WEBVTT 00:00:00.000 --> 00:00:01.940 Welcome back to The Deep Dive, the place where 00:00:01.940 --> 00:00:03.779 we sift through the mountain of source material 00:00:03.779 --> 00:00:06.839 you share with us to find the absolute core of 00:00:06.839 --> 00:00:09.000 what you need to know. And today we are tackling 00:00:09.000 --> 00:00:11.699 a giant. A true giant. We're doing a monumental 00:00:11.699 --> 00:00:14.859 analysis of a company whose products, well, they 00:00:14.859 --> 00:00:17.260 basically underpin the entire digital creative 00:00:17.260 --> 00:00:20.120 economy. We're talking about Adobe Inc. Yep. 00:00:20.480 --> 00:00:22.719 Based in San Jose, California, Adobe is that 00:00:22.719 --> 00:00:25.480 multinational software company that, you know, 00:00:25.480 --> 00:00:28.140 historically defined content creation and publication. 00:00:28.559 --> 00:00:30.379 I mean, when we say Adobe, we're talking about 00:00:30.379 --> 00:00:33.719 tools you use every single day, sometimes without 00:00:33.719 --> 00:00:35.820 even realizing it. Oh, absolutely. Photoshop, 00:00:36.200 --> 00:00:39.000 Illustrator, and of course the big one, the universally 00:00:39.000 --> 00:00:42.159 inescapable portable document format, the PDF. 00:00:42.420 --> 00:00:45.340 The PDF. You can't escape it. But this story 00:00:45.340 --> 00:00:47.119 is so much bigger than just a list of software 00:00:47.119 --> 00:00:49.460 titles. It really is. It's a decades -long narrative. 00:00:49.520 --> 00:00:53.280 It's about rapid technological innovation, massive 00:00:53.280 --> 00:00:56.200 market consolidation, and, of course, that highly 00:00:56.200 --> 00:00:58.659 controversial mandatory shift into the subscription 00:00:58.659 --> 00:01:01.640 economy. A shift that totally redefined how creative 00:01:01.640 --> 00:01:04.140 professionals have to operate. Our mission today 00:01:04.140 --> 00:01:06.879 is to really explore the three pivotal arrows 00:01:06.879 --> 00:01:09.780 that created this powerhouse and then, you know, 00:01:09.780 --> 00:01:12.099 analyze the current state of regulatory pressure 00:01:12.099 --> 00:01:14.569 it's under. So where do we start? We'll start 00:01:14.569 --> 00:01:18.250 with Adobe's foundational role in literally sparking 00:01:18.250 --> 00:01:20.849 the desktop publishing revolution. Then we'll 00:01:20.849 --> 00:01:23.349 track its strategic transformation into more 00:01:23.349 --> 00:01:26.109 of an enterprise service provider and that contentious 00:01:26.109 --> 00:01:29.250 switch to Creative Cloud. And finally, we'll 00:01:29.250 --> 00:01:31.709 do a deep dive into the major controversies. 00:01:31.810 --> 00:01:34.489 I'm talking security failures, anti -competitive 00:01:34.489 --> 00:01:37.510 history, and the really serious legal challenges 00:01:37.510 --> 00:01:40.010 that have popped up right up to, well, this very 00:01:40.010 --> 00:01:42.069 month. We've got a lot to get through. We do. 00:01:42.129 --> 00:01:44.379 We've got billions of dollars. in failed acquisitions, 00:01:44.459 --> 00:01:47.980 a massive FTC lawsuit, some fundamental failures 00:01:47.980 --> 00:01:50.299 in cybersecurity to wade through. This is not 00:01:50.299 --> 00:01:52.640 just about software. Not at all. It's about control. 00:01:52.879 --> 00:01:56.299 Control over file formats, market lock -in, and 00:01:56.299 --> 00:01:59.239 the business practices of a company that dictates 00:01:59.239 --> 00:02:01.400 terms for nearly every professional creative 00:02:01.400 --> 00:02:04.159 workflow on the planet. The information we have, 00:02:04.239 --> 00:02:06.959 it seems to reveal this fascinating, almost contradictory 00:02:06.959 --> 00:02:10.580 pattern. It is a contradiction, isn't it? A company 00:02:10.580 --> 00:02:13.039 built on these genuinely radical technological 00:02:13.039 --> 00:02:16.960 innovations that now, it seems, relies really 00:02:16.960 --> 00:02:19.759 heavily on financial and structural lock -in. 00:02:19.860 --> 00:02:22.900 Lock -in, meaning it's just difficult or really 00:02:22.900 --> 00:02:25.259 expensive to leave their ecosystem. Exactly. 00:02:25.400 --> 00:02:27.919 All to maintain its industry dominance. Okay, 00:02:28.000 --> 00:02:30.539 let's unpack this. Let's do it. So, the Adobe 00:02:30.539 --> 00:02:34.259 story. It begins like so many great Silicon Valley 00:02:34.259 --> 00:02:37.379 tales with a strategic departure from a massive 00:02:37.379 --> 00:02:40.860 established company and a new idea in a small 00:02:40.860 --> 00:02:43.759 space. That's right. A classic garage startup 00:02:43.759 --> 00:02:46.620 almost. Adobe was established in December 1982 00:02:46.620 --> 00:02:49.280 by John Warnock and Charles Gashka. And these 00:02:49.280 --> 00:02:51.520 guys were coming from Xerox PR, right? Yeah. 00:02:51.639 --> 00:02:53.840 The legendary Palo Alto Research Center. Very 00:02:53.840 --> 00:02:56.020 same. They'd been working on key foundational 00:02:56.020 --> 00:02:59.240 concepts for graphical user interfaces for printing. 00:02:59.520 --> 00:03:01.360 I mean, PRC was where everything was happening. 00:03:01.479 --> 00:03:03.819 And the name, Adobe. It's a nod to its humble 00:03:03.819 --> 00:03:05.860 start. It comes from Adobe Creek in Los Altos, 00:03:05.900 --> 00:03:07.979 California, which, you know, ran right behind 00:03:07.979 --> 00:03:10.259 Warnock's home. I love that. But they didn't 00:03:10.259 --> 00:03:11.879 just stumble into the software market. Their 00:03:11.879 --> 00:03:15.539 initial strategic choice was, Absolutely defining. 00:03:15.840 --> 00:03:18.280 It was crucial. They actually considered a few 00:03:18.280 --> 00:03:21.139 different business ideas first. Like what? Well, 00:03:21.219 --> 00:03:23.240 they thought about starting a copy service business 00:03:23.240 --> 00:03:26.039 or maybe selling a complete turnkey system for 00:03:26.039 --> 00:03:28.360 office printing, you know, hardware and software 00:03:28.360 --> 00:03:30.460 all bundled together. Okay, so why didn't they? 00:03:30.560 --> 00:03:33.900 They rejected those paths to focus entirely on 00:03:33.900 --> 00:03:36.900 developing specialized software. They believed, 00:03:37.120 --> 00:03:39.460 and this was key, that proprietary hardware would 00:03:39.460 --> 00:03:42.860 limit their reach. Smart. Very smart. And this 00:03:42.860 --> 00:03:45.419 decision led them directly to the creation of 00:03:45.419 --> 00:03:47.939 the Adobe PostScript page description language. 00:03:48.240 --> 00:03:51.360 Now, we need to pause here because PostScript, 00:03:51.460 --> 00:03:54.990 it isn't just some tech footnote. This was the 00:03:54.990 --> 00:03:57.969 breakthrough. This enabled the entire desktop 00:03:57.969 --> 00:04:00.770 publishing revolution. It really was. So why 00:04:00.770 --> 00:04:03.349 was PostScript so revolutionary? I mean, for 00:04:03.349 --> 00:04:05.030 our listeners who might not remember what printing 00:04:05.030 --> 00:04:07.629 was like before the mid-'80s, what was the actual 00:04:07.629 --> 00:04:10.090 problem it solved? Well, before PostScript, if 00:04:10.090 --> 00:04:12.009 you wanted high -quality printing from a computer, 00:04:12.270 --> 00:04:14.210 you were dealing with these proprietary printer 00:04:14.210 --> 00:04:17.110 drivers, and they were usually based on fixed 00:04:17.110 --> 00:04:19.990 bitmap fonts. Right. So if you try to make text 00:04:19.990 --> 00:04:23.470 bigger or smaller... It looked awful, jagged, 00:04:23.509 --> 00:04:25.889 people called them the jaggies, and every printer 00:04:25.889 --> 00:04:28.910 needed a driver that was specific to the application 00:04:28.910 --> 00:04:31.310 you were using. The results were just totally 00:04:31.310 --> 00:04:33.910 inconsistent. So PostScript changed all that. 00:04:34.110 --> 00:04:36.209 Completely, because it was a language built on 00:04:36.209 --> 00:04:38.910 mathematical principles, on vectors. So instead 00:04:38.910 --> 00:04:41.269 of telling the printer, put a pixel here and 00:04:41.269 --> 00:04:43.649 here and here, you were telling it, draw a perfect 00:04:43.649 --> 00:04:46.819 circle. That's defined by this equation, no matter 00:04:46.819 --> 00:04:49.639 how big you make it. Precisely. PostScript described 00:04:49.639 --> 00:04:52.620 text, vector graphics, letter forms with mathematical 00:04:52.620 --> 00:04:55.540 precision. It was device independent. You could 00:04:55.540 --> 00:04:58.500 send the exact same file to a, you know, a low 00:04:58.500 --> 00:05:01.360 res desktop laser printer or a super high end 00:05:01.360 --> 00:05:04.100 commercial photo typesetter. And the output would 00:05:04.100 --> 00:05:06.860 be perfect and consistent every time. Every single 00:05:06.860 --> 00:05:09.240 time. It decoupled the design process from the 00:05:09.240 --> 00:05:11.360 output device, which for graphics professionals 00:05:11.360 --> 00:05:14.100 was absolutely revolutionary. And the key moment 00:05:14.100 --> 00:05:16.680 that made Adobe financially viable, like right 00:05:16.680 --> 00:05:19.220 out of the gate, involved maybe the most famous 00:05:19.220 --> 00:05:22.040 figure in tech history. Steve Jobs. Steve Jobs. 00:05:22.319 --> 00:05:25.139 Jobs saw the potential of PostScript immediately. 