This Is Digital Transformation!

If you’ve been in the business world for more than five minutes, surely you’ve heard of every organization undergoing a digital transformation. Every leader has found a way to sprinkle digital transformation into their all-hands meetings, board conversations, and analyst calls. Unfortunately, most of it is a pipedream primarily because of an outdated mindset, no real business model innovation (only innovation theater), and dinosaur leadership that should’ve retired decades ago.

One incredible and proven success story is Adobe. Most of us remember buying software boxes on floppy disks or CDs to install from Adobe. That may as well have been your grandparent’s Adobe. Adobe announced a $20bn deal to buy Figma, its browser-based rival that was only founded in 2012.

The idea for Figma came to 19-year-old Dylan Field, who had dropped out of Brown University after accepting a $100k grant from technologist Peter Thiel. The grant was one of 20 designed to encourage young over-achievers to leave college and pursue ambitious work outside of traditional higher education. With his co-founder Evan Wallace, the field grasped the chance and decided to take on the digital design world. That decision worked out.

With a relentless focus on making more collaborative and lightweight design software, Figma and competitors like Canva have been snapping at the heels of Adobe’s tools like Photoshop and Illustrator for the last decade. But, as stiff as that competition has been, it hasn’t stopped Adobe from having a remarkable decade of its own. Around the time Figma was getting started, Adobe realized that recurring subscriptions of its creative design software, rather than one-off sales, might be a better long-term business model.

The result? A subscription business that last year was 21x the size it was in 2012.

Adobe will be looking to add to its roster of design subscription products, which is why acquiring a red-hot competitor like Figma makes a lot of sense on paper. But Adobe has seriously splashed out to get the deal done. Figma is expected to pass $400m in annual recurring revenue this year, meaning Adobe has coughed up roughly 50x Figma’s annual sales.

Although that multiple is an extraordinary price that didn’t go down well with investors when paired with an underwhelming quarterly report, Adobe is clearly on a path to dramatically reshaping itself into a SaaS business model with more predictable and recurring revenue streams.