How Figma and Canva are taking on Adobe—and winning
In 2010, Photoshop was ubiquitous. Whether you were editing a photo, making a poster, or designing a website, it happened in Photoshop.
Today, Adobe looks incredibly strong. They’ve had spectacular stock performance, thanks to clear-eyed management who’ve made bold bets that have paid off. Their transition to SaaS has been seamless, for which the public markets have rewarded them handsomely. And they’re historically one of the best companies at M&A; their product lineup is a testament to their ability to acquire new product lines and integrate them well into their multi-product ecosystem. Perhaps most importantly and least appreciated, they have dramatically sped up the cadence of their internal product development process and feedback loop. Like Microsoft, they have successfully shifted from a legacy company operating on an annual (or longer) release schedule to a truly cloud company shipping updates at a sub-weekly pace.
Nevertheless, there are a few segments of design where they’re no longer the market leader. Companies like Figma, Sketch, and Canva are examples of products that have been able to become top products despite Adobe’s ubiquity in all things design. Figma showed up in Adobe’s annual report for the first time in 2019. They reprised in 2020, and I’m not uncertain they will continue to be in it going forward.
How should we understand these market transitions and why these young companies are able to thrive, even against a strong incumbent like Adobe?
These companies have distinct atomic concepts from Adobe. The primitives that their products are built around are fundamentally different from those of Adobe’s product lineup. It’s these different fundamental atomic concepts that turn Adobe’s advantage of an established product and existing userbase into a weakness that hinders their ability to counter these upstarts. The opportunity for these new atomic concepts to thrive is driven by the new use cases and types of users unearthed during market transitions.
Understanding the phases of market transition and what drives them is a universal process worth examining.
For most markets, there are advantages to being an incumbent. Markets converge as companies arrive at the preference frontier of customers. This leaves little potential energy for new startups to take advantage of.
Market entropy is good for new entrants.
It’s not impossible to break into a market by brute force, but it’s hard. Very hard. Most successful companies, especially startups, have found tailwinds to harness that help pull them forward.
Changing customer needs are the largest source of entropy in markets. When customer needs rapidly change, there is less advantage in being an incumbent. Instead, legacy companies are left with all the overhead and a product that no longer is what customers want.
There are many causes of changing customer needs. Often there are new and growing segments of customers with different use cases. Existing products may work for them, but they aren’t ideal. The features they care about and how they value them are very different from the customers the legacy company is used to. Companies resist changing core parts of their product for every new use case since it’s costly in work, money, and attention. But every once in a while, what was once a small use case grows into one large enough to support its own company.
Other times the scale or dynamics of a market shift enough to make a product no longer work despite having been a great fit. Companies are often caught flat-footed by these situations because what they have done successfully for years suddenly starts to falter—and they aren’t sure why. Ebay is a good example of this. Their decentralized auction model was very good in a nascent internet economy when there was a scarcity of items being sold online. Once ecommerce became commonplace, price and speed became much more important factors and Ebay’s decentralized model was at a disadvantage. Amazon was much better at building economies of scale in this post-liquidity ecosystem.
Another source is when the customers themselves change. Often the function of a tool remains the same, but the type of user changes. These new types of customers often have different things they care about and resulting product needs.
The internet drove entirely new design use cases. Photoshop was built for editing photos and images. It’s a powerful tool that operates at the pixel level. However, many of these new uses weren’t about image manipulation. Images were a component—not the essence—of the job users were trying to accomplish.
For some users, this was designing digital products. Designers at software companies or any company with a website wanted to create the websites and software products they worked on. This is less about image manipulation and more about designing the UI and UX of these digital products. Vectors are more important than raster graphics. The complexity and process of designing these high-value designs also got increasingly more sophisticated. These designers worked with teams of other designers and non-designers. Their designs are part of a larger product development process and what mattered wasn’t just making a design, but how that the entire process could be improved to make collaboration easier and handoff of designs better. Iteratively.
The complexity of the designs and the components in the resulting code became more complex, too. The need for their tools to have a higher-level understanding of the components and variants became more important. It’s increasingly useful for designs to understand the same concepts and abstraction levels as the HTML and CSS in the resulting end product.
For some users, this was designing content for social platforms, digital ads, or even wedding invitations. These were often made in Photoshop, but again, pixels are the wrong abstraction level. Images are not the sole component; they are just past of a larger design that includes graphics, text, and more. Similarly, the customers are very different. Many of the people now doing what is, in essence, design work don’t think of themselves as designers. They just have a very specific thing they want to create, with the least friction possible.
The internet dramatically scales up the volume and type of new use cases for design. In many ways, this helps Adobe. With platforms like Instagram, the number of people editing photos has expanded by many orders of magnitude. While editing on platforms like Instagram may have increased significantly, Adobe has been a huge beneficiary of the internet and the shift to cloud—and their stock price is a testament to this.