00:05:25.680 --> 00:05:29.240 He tried to buy Adobe outright for $5 million 00:05:29.240 --> 00:05:33.480 in 1982. Wow. And they said no. Warnock and Geschke 00:05:33.480 --> 00:05:36.439 refused. It was a huge risk. But their investors 00:05:36.439 --> 00:05:38.560 stepped in and kind of pushed for a compromise, 00:05:38.879 --> 00:05:40.879 something that would get them capital without 00:05:40.879 --> 00:05:43.579 them surrendering control of the company. And 00:05:43.579 --> 00:05:46.610 the deal they struck was, well. Financially brilliant. 00:05:46.829 --> 00:05:49.410 Oh, it was genius. Jobs didn't buy the company, 00:05:49.629 --> 00:05:51.569 but Apple purchased shares that were equivalent 00:05:51.569 --> 00:05:55.189 to 19 % of Adobe. And crucially, that was paired 00:05:55.189 --> 00:05:58.110 with a five -year advanced license fee for Postscript. 00:05:58.250 --> 00:06:00.490 And that advanced license fee was the secret 00:06:00.490 --> 00:06:03.610 sauce. That's what did it. It ensured Adobe had 00:06:03.610 --> 00:06:06.920 immediate, massive operating capital. So they 00:06:06.920 --> 00:06:08.959 became the first company in Silicon Valley history 00:06:08.959 --> 00:06:12.180 to be profitable in its very first year. In their 00:06:12.180 --> 00:06:14.920 first year, they didn't need to slowly build 00:06:14.920 --> 00:06:17.740 revenue through sales. Their foundation was laid 00:06:17.740 --> 00:06:20.639 by one strategic partner, Apple. And that partnership 00:06:20.639 --> 00:06:22.600 powered the whole desktop publishing revolution. 00:06:23.199 --> 00:06:26.259 It did. When Apple licensed PostScript for its 00:06:26.259 --> 00:06:30.060 revolutionary LaserWriter printers in 1985, which 00:06:30.060 --> 00:06:32.120 was the first affordable laser printer for the 00:06:32.120 --> 00:06:35.019 masses, they created this perfect synergy. And 00:06:35.019 --> 00:06:36.779 PostScript became the international standard 00:06:36.779 --> 00:06:39.589 for computer printing almost overnight. By 1987, 00:06:39.949 --> 00:06:42.470 it was the standard. No question. This is just 00:06:42.470 --> 00:06:44.910 a perfect example of Adobe's strategy of controlling 00:06:44.910 --> 00:06:47.750 the foundation. By owning the language the printers 00:06:47.750 --> 00:06:49.910 spoke, they controlled the quality and standards 00:06:49.910 --> 00:06:52.949 of the entire creative output ecosystem. But 00:06:52.949 --> 00:06:55.050 even as they were cementing their dominance with 00:06:55.050 --> 00:06:57.370 PostScript, they were already fighting these 00:06:57.370 --> 00:07:00.649 strategic battles over IP, specifically over 00:07:00.649 --> 00:07:04.370 fonts. Yes, the early font wars. Adobe released 00:07:04.370 --> 00:07:07.339 its digital fonts in a proprietary format. known 00:07:07.339 --> 00:07:09.920 as Type 1. Which was a high -quality format tied 00:07:09.920 --> 00:07:12.360 directly to PostScript. Right. But because it 00:07:12.360 --> 00:07:14.720 was proprietary, it sparked immediate competition. 00:07:15.379 --> 00:07:18.100 Apple, and then very quickly Microsoft, developed 00:07:18.100 --> 00:07:20.540 the competing TrueType standard. It sounds familiar. 00:07:20.720 --> 00:07:23.500 A proprietary, high -quality format battling 00:07:23.500 --> 00:07:25.959 a more open standard that's being pushed by the 00:07:25.959 --> 00:07:28.680 major platform owners. It established the tension 00:07:28.680 --> 00:07:32.079 that really defines Adobe to this day. Type 1 00:07:32.079 --> 00:07:34.970 fonts were, I mean... They were initially superior, 00:07:35.269 --> 00:07:36.949 especially in professional printing environments. 00:07:37.250 --> 00:07:40.410 But TrueType was designed to be platform agnostic, 00:07:40.430 --> 00:07:43.329 cheaper, and more open. So Apple and Microsoft 00:07:43.329 --> 00:07:47.350 just offered the world a functional, free alternative. 00:07:48.110 --> 00:07:50.829 Basically, yeah. They were trying to erode Adobe's 00:07:50.829 --> 00:07:53.430 control over the font market. And this tension 00:07:53.430 --> 00:07:55.689 proprietary control versus ubiquitous adoption, 00:07:56.029 --> 00:07:59.209 it just keeps reappearing with PDF, with Flash, 00:07:59.389 --> 00:08:01.829 and with the subscription model itself. So while 00:08:01.829 --> 00:08:04.430 the PostScript revolution was raging, Adobe was 00:08:04.430 --> 00:08:06.930 also quietly building the software portfolio 00:08:06.930 --> 00:08:09.889 that we now all recognize as the Creative Suite. 00:08:10.279 --> 00:08:12.579 Yeah, their entry into application software began 00:08:12.579 --> 00:08:15.560 with Adobe Illustrator. And what's often forgotten 00:08:15.560 --> 00:08:17.620 is that Illustrator, the vector -based drawing 00:08:17.620 --> 00:08:19.839 program for the Macintosh, it actually evolved 00:08:19.839 --> 00:08:22.339 directly from the firm's in -house font development 00:08:22.339 --> 00:08:24.519 software. So they were building tools for themselves 00:08:24.519 --> 00:08:26.399 first. They were eating their own dog food, exactly, 00:08:26.560 --> 00:08:28.240 building the tools they needed to refine their 00:08:28.240 --> 00:08:30.439 core technology. And then the 1990s were just 00:08:30.439 --> 00:08:32.220 marked by explosive growth through acquisition. 00:08:32.759 --> 00:08:35.200 Absolutely. They released Premiere, which later 00:08:35.200 --> 00:08:38.600 became Premiere Pro in -house in 1991. But critically, 00:08:38.860 --> 00:08:41.519 they acquired Photoshop from John and Thomas 00:08:41.519 --> 00:08:43.940 Knoll. And FrameMaker. And then they snatched 00:08:43.940 --> 00:08:46.379 up After Effects and PageMaker from a company 00:08:46.379 --> 00:08:49.220 called Aldus. Right. The acquisition of Photoshop, 00:08:49.519 --> 00:08:51.620 which was developed by the Knoll brothers, was 00:08:51.620 --> 00:08:53.799 arguably the most important software acquisition 00:08:53.799 --> 00:08:57.340 in history. It gave Adobe the undisputed standard 00:08:57.340 --> 00:09:00.019 in raster image editing. But that Aldus acquisition 00:09:00.019 --> 00:09:02.309 in 94, the one that brought in PageMaker. Maker 00:09:02.309 --> 00:09:04.909 and After Effects. That was strategically fascinating 00:09:04.909 --> 00:09:07.309 for reasons we'll get into later. Oh, yeah. Big 00:09:07.309 --> 00:09:09.909 antitrust implications. By integrating all these 00:09:09.909 --> 00:09:12.330 key titles, Adobe was no longer just a printing 00:09:12.330 --> 00:09:14.850 language company. It was creating the essential 00:09:14.850 --> 00:09:18.909 multi -platform toolbox for design, video and 00:09:18.909 --> 00:09:22.440 print. And they were financially solid. By August 00:09:22.440 --> 00:09:24.940 1986, they were already listed on the NASDAQ. 00:09:25.179 --> 00:09:27.519 They were a powerhouse early on. And if PostScript 00:09:27.519 --> 00:09:30.299 defined high -quality printing, the next massive 00:09:30.299 --> 00:09:32.340 launch from them defined the universal sharing 00:09:32.340 --> 00:09:37.059 of digital documents. PDF. PDF. In 1993, Adobe 00:09:37.059 --> 00:09:40.320 introduced the Portable Document Format, or PDF, 00:09:40.620 --> 00:09:43.940 and its associated software Acrobat and Reader. 