Fundamental Analysis

For Adobe, Is AI Friend or Foe?

With generative artificial intelligence (AI), anyone can produce visual content by typing a few descriptive words into an image generator.

Portrait of Kyle Levins, Analyst at Harding Loevner.
Kyle Levins contributed research and viewpoints to this piece.

With generative artificial intelligence (AI), anyone can produce visual content by typing a few descriptive words into an image generator. The ability to theoretically bypass the traditional steps and skills needed to edit a photo or create a custom graphic raises an important question for Adobe: is the company’s design and editing software still essential in an AI world?

Adobe’s software suite—including Photoshop, Illustrator, and InDesign—has long been to creative professionals what Microsoft Excel is to number crunchers: an indispensable tool that shapes their workflows and the language around their work. From logos and marketing images to company brochures and branded reports, it’s rare for professional projects that contain a design component to not pass through at least one of Adobe’s programs.

Now, some fear that by giving people a shortcut to artistry, generative-AI tools will diminish Adobe’s role in the creative industry and shrink the pool of professionals trained on its software. Yet technology has lowered barriers in this industry before, and the effect was just the opposite. It’s no coincidence that a sales boom at Adobe over the past decade occurred alongside the rise of smartphones and social media.

AI: The New Camera

The internet today is a largely visual experience, but three decades ago, it was mostly text. By 2003, digital cameras had surpassed film cameras in sales, and by 2005, Google’s newfangled image search engine had indexed over a billion photos. But it wasn’t until smartphones and social media became ubiquitous that the world became saturated with digital imagery. It’s estimated that since 2013, the number of pictures taken per year has tripled, with well over 100 billion now indexed by Google.

Smartphones and social media enabled people to more easily snap photos and share them with the world. The larger effect of people gathering in online visual spaces was to shift consumption and advertising to mobile screens. This made it critical for businesses to have a visible presence online, including an appealing website, recognizable social-media branding, and eye-catching ads. As visual content came to dominate the internet, more users—large and small businesses, freelancers, influencers, and even the average person—sought access to digital editing tools. Adobe offers products to these different groups, with its core Creative Cloud suite intended for professional users, and the simplified Adobe Express app for novices or users with lighter design needs. Adobe’s revenue last year was about US$22 billion, up from roughly US$5 billion just a decade ago.

With smartphones, anyone can take a photo. With AI, anyone can make one. Therefore, it’s likely that widespread use of AI will lead to a further explosion of visual content.

Adobe and AI: Complementary Tools

Generative-AI tools haven’t been available long enough for most businesses to say exactly how they’ll be used and what the impact will be on jobs; for many industries, disruption seems inevitable. However, AI has limitations when it comes to graphic design. While it can generate rough output in seconds, it doesn’t necessarily make editing images faster or easier. That’s where Adobe comes in.

Adobe invented or popularized many of the game-changing features that have allowed artists over the past few decades to paradoxically adopt a computer, a logical rules-based device, as their easel. Those features include various direct-manipulation tools that give users control over even the tiniest edits, as well as the ability to make non-destructive edits using the “layers” feature. Layers separate images into a stack of components that can be independently manipulated while keeping the original image intact. The advanced functionality and precision baked into Adobe’s software is a key reason it’s become so embedded in companies’ workflows.

Adobe’s software also facilitates brand consistency by enabling designers to create master palettes and document pages that can serve as templates to be used across a company. And its software ecosystem makes it easier for projects to travel through the editing process, from the illustration stage to the final formatted product. In the following video, designer Coral Azevedo demonstrates how she uses these tools to create images for Harding Loevner’s website.

AI content may be good enough in some settings, but as the video shows, AI models (even Adobe’s Firefly model) are less suitable for producing highly specific, professional-quality content. They might generate images resembling what the user described in the initial prompt, but crafting the right prompt isn’t straightforward—it can take a paragraph of instructions to convey all the necessary details. Even then, the output is unpredictable, often requiring numerous iterations before the image matches the designer’s vision and satisfies corporate policies. Trying to make those fine-grained adjustments via text prompts can slow down a designer and introduce clunkiness to a process that Adobe’s software is designed to make smooth. Here’s another video demonstrating the precision often needed in design work and how Adobe software supports it.

Content generated by AI also carries business risks. AI models are trained on datasets that may contain copyrighted or trademarked material, and so a company risks unknowingly infringing on intellectual property rights when publishing AI-generated content, opening it up to a potential legal fiasco. Already, AI companies such as OpenAI are facing lawsuits accusing them of unauthorized use of copyrighted material to train their models. Adobe is trying to differentiate itself by ensuring its AI-generated content is commercially safe for its customers. The company says Firefly is trained only on Adobe Stock images, as well as openly licensed or public domain content.

For all those reasons, AI is more likely to be a handy tool than a substitute, and early data and financial results from Adobe suggest that’s how people are using the technology. For example, as of March, 75% of Photoshop’s monthly active users had tried Firefly, and there was a 10% reduction in churn among those who used an AI-powered feature called generative fill, which can quickly add or remove objects from an image or expand the image.

As with other software companies, AI is not yet a significant source of revenue for Adobe; however, the company is seeing increased momentum in its new AI products. The company initially projected US$250 million in annual recurring revenue (ARR) for the current fiscal year from AI-based tools, including the Firefly app, Firefly Services, and Acrobat AI Assistant. But by the end of its third quarter, in August, it had already surpassed that figure. Few software companies—ServiceNow and Microsoft among them—can claim more AI revenue than Adobe at this point. Adobe is also monetizing AI in more subtle ways, such as improving customer retention and increasing pricing power. It pegs the broader financial impact of AI on its business at US$5 billion in ARR, which is 27% of the total ARR generated by its digital media division.

More digital images means more editing, and that’s where Adobe’s tools shine. The company doesn’t need to compete with foundational AI models. It can work with them and continue to provide the editing and workflow software needed to turn art into a finished commercial product. ∎

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