videos. Since this content no longer lives on hard drives but in data centers, it can be edited by different devices and by several people at the same time.

However, without further innovations, Adobe’s transformation would not be half as successful. The company calls one of them its “data-driven operating model” (DDOM), Technical jargon for using data generated by its digital services to improve them and to develop new ones in a constant feedback loop. Adobe has mastered this both internally and by developing a third cloud that enables other companies to optimize their digital offerings. With this “experience” cloud, your subscribers can track, among other things, how online buyers behave and how they can best be led to buy.

Another innovation was the management structure. Some tech companies like Apple advocate top-down micromanagement. Alphabet, the parent company of Google, is almost anarchic from the bottom up. Adobe is a healthy mix. Mr Narayen sets the destination and the three cloud managers determine the exact course. close DDOM and the cloud work experience, he has set himself a goal that is as precise as it is demanding: Adobe’s data platform must be able to provide content in less than a tenth of a second. How this goal was achieved was then up to the engineers.

Adobe’s three clouds, operating model and management style explain why it offers an “unusual investment combination in software” in the words of Mark Moerdler von Bernstein, a broker: high margins and good growth. The latest quarterly results are emblematic. Revenue rose 22% year-over-year to $ 3.9 billion, while operating margin rose to 46%, according to Bernstein.

There are plenty of opportunities for more data-driven growth. On October 7th, Adobe completed the $ 1.3 billion acquisition of Frame.io, a video editing service. Artificial intelligence, which extracts patterns from digital information, will support many new services (such as Adobe’s latest offering, the PDFs in websites that can then be navigated more easily on smartphones). Similar algorithms could help professional content creators be more productive and make Photoshop more accessible to newbies. The “creative economy” is only just getting underway. And then there is the much-touted “metaverse” of interconnected virtual worlds that will be full of the digital objects that Adobe tools are built with.

Head in the cloud, feet on the ground

As Mr Narayen would be the first to admit, the software business is fraught with risk. “Software follows a kind of S-curve”, he observes: the performance moves sideways at some point if “you don’t invest in the right opportunities”. Creative and document clouds, which together generate 73% of Adobe revenue and 80% of gross profit, are a ripe target for competitors. Startups like Figma, a fully cloud-based website for online service designers, rely even more on online collaboration than Adobe. After 14 years as the boss, there is talk of a successor in the air. It would be as big a transition as handing Steve Jobs over to Tim Cook at Apple, says Brent Thill of Jefferies, an investment bank. It is questionable whether it could be that successful.

Investors have actually cooled Adobe a bit lately. Its market value is down $ 40 billion from its September peak, a steeper drop than most other tech giants. Yet the company has proven time and time again that it can be successful by embracing change rather than fighting it. This has made Mr. Narayen a darling of investors and analysts as well as a role model for tech bosses like Mr. Nadella. There’s nothing boring about that.

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This article appeared in the business section of the print edition under the heading “Silicon Valley’s silent reinterpretation”


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