00:09:44.259 --> 00:09:47.789 This was Warnock's Camelot project. The stated 00:09:47.789 --> 00:09:50.610 goal was to solve the profound problem of document 00:09:50.610 --> 00:09:54.549 fidelity. Okay, explain that challenge. If PostScript 00:09:54.549 --> 00:09:58.250 solved printing fidelity, what problem did PDF 00:09:58.250 --> 00:10:01.610 solve for screen fidelity? PDF solved the consistency 00:10:01.610 --> 00:10:04.600 problem across... I mean, wildly disparate computing 00:10:04.600 --> 00:10:06.700 environments. Right. Because in the early 90s, 00:10:06.720 --> 00:10:09.539 if you created a document in one word processor 00:10:09.539 --> 00:10:11.500 with certain fonts and then you sent it to someone 00:10:11.500 --> 00:10:13.700 with a different computer. It's a disaster. Yeah. 00:10:13.759 --> 00:10:16.220 A Mac user sending to a Windows user. The formatting 00:10:16.220 --> 00:10:18.340 would just break. The fonts wouldn't map correctly. 00:10:18.519 --> 00:10:21.259 The layout would shift. It was a mess. PDF was 00:10:21.259 --> 00:10:23.639 designed to encapsulate everything. The text, 00:10:23.720 --> 00:10:25.919 the graphics, both raster and vector and the 00:10:25.919 --> 00:10:28.559 fonts themselves into one self -contained package. 00:10:28.899 --> 00:10:30.960 So it always looked the same everywhere. Always. 00:10:30.980 --> 00:10:33.120 That consistency is why. we still use it for 00:10:33.120 --> 00:10:35.379 everything today. It truly became the digital 00:10:35.379 --> 00:10:37.500 equivalent of paper. And this is where their 00:10:37.500 --> 00:10:39.379 standardization strategy was just brilliant. 00:10:39.559 --> 00:10:42.620 It was. They kept the PDF format itself proprietary 00:10:42.620 --> 00:10:45.740 for a long time, controlling its evolution until 00:10:45.740 --> 00:10:48.179 2008 when it was published as an ISO international 00:10:48.179 --> 00:10:51.480 standard. But the viewer, Adobe Reader, that 00:10:51.480 --> 00:10:54.600 was always free. Free and universally available 00:10:54.600 --> 00:10:57.519 from day one. And that was a stroke of genius 00:10:57.519 --> 00:11:00.610 that guaranteed adoption. They monetized the 00:11:00.610 --> 00:11:03.210 creation tools Acrobat while ensuring the consumption 00:11:03.210 --> 00:11:06.809 was totally friction -free. They achieved ubiquitous 00:11:06.809 --> 00:11:09.529 market penetration without sacrificing long -term 00:11:09.529 --> 00:11:12.129 control. And that strategy format control, it 00:11:12.129 --> 00:11:14.269 wasn't an accident. We should probably reiterate 00:11:14.269 --> 00:11:17.100 that the Aldus acquisition also gave Adobe control 00:11:17.100 --> 00:11:19.899 over the TIFF image file format. Right. Further 00:11:19.899 --> 00:11:22.299 demonstrating their mastery of securing professional 00:11:22.299 --> 00:11:24.759 digital asset standards at the core infrastructure 00:11:24.759 --> 00:11:27.639 level. They owned the building blocks. So as 00:11:27.639 --> 00:11:30.200 we move into the 21st century, Adobe's strategy 00:11:30.200 --> 00:11:32.580 seems to pivot. It moves away from just defining 00:11:32.580 --> 00:11:35.340 single formats and more toward consolidating 00:11:35.340 --> 00:11:38.000 the entire creative workflow. Exactly. Into these 00:11:38.000 --> 00:11:40.659 seamless, high -value proprietary bundles. Which 00:11:40.659 --> 00:11:43.039 led to the Creative Suite. The first version 00:11:43.039 --> 00:11:47.580 launched in 2003. And it grouped the core software 00:11:47.580 --> 00:11:51.139 Photoshop Illustrator InDesign into a single 00:11:51.139 --> 00:11:53.720 integrated package. And this was a critical shift 00:11:53.720 --> 00:11:56.039 in how they sold the software. They moved away 00:11:56.039 --> 00:11:58.840 from individual sales toward a system where you 00:11:58.840 --> 00:12:01.139 just bought the whole toolbox at once. And that 00:12:01.139 --> 00:12:03.840 bundled approach really paved the way for their 00:12:03.840 --> 00:12:06.879 biggest acquisition yet at that time. The Macromedia 00:12:06.879 --> 00:12:12.200 Blockbuster in 2005. A $3 .4 billion stock swap. 00:12:12.419 --> 00:12:14.559 That macromedia acquisition, I mean, that was 00:12:14.559 --> 00:12:16.379 a defining moment. It wasn't just adding to their 00:12:16.379 --> 00:12:18.620 existing print suite. It brought in all these 00:12:18.620 --> 00:12:21.480 essential web and multimedia tools that just 00:12:21.480 --> 00:12:23.919 dominated the pre -smartphone internet. All the 00:12:23.919 --> 00:12:26.360 big ones, Flash, Dreamweaver for web design, 00:12:26.840 --> 00:12:29.360 ColdFusion for server -side development, Captivate. 00:12:29.460 --> 00:12:32.080 They instantly achieved dominance in both print 00:12:32.080 --> 00:12:34.259 and web design pipelines. But that web portfolio, 00:12:34.480 --> 00:12:36.480 it came with some significant baggage, didn't 00:12:36.480 --> 00:12:39.690 it? It did. Macromedia's ColdFusion, for instance, 00:12:39.929 --> 00:12:41.850 was known for having some pretty complex security 00:12:41.850 --> 00:12:44.250 flaws. And the source material notes that these 00:12:44.250 --> 00:12:46.710 flaws would become highly relevant during later 00:12:46.710 --> 00:12:49.269 security catastrophes. Because that ColdFusion 00:12:49.269 --> 00:12:51.750 source code was among the proprietary code that 00:12:51.750 --> 00:12:55.210 was stolen later on. Exactly. Which enabled bad 00:12:55.210 --> 00:12:57.610 actors to exploit vulnerabilities in government 00:12:57.610 --> 00:12:59.470 and corporate systems that were still running 00:12:59.470 --> 00:13:02.600 the software. So this rapid consolidation of 00:13:02.600 --> 00:13:05.440 creative tools, it was paralleled by a massive 00:13:05.440 --> 00:13:08.299 strategic pivot into the enterprise market. That's 00:13:08.299 --> 00:13:12.200 right. In 2009, Adobe spent $1 .8 billion to 00:13:12.200 --> 00:13:14.860 acquire Omniture, which was a leading online 00:13:14.860 --> 00:13:17.860 marketing and web analytics company. And this 00:13:17.860 --> 00:13:20.200 is where the transformation from a purely creative 00:13:20.200 --> 00:13:22.620 software company to a major enterprise service 00:13:22.620 --> 00:13:25.720 provider really begins. This focus on what they 00:13:25.720 --> 00:13:28.899 call customer experience management, or CXM. 00:13:28.980 --> 00:13:31.600 Yep. Those Omniture products were integrated 00:13:31.600 --> 00:13:34.639 into what became the Adobe Marketing Cloud. So 00:13:34.639 --> 00:13:37.039 let's clarify for the listener. What is customer 00:13:37.039 --> 00:13:38.799 experience management, and why would a company 00:13:38.799 --> 00:13:41.519 known for Photoshop suddenly want to spend billions 00:13:41.519 --> 00:13:44.299 of dollars on web analytics? Well, CXM is essentially 00:13:44.299 --> 00:13:46.519 the holistic management of a customer's entire 00:13:46.519 --> 00:13:49.220 journey with a brand, from initial awareness 00:13:49.220 --> 00:13:51.659 all the way to post -purchase loyalty. Okay, 00:13:51.700 --> 00:13:54.159 so Photoshop and Illustrator create the content, 00:13:54.340 --> 00:13:57.139 the visuals, the ads, the websites. Right. And 00:13:57.139 --> 00:13:59.200 Onitra provided the ability to measure how effective 00:13:59.200 --> 00:14:01.860 that content was, to analyze customer behavior 00:14:01.860 --> 00:14:04.299 on digital platforms and automate personalized 00:14:04.299 --> 00:14:07.539 marketing campaigns. So Adobe realized that controlling 00:14:07.539 --> 00:14:09.980 the creation tools was only half the battle. 00:14:10.120 --> 00:14:12.600 The real enterprise money was in managing, deploying, 00:14:12.879 --> 00:14:15.059 and analyzing the customer experience generated 00:14:15.059 --> 00:14:17.440 by that content. They were positioning themselves 00:14:17.440 --> 00:14:20.419 as the indispensable digital infrastructure provider, 00:14:20.700 --> 00:14:24.940 not just the designer's toolkit. Exactly. Amidst 00:14:24.940 --> 00:14:28.860 this whole pivot, they faced a spectacular Very 00:14:28.860 --> 00:14:31.480 public defeat over one of the macromedia crown 00:14:31.480 --> 00:14:33.860 jewels. Flash. The famous conflict with Apple. 