Adobe defends its $20 billion deal for Figma

Adobe executives think there's a lot that critics of its $20 billion purchase of Figma are missing.

Driving the news: Investors have sent Adobe's shares down roughly 20% since it announced the deal to buy the maker of a highly popular collaborative tool for designers.

Between the lines: The Figma buy raised eyebrows the moment it was announced.

• Investors expressed shock at the sticker price — 40 times Figma's annual revenue run rate.
• Creative types worried that nimble, cloud-based Figma would lose what they love about it.
• And everyone wondered whether aggressive regulators might try to block the whole thing.

Catch up quick: Adobe is spending a not-so-small-fortune to buy Figma after seeing its own competing product, Adobe XD, largely flop in the market.

• On top of that, Adobe is also preparing a massive retention package to keep Figma CEO Dylan Field and other key employees on board.
• Investors want to understand why it's worth the high price tag and regulators are looking to ensure the combination won't hurt competition.

The latest: In a meeting with Axios, Adobe general counsel Dana Rao defended the deal's price tag and highlighted why Adobe believes it needs Figma to help shape the design-software giant's broader future.

Rao offered three key arguments.

1. Adobe XD just wasn't cutting it. It was a product designed for a single user sitting at a PC in a world that wants cloud-based tools for real-time multi-user collaboration.

• After seven years of investment, Adobe XD was bringing in just $15 million in annual recurring revenue on a standalone basis — a minuscule fraction of Figma's $400 million annual recurring revenue. (That, in turn, is a minuscule fraction of Adobe's overall annual revenue of $17 billion.)
• Adobe has essentially put XD on ice, assigning just 20 employees to the product in what it sees as "maintenance mode." Figma has more than 800 people.

2. Adobe needs a rethink for the cloud era. Its current efforts have been about bringing its existing tools to the web. The Figma deal offers help with the longer-term challenge of "reimagining the whole thing," in Rao's words.

• Adobe Express is an early homegrown attempt, but Rao said Figma will help the company fully reinvent itself for the next era of design.

• Rao said over time Figma customers will benefit from Adobe's other resources, including its troves of fonts and stock imagery.

3. Regulators shouldn't fret, Rao says. Even though Figma has positioned XD as a key rival, Rao says the deal shouldn't raise antitrust worries.

• Adobe, he says, is focused on creative tools and is only a small player in Web-based design, with lots of companies offering digital whiteboarding and other services for collaboration.
• The acquisition price is far higher than other deals that have attracted scrutiny recently — most notably, Meta's plan to buy comparatively tiny VR firm Within, which the Federal Trade Commission has sued to block.
• But Adobe says the size of the deal isn't what regulators focus on. "Adobe and Figma today are not meaningful competitors," a spokesperson told Axios.
• "We think they [regulators] are going to take a look, and we feel good about the facts," Rao said.

Yes, but: Biden-era regulators have repeatedly emphasized their intent to be aggressive to restore tech competition. Adobe may find the ground rules have shifted.

Our thought bubble: Even if it gets its way, Adobe is clearly paying a lot for Figma, suggesting the company needs to make future build-vs.-buy choices faster.