The Future Might Be Scary For Adobe
Contributor since 2011 / 23830 Followers
Summary:
- Adobe Inc. has built a nice, recurring, high-margin business.
- Adobe’s business seems safe from typical competitors providing the same service.
- But there’s a paradigm shift, which could make Adobe’s business be a lot less necessary than before.
David Gyung
Adobe Inc. (NASDAQ:ADBE) has created an amazing business, in a very specific niche for graphic designers, photographers, UX/UI designers, video editors, etc. And to make it better, Adobe then managed to turn all of these customers, which previously bought a software package from Adobe and mostly were done with it, into subscribers which pay every month to have access to the software tools they need to perform their jobs.
What this has created, is not just a business which is high-margin, but which tends to grow, as few people leave their profession or stop requiring the tools, while new ones come in all the time. Plus, of course, the usage of Adobe’s software is sticky, as there’s a deep learning curve to the software. Hence, it’s hard for those already trapped in the Adobe money machine to leave.
The market, for its part, recognized these dynamics and decided to award Adobe with a full valuation. As of today, Adobe trades for 23x the 2023 earnings consensus. It also carries a $161 billion market capitalization, which is quite large for a provider of graphics editing software, if we disregard the very high earnings that it produces (its 35% operating margin is eye watering).
Ordinarily, such a business would be under fire by competitors. And competitors exist. But it’s extremely hard to displace such a business, when doing so requires every single customer that departs to retrain in some other sophisticated graphics design software, to apply his skills there. Hence, in spite of the massive margins, Adobe hasn’t had much trouble in growing further.
That, however, might be about to change. And change dramatically.
You see, as I said before, customers subscribe to Adobe’s products to have the tools to, using their skills, produce graphics design, publications, UXs (User Interfaces), whatever. And the problem is, something is changing, recently, which could conceivably do away with the need for those tools. Worse still, it might even do away with the need to have the skills to use such tools.
That something is AI (Artificial Intelligence), namely generative AI which, taking from the user only a text prompt, can, using that prompt, reproduce the entire creative process right down to the final graphical product. At this moment, arguably, these AI models are reaching the stage where their output is already good enough (and it will keep on improving).
In the future, much like with ChatGPT, these models will be able to receive instructions to change whatever output they previously produced (think “editing”). Or they’ll be able to receive instructions to create and keep within a given stylebook. It’s to be noted that some of these models are now being incorporated into Adobe as well. However, the problem is that these models already work without any skills or tools being necessary, other than the AI models themselves, and someone’s intent expressed in words.
And not only do these models work, but they can be applied to many different fields (UX, art, architecture, interior design, photography, commercial illustration, etc.). And moreover, many different companies are working on these models, which will create an incredibly competitive marketplace.
There’s nothing better to illustrate the problem than to simply visit the Midjourney showcase page (and mouse over the samples, to read the prompts used to generate each image). Please do so at this point, as merely checking these images will make the problem self-evident.
This is just a small sample — Midjourney is capable of much more, including interior design, architecture, etc. This is simply to give an idea of the graphical capabilities. Again, keep in mind that all of these images were generated simply by submitting a short text prompt to an AI Model. And a million more such images could be generated, including in architecture, UX design, game assets, etc.
Moreover, the generative capability will be easy to integrate into other products, for specific purposes. And the capability will fall into the user’s hands, without the user having any particular design chops or ability to use any particular design software.
This creates a possible discontinuity, because:
- A lot of design work will turn DIY (Do It Yourself), within companies (and personally). No longer will graphical designers be needed for many low-level design tasks. And thus, no longer will the tools for those designers be needed, either. Plus many applications (starting with Microsoft Office, for instance) will start including “design for noobs” capabilities based on AI.
- And even for professionals, this kind of software stands to increase productivity massively. Meaning, for the same quantity of necessary design, a fraction of the professionals will be needed. And hence, a lot fewer Adobe seats / subscriptions will be necessary as well.
This is what’s scary now, for Adobe. It’s not that its use might fall to zero. But there’s a clear scenario where design falls to the masses, and Adobe tools might be required a lot less as a result.
It’s a paradigm shift. Never, before, could people without arts skills produce this level of design, while requiring no tools. Now, they can, and it’s only a matter of time until this spreads to all corners of the world. And believe me, all these newly empowered design noobs won’t care about learning how to use Adobe tools. And nor with they need to.
Is this a certainty, though? That the dynamics will go this or that way? No, it’s not. It’s very hard to predict how things will pan out from here. This will spread like wildfire, but maybe Adobe will find a way to avoid the impact. Or to capitalize on it (AI tools won’t be it, though — this replaces the entire production process).
Conclusion
This isn’t a short thesis. It’s too hard to know the future, and how everything will pan out with these emerging AI capabilities.
However, this is a massive warning. This is a real danger for Adobe Inc. We are at a point in time where people without any design skills can produce work that’s more than good enough to not require hiring someone else with the skills or the Adobe subscription to perform. This will spread far and wide. And it will get worse, as these AIs will gain context, editing capabilities, etc. Everything is evolving very quickly.
The future, right now, is very scary for Adobe Inc. investors. Visit Midjourney, check what it can do — just to have an idea. Midjourney is not some sort of exception, either: there are already many other image generative AIs out there. There’s no way to put this back in the bottle.
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