00:14:34.080 --> 00:14:36.620 Steve Jobs famously refused to support Flash 00:14:36.620 --> 00:14:39.399 on the iPhone, on the iPad, on any iOS product. 00:14:39.700 --> 00:14:42.500 He published his now infamous open letter, Thoughts 00:14:42.500 --> 00:14:44.940 on Flash, which was just a scathing technical 00:14:44.940 --> 00:14:47.000 and philosophical critique. His argument was 00:14:47.000 --> 00:14:50.159 multifaceted, wasn't it? He cited specific technical 00:14:50.159 --> 00:14:53.019 limitations. Security vulnerabilities, reliability 00:14:53.019 --> 00:14:56.240 issues that led to crashes, and significant battery 00:14:56.240 --> 00:14:59.159 drain on mobile devices. But crucially, he argued 00:14:59.159 --> 00:15:02.399 that Flash was a proprietary closed system in 00:15:02.399 --> 00:15:04.740 an age that was demanding open web standards 00:15:04.740 --> 00:15:08.759 like HTML5, CSS, and JavaScript. And Adobe's 00:15:08.759 --> 00:15:11.720 response? Well, predictably, they countered that 00:15:11.720 --> 00:15:14.500 Apple was just seeking to maintain total proprietary 00:15:14.500 --> 00:15:17.419 control over content delivery on iOS and limit 00:15:17.419 --> 00:15:19.879 competition. But that public argument had a very 00:15:19.879 --> 00:15:22.879 definitive outcome. It did. In November 2011, 00:15:23.340 --> 00:15:25.879 Adobe capitulated. They announced they would 00:15:25.879 --> 00:15:28.519 cease all development of Flash for mobile devices. 00:15:28.820 --> 00:15:30.799 It was the signal that Flash was essentially 00:15:30.799 --> 00:15:33.480 dead, and it shifted the industry irrevocably 00:15:33.480 --> 00:15:36.980 toward HTML5. The irony there is just, it's thick. 00:15:37.179 --> 00:15:40.110 Oh, it's so thick. Adobe, the pioneer of proprietary 00:15:40.110 --> 00:15:42.610 formats that became standards, like PostScript, 00:15:42.769 --> 00:15:45.090 lost the battle because another powerful platform 00:15:45.090 --> 00:15:47.909 owner, Apple, successfully argued for an open 00:15:47.909 --> 00:15:50.269 standard against Adobe's own proprietary tech. 00:15:50.490 --> 00:15:52.850 Which brings us to the real game changer. The 00:15:52.850 --> 00:15:54.970 moment that secured Adobe's financial future, 00:15:55.149 --> 00:15:57.750 but, you could argue, fundamentally damaged its 00:15:57.750 --> 00:15:59.529 relationship with its professional user base. 00:15:59.769 --> 00:16:02.750 The introduction and eventual mandatory imposition 00:16:02.750 --> 00:16:06.370 of Creative Cloud. Right. The initial shift began 00:16:06.370 --> 00:16:10.559 in 2011. Before CC, creative professionals operated 00:16:10.559 --> 00:16:13.419 on a perpetual license model. You paid a large 00:16:13.419 --> 00:16:15.700 one -time fee. I mean, the full creative suite 00:16:15.700 --> 00:16:18.919 could easily top $2 ,000. And you owned that 00:16:18.919 --> 00:16:21.750 version forever. Updates were paid for with upgrade 00:16:21.750 --> 00:16:24.169 licenses. And Creative Cloud was introduced initially 00:16:24.169 --> 00:16:27.389 as an alternative. An alternative, yeah. It offered 00:16:27.389 --> 00:16:29.509 access to the entire suite for a subscription 00:16:29.509 --> 00:16:32.549 plan that started around $600 a year. Which, 00:16:32.610 --> 00:16:34.769 for a major agency needing multiple licenses, 00:16:35.090 --> 00:16:37.250 could seem pretty enticing compared to spending 00:16:37.250 --> 00:16:39.649 tens of thousands of dollars upfront. For some, 00:16:39.789 --> 00:16:42.700 yeah. But the initial reception was mixed. While 00:16:42.700 --> 00:16:45.240 that $600 a year rate looked cheaper than a $2 00:16:45.240 --> 00:16:48.799 ,000 upfront cost for one person, users quickly 00:16:48.799 --> 00:16:50.980 realized that the combination of the expensive 00:16:50.980 --> 00:16:53.919 perpetual license for CS6 and the new subscription 00:16:53.919 --> 00:16:56.840 option meant that cost burden was actually higher 00:16:56.840 --> 00:16:59.059 than ever. And then in 2013, the hammer came 00:16:59.059 --> 00:17:02.740 down. The mandatory move. Yep. Adobe announced 00:17:02.740 --> 00:17:06.180 that Creative Suite 6 CS6 would be the final 00:17:06.180 --> 00:17:09.019 perpetually licensed version. Moving forward, 00:17:09.140 --> 00:17:11.819 the only way to get new versions, updates, bug 00:17:11.819 --> 00:17:14.579 fixes, or new features for Photoshop, Illustrator, 00:17:14.640 --> 00:17:16.980 and the rest of the core software was through 00:17:16.980 --> 00:17:19.920 a Creative Cloud subscription. A complete conversion 00:17:19.920 --> 00:17:23.779 to the Software as a Service, or SOS. Total conversion? 00:17:31.019 --> 00:17:37.359 That's a great way to put it. Owners into tenants. 00:17:37.640 --> 00:17:39.480 How did that change the psychological contract 00:17:39.480 --> 00:17:41.799 with the company? It was perceived as a profound 00:17:41.799 --> 00:17:45.380 betrayal by many, particularly freelancers, students, 00:17:45.420 --> 00:17:48.279 and smaller studios. They felt trapped. Because 00:17:48.279 --> 00:17:50.339 it wasn't just a voluntary new feature. It was 00:17:50.339 --> 00:17:54.470 a non -negotiable financial... Exactly. The core 00:17:54.470 --> 00:17:56.849 psychological contract of ownership was just 00:17:56.849 --> 00:17:59.930 broken. It was replaced by mandated tenancy. 00:18:00.049 --> 00:18:02.670 You no longer bought a tool. You paid rent for 00:18:02.670 --> 00:18:05.670 access. And if you stopped paying, your entire 00:18:05.670 --> 00:18:08.650 professional workflow just stopped working. You 00:18:08.650 --> 00:18:10.710 couldn't even open legacy files created in the 00:18:10.710 --> 00:18:13.589 newest CC formats. I have to play devil's advocate 00:18:13.589 --> 00:18:15.930 for a second, though. From a corporate perspective, 00:18:16.269 --> 00:18:18.849 there was immense value for the user, right? 00:18:18.849 --> 00:18:21.470 Oh, for sure. Agencies, for instance, now had 00:18:21.470 --> 00:18:24.829 immediate universal access to every single product, 00:18:24.970 --> 00:18:27.670 even the ones they only needed once a year, like 00:18:27.670 --> 00:18:30.920 Adobe Audition. Plus, immediate updates and collaboration 00:18:30.920 --> 00:18:34.059 features. That's a huge value proposition. That's 00:18:34.059 --> 00:18:35.980 absolutely fair. For large enterprise clients 00:18:35.980 --> 00:18:38.460 and big agencies, the move was highly beneficial. 00:18:38.720 --> 00:18:40.859 It simplified licensing, it provided predictable 00:18:40.859 --> 00:18:43.079 costs, and those collaboration features were 00:18:43.079 --> 00:18:45.559 crucial. But for the small players, the mandatory 00:18:45.559 --> 00:18:48.500 nature was the issue. So Adobe essentially traded 00:18:48.500 --> 00:18:51.220 widespread customer loyalty for immense financial 00:18:51.220 --> 00:18:53.819 stability. That's the long and short of it. Wall 00:18:53.819 --> 00:18:56.940 Street loved it. It transformed Adobe's revenue 00:18:56.940 --> 00:18:59.839 stream from sporadic, high -variance sales to 00:18:59.839 --> 00:19:02.319 this highly stable, predictable annual recurring 00:19:02.319 --> 00:19:06.279 revenue, ARR. And that financial certainty drives 00:19:06.279 --> 00:19:08.579 stock valuation more than almost anything else. 00:19:08.819 --> 00:19:11.559 And what about the stated goal of reducing piracy? 00:19:11.640 --> 00:19:13.839 That was one of the rationales that Adobe sometimes 00:19:13.839 --> 00:19:16.910 used for the shift. Did it work? Not really. 00:19:16.990 --> 00:19:18.750 The source material notes that the subscription 00:19:18.750 --> 00:19:21.289 model failed to deter piracy, at least in the 00:19:21.289 --> 00:19:24.109 short term. I mean, within one day of the first 00:19:24.109 --> 00:19:26.089 Creative Cloud exclusive version of Photoshop 00:19:26.089 --> 00:19:29.049 being released. One day? One day. Cracked regions 00:19:29.049 --> 00:19:31.410 were already online. The problem wasn't solved. 