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| Nov 3, 2022

The $20 Billion Question: Why Did Adobe Pay a Huge Premium for Figma?

In the David-versus-Goliath battle of the design world, the giant acquired the young upstart in a shock deal before any hostilities could really get going.

Tech giant Adobe reigned over the design world for years until collaboration platform Figma burst onto the scene in 2016, delighting users with its browser-based, remote tool for collaboration and for designing user interfaces for websites and mobile apps.  

But in mid-September, Adobe bought Figma for $20 billion — the biggest acquisition in its history. The deal shocked observers from Wall Street to Silicon Valley with a price tag double Figma’s valuation and 50 times its annual recurring revenue (ARR) at a time when tech company valuations are decreasing due to recession concerns. 

Adobe had seen Figma increasingly encroach on its territory and was worried about losing its long-held dominance in the creative market, enough to pay a massive premium for access to Figma’s users. 

The deal is a testament to Figma’s rapid rise. Figma is growing at a rate of 100% year over year and has built a retention rate of greater than 150% in just over five years. It could grow to around $16.5 billion in annual revenue by 2025. Figma’s success also offers an important lesson for startups and other companies: It saw a market opportunity and pounced.

The Easy Adobe Alternative

Figma co-founder Dylan Field dropped out of Brown University in 2012 to start Figma with his classmate Evan Wallace to make design accessible for all by creating a free, simple creative tool for the browser. Field and Wallace saw how easy sharing documents was with Google Docs and wanted to duplicate the interface-design experience, allowing multiple designers to collaborate on shared projects simultaneously.

Field made no secret that Figma was intended to be a browser-based alternative to Adobe’s design software, including Adobe Illustrator and Photoshop, and positioned Figma as David to Adobe’s Goliath.

Figma’s offerings have proven more popular than Adobe products among software designers. Almost instantly, Figma amassed 4 million users and out-competed Adobe with the design teams at Microsoft and other top companies such as Airbnb, BMW, Netflix, and Kimberly-Clark. Almost 80% of designers use Figma for user-interface design. 

Field didn’t think Adobe’s desktop-based design applications were sufficient to meet user needs. Adobe agreed, as demonstrated by the colossal price tag and its decision to keep Figma an autonomous unit with Field remaining as CEO

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Design as a Competitive Advantage

As more companies built software applications, mobile applications, and websites, Field and Wallace saw an opportunity in the market for a cross-functional, collaborative design tool and took full advantage. Traditional design software — including Adobe’s applications — do not allow for collaboration and are not user-friendly for non-designers.

In today’s digital world, providing a seamless and intuitive user experience is essential to attracting and retaining customers, and brands such as Apple, Amazon, Airbnb, Instagram, Slack, and Uber enjoy huge success for this reason. Two out of three consumers also say they are likely to switch brands for a better digital experience.

Collaboration Matters More Than Ever

Adobe did enter the interface design space with Adobe XD, but it was designed to work locally with no collaboration. By contrast, Figma was built with collaboration at its core and it captured designers’ attention with two features: Live collaboration and version control. The platform’s seamless cross-functional collaboration allows teams to work together in real-time, as they would in Google Docs.  

Field and Wallace understood that design was undergoing a major shift. In the past, design occurred at the end of the product life cycle. Designers would be assigned a deliverable and would work independently to create it, returning it in final form. But design is no longer limited to one function — it involves various stakeholders across the product life cycle. Figma works in any web browser, making it easy to include marketing, sales, engineering, and product functions in the design process. More than half of Figma’s users come from outside the design function.

Tweaks and edits are saved immediately to the cloud, preserving a detailed record of each project’s history and keeping collaborators from overwriting each other’s work. Figma stores every file created in the cloud and offers unlimited storage space for free, preventing users from losing files.

Because Adobe created its software specifically for designers, cross-functional collaboration was not a consideration and the suite isn’t easily accessible to non-designers. Instead, teams rely on email to share documents and can’t work on the same document simultaneously.  Some wondered why Adobe didn’t just build a similar product, but the Figma acquisition helps the company expand on its existing collaborative solutions and create better tools for teams in remote settings. Figma’s competitive advantages include: 

No Barrier to Entry

Figma works on any operating system with a web browser. Whether users work on Macs, Windows PCs, Linux machines, or Chromebooks, everyone can still share, open, and edit Figma files. In many organizations, designers use Macs, and developers use Windows PCs. Figma helps bring these groups together. By contrast, Adobe’s creative suite, including Photoshop, Illustrator, and InDesign, has been the standard in design software for over 20 years. The learning curve for non-designers is exceptionally high, making cross-functional use difficult. 

Affordability

Figma is much more affordable than an Adobe Creative Cloud single-app subscription. Its pricing plan consists of a free starter version, a “Professional” version ($12/month annually, or $15/month billed monthly), and a “Figma Organization” version ($45/month billed monthly). Figma is also offered free to students and educators.

Adobe’s dominance in the design industry allows it to charge high prices with expensive cancellation fees. Field assured users that Adobe has “no plan to change Figma’s pricing” due to the current inflationary environment. 

Customer-Obsessive

Figma says it is highly responsive to the wishes of its community and if designers want components, animation, or tools for design systems, the platform does its best to implement solutions quickly. Most days, Field checks Twitter for Figma mentions or reads customer support tickets to get a handle on what users are having trouble with. Field’s conversations with users eventually led to the collaborative whiteboard product FigJam.

Community-Building

Figma is also a community that shares resources, gives feedback, and helps improve skills. Its open-source community website offers plugins, templates, and tutorials for users of all experience levels. The site experienced traffic growth of more than 100% as recently as February 2022. In August, it rose 49% to nearly 2.9 million visits. 

Adobe Will Ride Figma’s Success to the Future

Figma built a reputation as a forward-thinking and collaborative design platform — and a formidable competitor to Adobe. While plenty of companies have sought to challenge Adobe, Figma’s success is due to its focus on cross-functional collaboration, ease of use, affordable pricing, and loyal user base. Adobe’s purchase of Figma underscores the importance of UX/UI and the value of cloud-based, collaborative solutions. Importantly, it gives Adobe a foothold in a growing web-first market.

Sherry Keyles
Contributor

Opinion Contributor, Strixus

Sherry is a writer, editor, and podcast producer with over 25 years of experience creating impactful content for the financial, technology, compliance, and healthcare industries. view profile

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