This is what happens next after the Adobe Figma acquisition

Let’s start with a bit of history and business strategy.

Companies acquiring each other has been happening since the beginning of time. It is a natural step in the decision-making process to preserve a business's survival, growth, and competitive advantage.

These motives remain largely the same, but the outcomes vary depending on the strategy deemed most appropriate. Generally, there are two:

Mergers

When two companies decide to merge into one single entity. Often coming along an overall rebranding, repositioning, and legal entity, this avenue makes the most sense when players are about the same size (revenue, market share, etc.) and would enjoy distinct advantages through synergies, by combining their strengths. Historically, we’ve witnessed successful Mergers such as between Ebay and Paypal in 2022, skyrocketing the revenues of both companies and some not so much, as with AOL and Time Warner in 2000, that showed poor results due to corporate cultures & management styles clashes.

Acquisition / Absorption

If one of the players is significantly larger than the other, carrying more decisional weight, and spending power, an acquisition would be the preferred route. Reasons behind acquisitions are generally competition and threat removal, costs reductions, and monopoly preservation through consolidation rather than leveraging on combined assets like it is with mergers.

Again, we can draw learnings from the past as we look at acquisitions that made the headlines: Facebook taking over Instagram in 2012 for US$1B or Microsoft acquiring LinkedIn in 2016 for US$26.2B. These decisions now appear to have been a rather good choice, given the trajectory that both companies took with hefty profits and monopolies created.
For such companies, the move was very logical because each entity owned products with distinctive business models and unique selling points, which, when combined increased the power of the whole (business benefits) and added value for users (customer benefit).

Striking that balance between business & customer benefits is the key, and this is what leads us to the next part.

Business Strategy VS End Users

Let’s end the business economics lecture here and look at the example at hand today.

Figma, a hyper-growth decacorn startup behind the now (arguably) UX design software of choice for ~4 million users, has been acquired by the mastodon Adobe in a US$20B deal.

Adobe’s move is understandable from a purely strategic standpoint, with a solid rationale that unlocks a plethora of advantages for Adobe:

• Liquidation of threats to its flagship UX design product (Adobe XD, mainly)
• Consolidation and expansion of its cloud software technology (Figma’s browser-based USP is non-negligible)
• Acquisition of a huge market share and user base in the design & creative community

As investors and/or board members, we would indeed sign the papers right away to close this kind of golden deal.

However, there is a very important — crucial, in fact — part of the puzzle here that has been overlooked: the end users. Users of both Adobe Creative Cloud and Figma.

Emotion-fueled preferences

As creatives, well-versed in this world, and avid users of one of the software (which we won’t mention, to preserve neutrality), we am very much aware that our fellow designers are driven by passion. A passion that fuels our work, energy, and creativity. But that very same passion also influences our preferences and emotional attachment to the tools we create with. You see — and we believe this might be unique to this industry — , as our right brain side comes up with wonderful designs, that become our pride and joy, it is almost inevitable to see emotions, attachment, love (?) build up towards what enabled those creations.

This natural process is the reason why the creative community is so divided today, with virtual “clans” made of respective software users, that constantly advocate, defend their software of choice, and would not make the switch to the other “dark” & “ignorant” side, by any means.

Now you can imagine the problems and tensions that this acquisition may cause, at the emotional level for users. Once at war communities are now forced, not only to coexist under the same umbrella but also to mingle and eventually become one.

Cannibalization & Confusion

Indeed, a blend at the user level is inevitable and I will explain why. Again it comes down to business strategy.
This particular case of acquisition is very unique because the acquiree offers a software (Figma) that is virtually a carbon copy of a software (Adobe Xd) owned by the acquirer. Historically, in such cases, there is only one logical business outcome: the liquidation of one of the solutions and the transfer of its existing users to the remaining solution. Reasons for this are two-fold:

• Keeping two identical software, with the exact same features, under the same umbrella, will naturally result in cannibalization. The two products will eat each other off (their users, marketing campaigns, financial projections, etc.) until one dies of exhaustion, or both evaporate from increasing friction.
• Worst, at the user level, the confusion that would arise from this could be extreme. Imagine a die-hard Adobe Xd fan seeing their rival’s software available in the same dashboard. What would they think? Our take is that this would raise distrust towards both platforms, ultimately taking the user out of both, and venturing towards still independent alternatives (Sketch).

Understandably, proceeding with such actions will have dramatic consequences on both the users and the health of each business.

Adobe is walking on thin ice and the next steps will be decisive. There is still time to salvage the situation but so far, it’s not looking pretty.

Closing Words

Of course, this is all still recent news and we have yet to see how the long-term strategy rolls out. After all, we might be surprised and witness a successful case study in the making, one that would be dissected in business schools.

Time will tell and in the meantime, happy designing (on whichever software you love)!

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