00:19:31.470 --> 00:19:33.430 It was just moved to a different medium. So the 00:19:33.430 --> 00:19:35.930 mandatory subscription model had two profound 00:19:35.930 --> 00:19:38.609 strategic market impacts then. First, as you 00:19:38.609 --> 00:19:41.329 said, the financial stabilization. Second? Second, 00:19:41.410 --> 00:19:43.869 it created instant powerful market lock -in. 00:19:44.400 --> 00:19:46.759 Once you adopt CC and save your files in the 00:19:46.759 --> 00:19:49.619 latest format, migrating to a competitor like 00:19:49.619 --> 00:19:52.599 Affinity or Coral Draw becomes exponentially 00:19:52.599 --> 00:19:54.720 more difficult. Right, because you risk file 00:19:54.720 --> 00:19:57.420 conversion issues or losing proprietary data. 00:19:57.680 --> 00:20:00.799 Exactly. This lock -in, supported by financial 00:20:00.799 --> 00:20:03.339 penalties for leaving, became the core pillar 00:20:03.339 --> 00:20:06.480 of their sustained market dominance, and it moved 00:20:06.480 --> 00:20:09.000 the focus away from pure product competition. 00:20:09.240 --> 00:20:11.400 And when a company achieves that level of market 00:20:11.400 --> 00:20:14.339 consolidation, the scrutiny inevitably turns 00:20:14.339 --> 00:20:18.609 to two areas, security and business ethics. And 00:20:18.609 --> 00:20:21.190 Adobe has faced massive criticism on both fronts, 00:20:21.309 --> 00:20:24.150 particularly in 2013. That year was devastating 00:20:24.150 --> 00:20:26.750 for Adobe's reputation. It started as a data 00:20:26.750 --> 00:20:29.230 breach and quickly escalated into, I mean... 00:20:29.920 --> 00:20:32.200 national security incident. It really did. I 00:20:32.200 --> 00:20:33.960 remember the initial reports being shocking, 00:20:34.059 --> 00:20:36.079 but the true scale just kept getting revised 00:20:36.079 --> 00:20:38.160 upward. Yeah. Initially, they reported what, 00:20:38.220 --> 00:20:40.299 like 2 .9 million customers were affected. But 00:20:40.299 --> 00:20:43.059 later, they had to admit that the scale was gargantuan. 00:20:43.279 --> 00:20:45.839 38 million active user accounts were compromised 00:20:45.839 --> 00:20:49.859 and 150 million total records of Adobe customers 00:20:49.859 --> 00:20:52.180 were made available online by the hackers. And 00:20:52.180 --> 00:20:53.920 that's not even counting the payment card information. 00:20:54.490 --> 00:20:58.150 No. On top of that, around 40 million sets of 00:20:58.150 --> 00:21:00.390 payment card info had been compromised the year 00:21:00.390 --> 00:21:03.970 before in 2012, which they only discovered during 00:21:03.970 --> 00:21:06.890 this broader 2013 investigation. So let's zoom 00:21:06.890 --> 00:21:09.769 in on the security failure itself, because the 00:21:09.769 --> 00:21:12.930 methods they used or rather failed to use were 00:21:12.930 --> 00:21:15.470 criticized as being just absolutely rudimentary. 00:21:15.470 --> 00:21:18.990 The criticism was scathing. The stolen data included 00:21:18.990 --> 00:21:22.730 encrypted credit card info, usernames, and reversibly 00:21:22.730 --> 00:21:25.569 encrypted passwords. The critical failure was 00:21:25.569 --> 00:21:28.089 how they handled the passwords. Security firms, 00:21:28.329 --> 00:21:32.420 notably Sophos, were just merciless. What did 00:21:32.420 --> 00:21:34.619 they do wrong? They used weak encryption methods, 00:21:34.759 --> 00:21:37.180 and critically, they failed to salt the passwords. 00:21:37.519 --> 00:21:39.519 Okay, for our listeners, what does salting a 00:21:39.519 --> 00:21:41.779 password mean, and why is the failure to do it 00:21:41.779 --> 00:21:44.480 such an egregious security lapse? Salting is 00:21:44.480 --> 00:21:46.759 a fundamental best practice. When you encrypt 00:21:46.759 --> 00:21:48.599 a password for storage, you don't just encrypt 00:21:48.599 --> 00:21:50.900 the password itself. You attach a random, unique 00:21:50.900 --> 00:21:53.480 string of characters, that's the salt, to the 00:21:53.480 --> 00:21:56.019 password before you encrypt it. Which means that 00:21:56.019 --> 00:21:58.480 even if two users have the same exact password, 00:21:58.720 --> 00:22:00.960 the encrypted result, the hash, will be different 00:22:00.960 --> 00:22:03.599 because of that. So if a hacker steals the database, 00:22:03.900 --> 00:22:06.140 they can't just run a massive dictionary attack 00:22:06.140 --> 00:22:08.720 against every password simultaneously. Exactly. 00:22:09.119 --> 00:22:11.799 Without salting, the hackers can use what are 00:22:11.799 --> 00:22:14.460 called rainbow tables or other pre -computed 00:22:14.460 --> 00:22:17.420 lists to decrypt massive batches of passwords 00:22:17.420 --> 00:22:21.119 extremely quickly. Not salting passwords, according 00:22:21.119 --> 00:22:23.539 to security experts, allowed for the recovery 00:22:23.539 --> 00:22:26.279 of a huge amount of information with very little 00:22:26.279 --> 00:22:28.839 effort. It was a profound embarrassment for Adobe. 00:22:29.549 --> 00:22:31.309 But the long -term threat wasn't just the customer 00:22:31.309 --> 00:22:34.690 data loss, as terrible as that was. No, it was 00:22:34.690 --> 00:22:36.750 the source code theft. That's right. Hackers 00:22:36.750 --> 00:22:39.089 got into Adobe's internal source code repository. 00:22:39.509 --> 00:22:42.130 They stole vast portions of proprietary code 00:22:42.130 --> 00:22:45.509 for major products. Photoshop, Acrobat, and critically, 00:22:45.750 --> 00:22:48.769 ColdFusion. This theft was described by some 00:22:48.769 --> 00:22:51.329 security researchers as one of the worst in U 00:22:51.329 --> 00:22:53.029 .S. history in terms of corporate intellectual 00:22:53.029 --> 00:22:56.089 property compromise. So why is source code theft 00:22:56.089 --> 00:22:58.549 so dangerous, especially years down the line? 00:22:58.880 --> 00:23:00.859 Because the source code is the blueprint for 00:23:00.859 --> 00:23:04.019 the application. If malicious actors have that 00:23:04.019 --> 00:23:06.819 blueprint, they can scrutinize millions of lines 00:23:06.819 --> 00:23:09.720 of proprietary code to find zero -day vulnerabilities 00:23:09.720 --> 00:23:12.519 exploits that Adobe doesn't even know exist yet. 00:23:12.660 --> 00:23:15.059 Which allows them to create these targeted persistent 00:23:15.059 --> 00:23:18.329 attacks. Right. As we mentioned, flaws in that 00:23:18.329 --> 00:23:20.769 stolen cold fusion code were later used to breach 00:23:20.769 --> 00:23:23.410 systems at PR Newswire and Washington state court 00:23:23.410 --> 00:23:26.309 systems, exposing thousands of Social Security 00:23:26.309 --> 00:23:29.049 numbers. It opens the door not just for easier 00:23:29.049 --> 00:23:31.970 piracy, but for long term supply chain vulnerabilities 00:23:31.970 --> 00:23:35.369 for every enterprise customer running those Adobe 00:23:35.369 --> 00:23:38.450 products. And to add insult to injury, the way 00:23:38.450 --> 00:23:40.529 they handled the crisis showed a clear disparity 00:23:40.529 --> 00:23:42.430 in how they valued their customer. Yeah, that 00:23:42.430 --> 00:23:45.279 was bad. Adobe offered affected U .S. customers 00:23:45.279 --> 00:23:48.180 free credit monitoring services, but no similar 00:23:48.180 --> 00:23:50.180 arrangements were made for non -U .S. customers. 00:23:50.400 --> 00:23:52.579 Despite the global nature of the breach and the 00:23:52.579 --> 00:23:55.140 clear financial risk for everyone. It was a globally 00:23:55.140 --> 00:23:57.839 destructive failure managed with a regionally 00:23:57.839 --> 00:24:01.660 narrow solution. So moving beyond security, Adobe's 00:24:01.660 --> 00:24:04.500 history shows this clear decades long pattern 00:24:04.500 --> 00:24:07.220 of leveraging acquisitions to eliminate direct 00:24:07.220 --> 00:24:09.910 competitors. And that has generated significant 00:24:09.910 --> 00:24:12.970 antitrust concerns. The prime exhibit here is 00:24:12.970 --> 00:24:16.309 the Freehand case. This case is the perfect illustration 00:24:16.309 --> 00:24:19.190 of how market dominance, once you have it, can 00:24:19.190 --> 00:24:21.849 be used to stifle innovation. We have to go back 00:24:21.849 --> 00:24:24.789 to 1994 when Adobe acquired Aldus Corporation. 00:24:25.309 --> 00:24:28.329 Right. Aldus owned Pagemaker and After Effects, 00:24:28.509 --> 00:24:31.210 which Adobe wanted. But Aldus also owned a program 00:24:31.210 --> 00:24:34.910 called Freehand. Which was a direct, viable competitor 00:24:34.910 --> 00:24:38.640 to... Adobe Illustrator, their flagship vector 00:24:38.640 --> 00:24:40.880 graphics editor. And the Federal Trade Commission, 00:24:41.079 --> 00:24:43.859 the FTC stepped in immediately. They recognized 00:24:43.859 --> 00:24:46.339 that by controlling both Illustrator and Freehand, 00:24:46.559 --> 00:24:49.119 Adobe would have a near monopoly on professional 00:24:49.119 --> 00:24:51.019 vector graphics editing. So what did they do? 00:24:51.180 --> 00:24:53.259 They issued a consent decree that banned Adobe 00:24:53.259 --> 00:24:55.759 from acquiring Freehand or any similar program 00:24:55.759 --> 00:24:59.480 for 10 years. Adobe was forced to divest Freehand, 00:24:59.599 --> 00:25:02.299 selling it back to a company called Altus. But 00:25:02.299 --> 00:25:04.539 the ban had an expiration date, and the story 00:25:04.539 --> 00:25:07.559 didn't end there. No, it didn't. Altus was acquired 00:25:07.559 --> 00:25:09.940 by Macromedia, which kept developing Freehand 00:25:09.940 --> 00:25:13.430 as a legitimate competitor. Then, in 2005, Adobe 00:25:13.430 --> 00:25:17.329 acquired Macromedia for $3 .4 billion. And in 00:25:17.329 --> 00:25:19.329 doing so, they acquired Freehand again, this 00:25:19.329 --> 00:25:22.529 time after the FTC ban had expired. Perfectly 00:25:22.529 --> 00:25:24.849 legal, but the effect on competition was devastating. 00:25:25.309 --> 00:25:27.349 So once they reacquired Freehand, what was the 00:25:27.349 --> 00:25:30.640 strategic move? Elimination. Adobe stalled all 00:25:30.640 --> 00:25:33.680 freehand development in 2007. They just stopped 00:25:33.680 --> 00:25:36.660 updates, rendering the product obsolete and incompatible 00:25:36.660 --> 00:25:39.079 with future operating systems. So they effectively 00:25:39.079 --> 00:25:41.119 created a situation where they controlled the 00:25:41.119 --> 00:25:43.380 only two professional vector graphics products 00:25:43.380 --> 00:25:45.839 for Mac, and they deliberately made one of them 00:25:45.839 --> 00:25:48.759 useless. Exactly. It created a decade -long vacuum 00:25:48.759 --> 00:25:50.900 in professional vector competition. And this 00:25:50.900 --> 00:25:53.160 action was a massive provocation. It triggered 00:25:53.160 --> 00:25:55.700 5 ,000 graphic designers to stand up and sue. 00:25:56.109 --> 00:25:59.269 It did. In 2011, a group of 5 ,000 professional 00:25:59.269 --> 00:26:02.009 users filed a civil antitrust complaint under 00:26:02.009 --> 00:26:04.970 the banner Freehand. They alleged Adobe violated 00:26:04.970 --> 00:26:07.930 antitrust laws by abusing its dominant position 00:26:07.930 --> 00:26:11.130 to deliberately kill Freehand rather than compete 00:26:11.130 --> 00:26:13.910 on product merit. And their argument was that 00:26:13.910 --> 00:26:16.789 abandoning a robust product line was designed 00:26:16.789 --> 00:26:19.829 purely to funnel users to Illustrator. That was 00:26:19.829 --> 00:26:22.410 the core of it. Now, the suit was settled out 00:26:22.410 --> 00:26:25.599 of court and Adobe didn't admit guilt. The freehand 00:26:25.599 --> 00:26:28.440 community's ongoing demand that Adobe release 00:26:28.440 --> 00:26:31.460 the product to open source developers It just 00:26:31.460 --> 00:26:34.220 shows the enduring resentment over that move. 00:26:34.480 --> 00:26:37.440 It's a crucial historical lesson. It is. If you 00:26:37.440 --> 00:26:39.700 control the infrastructure and then you acquire 00:26:39.700 --> 00:26:41.819 all your competitors, the only thing left to 00:26:41.819 --> 00:26:44.420 compete on is price and service. And as we've 00:26:44.420 --> 00:26:46.819 seen, Adobe has faced consistent criticism on 00:26:46.819 --> 00:26:49.240 both of those. Which brings us to those persistent 00:26:49.240 --> 00:26:52.079 financial and reputation based complaints, especially 00:26:52.079 --> 00:26:54.779 around global pricing disparity. Oh, this has 00:26:54.779 --> 00:26:57.240 been a recurring issue for decades. Retail prices 00:26:57.240 --> 00:26:59.220 for Adobe products were consistently reported 00:26:59.220 --> 00:27:01.549 to be up to twice as high in non -US countries. 00:27:01.849 --> 00:27:04.289 For instance, the price for Creative Suite 3 00:27:04.289 --> 00:27:06.930 Master Collection was £1 ,000 higher for European 00:27:06.930 --> 00:27:09.509 customers than for US customers. And a petition 00:27:09.509 --> 00:27:12.529 protesting that unfair pricing got tens of thousands 00:27:12.529 --> 00:27:15.369 of signatures. It did. And the financial policies 00:27:15.369 --> 00:27:17.589 often felt disconnected from global economics. 00:27:18.599 --> 00:27:21.519 In June 2009, despite the British pound weakening 00:27:21.519 --> 00:27:24.400 against the dollar, Adobe increased its UK prices 00:27:24.400 --> 00:27:27.759 by 10%. And they actively prevented UK users 00:27:27.759 --> 00:27:30.440 from buying from the cheaper US online store. 00:27:31.079 --> 00:27:33.339 So they enforced regional pricing differences 00:27:33.339 --> 00:27:35.180 even when it disadvantaged their international 00:27:35.180 --> 00:27:38.059 customers. Right. And this perception of aggressive 00:27:38.059 --> 00:27:40.819 and flexible pricing combined with, you know, 00:27:40.819 --> 00:27:43.519 notorious software bloat, especially in their 00:27:43.519 --> 00:27:46.140 free offerings, created a major reputational 00:27:46.140 --> 00:27:48.359 problem. To the point that TechRadar included 00:27:48.359 --> 00:27:51.140 two of their cornerstone products, Adobe Reader 00:27:51.140 --> 00:27:54.339 and Flash, on its list of the 10 most hated programs 00:27:54.339 --> 00:27:56.599 of all time. Citing their ubiquity, frequent 00:27:56.599 --> 00:27:58.779 security updates and just general inefficiency. 00:27:59.140 --> 00:28:00.940 And it's worth quickly noting. that this pattern 00:28:00.940 --> 00:28:03.700 of control wasn't just external. No, in 2013, 00:28:04.019 --> 00:28:06.339 Adobe was part of a class action lawsuit filed 00:28:06.339 --> 00:28:08.980 alongside tech giants like Apple, Google, and 00:28:08.980 --> 00:28:11.740 Intel, alleging the company had engaged in illegal 00:28:11.740 --> 00:28:14.299 hiring agreements designed to suppress employee 00:28:14.299 --> 00:28:16.960 compensation. And that suit was eventually settled 00:28:16.960 --> 00:28:20.299 in 2014, with the four companies paying a substantial 00:28:20.299 --> 00:28:25.359 $324 .5 million to the employees involved. So 00:28:25.359 --> 00:28:28.119 the issues of anti -competitive practices clearly 00:28:28.119 --> 00:28:30.700 extended to their internal operations as well. 00:28:30.880 --> 00:28:33.880 OK, so as we enter the modern era. Adobe has 00:28:33.880 --> 00:28:36.240 fully leveraged the stability of its subscription 00:28:36.240 --> 00:28:39.180 revenue to pursue these aggressive acquisitions. 00:28:39.319 --> 00:28:41.920 And they're focused almost entirely on bolstering 00:28:41.920 --> 00:28:44.359 their enterprise services, specifically the experience 00:28:44.359 --> 00:28:47.099 cloud. The pace of these billion -dollar purchases 00:28:47.099 --> 00:28:49.460 is staggering. We saw the acquisition of the 00:28:49.460 --> 00:28:51.859 e -commerce provider Magento Commerce for $1 00:28:51.859 --> 00:28:54.920 .68 billion in 2018. Marketing automation for 00:28:54.920 --> 00:28:58.079 Marketo for $4 .75 billion also in 2018. Workflow 00:28:58.079 --> 00:29:00.539 startup Workfront for $1 .5 billion in 2020. 00:29:00.680 --> 00:29:02.819 And the video collaboration platform... Frame 00:29:02.819 --> 00:29:06.700 .io for $1 .275 billion in 2021. And these moves 00:29:06.700 --> 00:29:08.480 aren't about getting a better version of Photoshop. 00:29:08.640 --> 00:29:10.460 They are about building out the Adobe Experience 00:29:10.460 --> 00:29:13.819 platform. This platform built on their Sensei 00:29:13.819 --> 00:29:16.460 AI and machine learning framework. It uses those 00:29:16.460 --> 00:29:18.859 acquired tools to provide comprehensive customer 00:29:18.859 --> 00:29:21.220 experience management. So they're saying to enterprise 00:29:21.220 --> 00:29:24.279 clients, we don't just provide the design tools. 00:29:24.440 --> 00:29:26.960 We are the operating system that runs your marketing, 00:29:27.059 --> 00:29:29.980 your data analytics, and your sales funnel from 00:29:29.980 --> 00:29:32.950 creation all the way to conversion. That's it 00:29:32.950 --> 00:29:35.269 exactly. They're leveraging their existing dominance 00:29:35.269 --> 00:29:37.509 in creative services to become an indispensable 00:29:37.509 --> 00:29:40.890 piece of enterprise IT infrastructure. If you're 00:29:40.890 --> 00:29:43.369 a Fortune 500 company, moving away from Adobe 00:29:43.369 --> 00:29:45.849 Experience Cloud would mean ripping out your 00:29:45.849 --> 00:29:48.210 core marketing and data infrastructure. Which 00:29:48.210 --> 00:29:50.650 makes the lock -in far deeper than just the file 00:29:50.650 --> 00:29:53.150 formats themselves. Much deeper. And this expansion 00:29:53.150 --> 00:29:55.569 leads directly to the biggest corporate drama 00:29:55.569 --> 00:29:58.960 of the last two years. The failed mega acquisition 00:29:58.960 --> 00:30:02.079 of Figma. Oh, this was huge. In September 2022, 00:30:02.500 --> 00:30:05.559 Adobe announced its massive, ambitious $20 billion 00:30:05.559 --> 00:30:09.380 deal to purchase Figma. $20 billion. Yeah. And 00:30:09.380 --> 00:30:11.759 Figma, at the time, was the leading, rapidly 00:30:11.759 --> 00:30:14.880 growing competitor to Adobe XD, their own prototyping 00:30:14.880 --> 00:30:17.819 tool. Figma had become the darling of the user 00:30:17.819 --> 00:30:21.160 interface and user experience design world. It 00:30:21.160 --> 00:30:23.240 was cloud native. It was collaborative. It was 00:30:23.240 --> 00:30:26.799 fast. It represented a genuine threat to Adobe's 00:30:26.799 --> 00:30:29.559 future relevance in a critical high growth design 00:30:29.559 --> 00:30:31.819 segment. And the moment that deal was announced, 00:30:32.019 --> 00:30:35.519 it faced intense global regulatory scrutiny. 00:30:35.779 --> 00:30:38.559 Immediately, both the U .S. Department of Justice 00:30:38.559 --> 00:30:40.839 and the European Union's antitrust regulators 00:30:40.839 --> 00:30:43.859 expressed deep concern. Their worry was straightforward. 00:30:44.680 --> 00:30:47.220 Adobe already holds a near monopoly in the desktop 00:30:47.220 --> 00:30:49.539 design software market. So eliminating Figma, 00:30:49.680 --> 00:30:52.200 the primary emerging challenger, would just eliminate 00:30:52.200 --> 00:30:54.980 all competition in an entirely new segment. This 00:30:54.980 --> 00:30:57.559 is the freehand case all over again. But on a 00:30:57.559 --> 00:31:00.500 $20 billion modern scale, the strategy of if 00:31:00.500 --> 00:31:02.539 you can't beat them, buy them was finally running 00:31:02.539 --> 00:31:05.059 into serious legal resistance. And the argument 00:31:05.059 --> 00:31:07.099 from regulators was that even though Adobe XD 00:31:07.099 --> 00:31:09.680 had failed to match Figma's growth, Adobe was 00:31:09.680 --> 00:31:11.980 just so dominant that allowing them to buy the 00:31:11.980 --> 00:31:14.240 competitor would halt all real innovation. of 00:31:14.240 --> 00:31:16.220 the sector. And the regulatory process was so 00:31:16.220 --> 00:31:19.220 intense that in December 2023, the two companies 00:31:19.220 --> 00:31:21.539 called off the merger. That failure came with 00:31:21.539 --> 00:31:24.700 a hefty price tag, too. A massive one. Adobe 00:31:24.700 --> 00:31:28.500 had to pay Figma a $1 billion termination fee. 00:31:28.700 --> 00:31:32.259 One. billion. It just underscores the immense 00:31:32.259 --> 00:31:36.059 risk Adobe was willing to take to ensure no single 00:31:36.059 --> 00:31:38.900 viable competitor could exist in its core creative 00:31:38.900 --> 00:31:41.400 market. And this attempt at horizontal consolidation 00:31:41.400 --> 00:31:44.380 was thwarted. But it leads us directly to the 00:31:44.380 --> 00:31:46.700 latest legal battles, which center on the vertical 00:31:46.700 --> 00:31:48.940 integration of their subscription model itself. 00:31:49.220 --> 00:31:51.380 So the mandatory subscription switch from 2013 00:31:51.380 --> 00:31:54.980 has finally generated serious federal legal fallout. 00:31:55.230 --> 00:31:57.509 It has. The outrage over the high cancellation 00:31:57.509 --> 00:32:00.730 fees has been brewing for years. Customers complained 00:32:00.730 --> 00:32:03.049 on social media about the fee, which was reported 00:32:03.049 --> 00:32:05.829 to be 50 % of the remaining annual contract value 00:32:05.829 --> 00:32:08.069 if they tried to cancel early. It was basically 00:32:08.069 --> 00:32:10.170 a financial punishment for trying to leave the 00:32:10.170 --> 00:32:12.269 ecosystem. And this issue escalated dramatically 00:32:12.269 --> 00:32:15.109 in June of 2024, when the U .S. Federal Trade 00:32:15.109 --> 00:32:16.970 Commission and the Department of Justice filed 00:32:16.970 --> 00:32:19.230 a joint lawsuit against Adobe and two of its 00:32:19.230 --> 00:32:22.029 executives. And the suit alleges clear violations 00:32:22.029 --> 00:32:24.250 of the Restore Online Shoppers Confidence Act. 00:32:24.650 --> 00:32:26.910 What are the specific allegations? The lawsuit 00:32:26.910 --> 00:32:30.349 focuses on two things. Deception and difficulty 00:32:30.349 --> 00:32:34.309 of exit. The FTC alleges Adobe failed to clearly 00:32:34.309 --> 00:32:36.690 disclose that early termination fee during the 00:32:36.690 --> 00:32:40.190 signup process. They used fine print, obscure 00:32:40.190 --> 00:32:43.089 hyperlinks, and complex web paths to hide the 00:32:43.089 --> 00:32:46.009 actual cost. They claim users were tricked into 00:32:46.009 --> 00:32:47.970 signing up for an annual commitment that was 00:32:47.970 --> 00:32:50.589 disguised as a simple monthly plan. And what 00:32:50.589 --> 00:32:52.710 about the difficulty of leaving? The difficulty 00:32:52.710 --> 00:32:56.039 of exit? The suit alleges Adobe made it absurdly 00:32:56.039 --> 00:32:58.619 hard to cancel, essentially creating a deliberately 00:32:58.619 --> 00:33:01.329 frustrating cancellation funnel. So customers 00:33:01.329 --> 00:33:03.450 would face obstacles like being forced through 00:33:03.450 --> 00:33:06.089 multiple retention screens, being redirected 00:33:06.089 --> 00:33:08.630 through complex web portals. Dropped calls, being 00:33:08.630 --> 00:33:10.490 transferred repeatedly between representatives 00:33:10.490 --> 00:33:12.430 who couldn't actually process the cancellation 00:33:12.430 --> 00:33:14.170 only to find out later they were still being 00:33:14.170 --> 00:33:17.250 billed. The FTC views this as illegal retention 00:33:17.250 --> 00:33:19.990 through friction. And this is so significant 00:33:19.990 --> 00:33:23.130 because it targets the very core financial mechanism, 00:33:23.329 --> 00:33:26.470 that sticky recurring revenue stream that has 00:33:26.470 --> 00:33:28.990 powered Adobe's stock growth for the past decade. 00:33:29.450 --> 00:33:32.250 Absolutely. The strategy of aggressive lock -in, 00:33:32.329 --> 00:33:34.450 which relied on making departure difficult and 00:33:34.450 --> 00:33:37.529 expensive, is now directly facing a federal regulatory 00:33:37.529 --> 00:33:40.490 challenge. And almost simultaneously in June 00:33:40.490 --> 00:33:44.430 2024, Adobe faced a completely different but 00:33:44.430 --> 00:33:47.410 equally furious customer backlash. Over its terms 00:33:47.410 --> 00:33:50.740 of service regarding generative AI. Right. This 00:33:50.740 --> 00:33:53.900 was a massive trust crisis. A TOS update for 00:33:53.900 --> 00:33:56.180 Photoshop sparked widespread fury because the 00:33:56.180 --> 00:33:59.140 language stated that Adobe may access your content 00:33:59.140 --> 00:34:01.779 through both manual and automated methods, such 00:34:01.779 --> 00:34:04.359 as for content review. And that vague language, 00:34:04.579 --> 00:34:06.660 combined with the industry shift toward training 00:34:06.660 --> 00:34:10.079 AI on user data, immediately raised fears among 00:34:10.079 --> 00:34:12.519 professionals. The concern was immediate and 00:34:12.519 --> 00:34:14.719 profound, especially for design agencies and 00:34:14.719 --> 00:34:17.340 freelancers working under strict NDAs with major 00:34:17.340 --> 00:34:19.539 corporate clients. The fear was that their confidential 00:34:19.539 --> 00:34:22.079 work could be viewed by Adobe staff. Or worse, 00:34:22.260 --> 00:34:24.960 inadvertently used to train Adobe's Firefly generative 00:34:24.960 --> 00:34:27.780 AI models. The uproar was so intense that Adobe 00:34:27.780 --> 00:34:29.739 was forced to respond the very next day. They 00:34:29.739 --> 00:34:32.579 issued a clarification and updated the TOS to 00:34:32.579 --> 00:34:35.139 explicitly pledge that it would not use customer 00:34:35.139 --> 00:34:38.860 data to train its generative AI models. But they 00:34:38.860 --> 00:34:41.159 failed to fully address the separate clause that 00:34:41.159 --> 00:34:43.920 grants them the ability to view customer content 00:34:43.920 --> 00:34:46.849 under NDA. So the core issue of transparency 00:34:46.849 --> 00:34:50.389 and trust remains damaged. Very much so. So what 00:34:50.389 --> 00:34:53.070 does this all mean? If we connect this history 00:34:53.070 --> 00:34:56.289 to the modern regulatory environment, what is 00:34:56.289 --> 00:34:59.309 the ultimate conclusion about Adobe's position? 00:34:59.849 --> 00:35:01.789 Well, the history of Adobe is a paradox. It's 00:35:01.789 --> 00:35:04.550 a paradox of competence and control. Technological 00:35:04.550 --> 00:35:07.610 innovation, especially PostScript and PDF, created 00:35:07.610 --> 00:35:09.889 market dominance. But once that dominance was 00:35:09.889 --> 00:35:12.150 achieved, the company's focus shifted dramatically 00:35:12.150 --> 00:35:14.849 toward financial strategy. Right. Mandatory subscriptions 00:35:14.849 --> 00:35:17.590 and maximizing annual recurring revenue and using 00:35:17.590 --> 00:35:20.090 structural lock -in via file formats and these 00:35:20.090 --> 00:35:22.590 deliberately difficult cancellation funnels rather 00:35:22.590 --> 00:35:24.690 than just relying on having a superior product. 00:35:24.889 --> 00:35:26.570 And the current regulatory environment, especially 00:35:26.570 --> 00:35:29.320 the FTC lawsuit and that blocked... Figma deal, 00:35:29.460 --> 00:35:31.800 it indicates that this aggressive financial dominance 00:35:31.800 --> 00:35:34.119 is now being challenged as anti -competitive 00:35:34.119 --> 00:35:36.480 and deceptive business practice. So it means 00:35:36.480 --> 00:35:38.659 that the high stakes world of creative software 00:35:38.659 --> 00:35:41.880 is now dominated by enterprise financial strategy, 00:35:42.039 --> 00:35:45.539 where a $1 billion termination fee for a failed 00:35:45.539 --> 00:35:49.110 merger is just a cost of doing business. And 00:35:49.110 --> 00:35:51.610 where consumer complaints about hidden fees and 00:35:51.610 --> 00:35:54.210 difficult cancellations trigger federal lawsuits. 00:35:54.550 --> 00:35:57.670 The company built on revolutionary design is 00:35:57.670 --> 00:35:59.590 now being judged on its accounting practices 00:35:59.590 --> 00:36:02.190 and its legal tactics. Okay, let's try to recap. 00:36:02.389 --> 00:36:05.590 Adobe's historical importance is just undeniable. 00:36:05.730 --> 00:36:08.849 Completely. They truly pioneered desktop publishing 00:36:08.849 --> 00:36:11.309 with PostScript. They revolutionized document 00:36:11.309 --> 00:36:14.300 sharing with the PDF. And they built the industry 00:36:14.300 --> 00:36:16.940 standard creative toolkit with Photoshop and 00:36:16.940 --> 00:36:19.340 Illustrator. I mean, they created the infrastructure 00:36:19.340 --> 00:36:21.340 the rest of us rely on. But their contemporary 00:36:21.340 --> 00:36:24.420 status is that of a powerful giant facing significant 00:36:24.420 --> 00:36:27.829 regulatory and customer backlash. That strategic 00:36:27.829 --> 00:36:30.289 shift to the Creative Cloud subscription, while 00:36:30.289 --> 00:36:32.849 financially brilliant for shareholders, has generated 00:36:32.849 --> 00:36:35.630 immense antagonism among the professionals who 00:36:35.630 --> 00:36:37.829 use their products every day. So here are the 00:36:37.829 --> 00:36:39.849 key strategic takeaways for you, the learner, 00:36:40.010 --> 00:36:41.909 as you track the future of this company. What's 00:36:41.909 --> 00:36:44.489 the first one? First, never underestimate the 00:36:44.489 --> 00:36:46.590 power of controlling fundamental file formats. 00:36:47.289 --> 00:36:49.250 By establishing standards like PostScript and 00:36:49.250 --> 00:36:52.289 PDF, Adobe built an infrastructure that competitors 00:36:52.289 --> 00:36:55.050 still struggle to bypass, and that provides a 00:36:55.050 --> 00:36:58.130 critical base level of lock -in. Second, recognize 00:36:58.130 --> 00:37:00.570 the high -stakes nature of that mandatory subscription 00:37:00.570 --> 00:37:03.489 pivot. It solidified their financial stability 00:37:03.489 --> 00:37:06.889 and secured massive recurring revenue, but it 00:37:06.889 --> 00:37:08.849 fundamentally altered the relationship between 00:37:08.849 --> 00:37:11.309 the software vendor and the professional user. 00:37:11.639 --> 00:37:13.900 It moved from ownership to mandatory tenancy, 00:37:14.000 --> 00:37:16.500 a shift that is now being tested in federal court. 00:37:16.659 --> 00:37:19.599 And finally. And finally, note the ongoing scrutiny 00:37:19.599 --> 00:37:22.880 over anti -competitive behavior. From the deliberate 00:37:22.880 --> 00:37:25.639 elimination of freehand decades ago to the failed 00:37:25.639 --> 00:37:28.920 $20 billion acquisition of Figma today, regulators 00:37:28.920 --> 00:37:32.039 are actively pushing back. Against Adobe's near 00:37:32.039 --> 00:37:34.300 monopolistic control and its deceptive business 00:37:34.300 --> 00:37:37.039 practices, as we see with the current FTC lawsuit 00:37:37.039 --> 00:37:39.940 over cancellation policies. Right. Market dominance 00:37:39.940 --> 00:37:42.219 does not mean freedom from regulation, especially 00:37:42.219 --> 00:37:44.260 when your business practices appear designed 00:37:44.260 --> 00:37:47.639 to trap users. So let's leave you with this provocative 00:37:47.639 --> 00:37:51.400 thought to consider. Adobe secured its early 00:37:51.400 --> 00:37:54.179 first year profitability through an essential 00:37:54.179 --> 00:37:56.920 investment from Steve Jobs. who later fought 00:37:56.920 --> 00:37:58.800 aggressively against Flash because he wanted 00:37:58.800 --> 00:38:02.039 to foster a more open web ecosystem. Given the 00:38:02.039 --> 00:38:04.900 massive failed $20 billion Figma deal due to 00:38:04.900 --> 00:38:07.699 monopoly concerns and the current FTC lawsuit 00:38:07.699 --> 00:38:10.019 over business practices that hinge on lock -in 00:38:10.019 --> 00:38:12.480 and high exit fees, will mandatory subscriptions 00:38:12.480 --> 00:38:14.719 and aggressive pricing strategies ultimately 00:38:14.719 --> 00:38:17.239 limit Adobe's ability to innovate and attract 00:38:17.239 --> 00:38:20.599 new users in the face of faster, cheaper, modern 00:38:20.599 --> 00:38:22.949 competitors? That's the big question. You have 00:38:22.949 --> 00:38:25.829 to consider the fundamental power dynamics inherent 00:38:25.829 --> 00:38:28.510 in the modern software as a service model. The 00:38:28.510 --> 00:38:30.690 ultimate challenge for giants like Adobe is whether 00:38:30.690 --> 00:38:32.769 their dominance will continue to breed genuine 00:38:32.769 --> 00:38:35.170 product innovation or whether it will merely 00:38:35.170 --> 00:38:37.630 breed reliance on customer retention through 00:38:37.630 --> 00:38:40.010 difficulty and expense. Something to chew on 00:38:40.010 --> 00:38:42.070 until our next deep dive. Indeed. We'll see you 00:38:42.070 --> 00:38:42.469 next time.