Adobe acquired the design and collaboration platform Figma for $20 billion. The acquisition is the most expensive SaaS multiple ever paid by a public company. Harbor Research looks at why Adobe acquired Figma in the middle of a tech value slump.
In the C-suites of very large software businesses, you’ll hear people talking about the importance of “seeing trends around corners.” But most software execs these days are mired in the rapidly deflating value of their businesses. If we have to talk about trends at all, let it be meta-trends—large combinatorial developments that you may not be able to see or point to directly, but which, when fused with other similar forces, literally drive historical changes.
Until a certain point in history, if you wanted to follow the progress and location of an airplane you had to literally get into another airplane. Then radar was invented, and suddenly people down on the ground could “image” the path of a distant flying plane without having to fly themselves. In other words, our lives are profoundly influenced by technological innovations that move us away from the literal.
For decades we’ve been hearing that we’ll eventually cross a chasm and computers will finally form-fit themselves to human beings, rather than humans form-fitting to computers. And yet, more than forty years after Xerox PARC, we still haven’t made computing invisible. We live in a world of “apps” (a concept the PARC scientists opposed, incidentally) created by a priestly caste of programmers writing obscure code illegible to ordinary civilians. If you want a tiny app for your business, you have to hire an “app developer.” It’s something like insisting that people get an agricultural degree to plant a vegetable garden.
The time to make computing “disappear” from the consciousness of most people is finally progressing and Adobe’s acquisition of Figma, in many ways, provides proof we are entering a new chapter in how software development will be organized and who will be designing new applications.
THE FIGMA ACQUISITION IS THE MOST EXPENSIVE SAAS MULTIPLE EVER PAID
Adobe, one of the world’s largest software companies, recently announced that it would acquire the design and collaboration platform Figma for an astounding $20 billion. The acquisition is the most expensive SaaS multiple ever paid by a public company at a 50X ARR valuation (compared to Slack’s acquisition by Salesforce at 26X ARR and Github’s acquisition by Microsoft at 23X ARR). The $20 billion price tag is larger than Figma’s total available market opportunity last year.
Figma, which was founded in 2012, has raised more than $332 million in funding and was valued at $10 billion in 2021. The company surpassed $400 million in revenues at the end of 2022 with 800 employees. With gross margins of approximately 90 percent and positive cash flow, the company is an efficient, high-growth software business.
Figma’s differentiation has evolved across multiple dimensions:
- Figma is a leading web-first collaborative and affordable design platform – the company’s mission is to help teams collaborate visually and make design accessible to all.
- The company allows multiple designers to collaborate on design projects in the same files at the same time in a cloud native environment, helping creators manage diverse stakeholders and a rapidly rising volume of content.
In sum, Figma’s tools have brought together distinct design capabilities, multi-creator collaboration and developer tooling that changes the speed, scale and economics of software and digital application development. But why did Adobe acquire Figma in the middle of a tech value slump in the capital markets and why did they pay $20 billion?
Our hypothesis is that Figma has caused so much disruption to the application design and development tools arena that the only real option for a player like Adobe, who sits at the epicenter of design, was to acquire Figma. If Adobe had not acquired Figma someone else likely would have and Adobe without Figma was too risky a circumstance given that Figma would continue to cannibalize Adobe’s revenues.
SOFTWARE DESIGN AND DEVELOPMENT CHANGES FOREVER
Software developers are the trained “specialists” who have created so much of the world we now live in. However, the tools front-end application designers work with today are still a relatively byzantine hodgepodge that are not well integrated, do not enable multi-player collaboration, are not cloud native, and do not produce code once a design is complete. The front-end application design process still requires many separate tools and steps to just produce a design. Once the design is complete it still requires expensive developer resources to be converted into code.
How does Figma impact these processes? At its most basic level, Figma automatically creates the code from the designer’s “design.” This means that a workplace scenario that used to take a combination of designers and top-level software engineers days, or even weeks, literally becomes an integrated design-code process that a designer can execute in hours.
Figma closes the gap between design tools and developer tools. Designers are no longer stuck in the era of using Photoshop to draw a mock-up UI-UX design and then waiting for developers to create the front-end application code.
Furthermore, every workflow provision across a business would be equally, if not more, efficient because it uses the same toolset and because Figma enables large-scale collaboration between and among designers. Software application development becomes a new environment for designers who don’t possess high-level coding skills short circuiting the traditional software developer tool chain.
Ultimately, Figma’s price tag underscores the significance of the rise of low-code/no-code software tools and how new app development capabilities combine with new deployment tools and cloud technologies to force everyone in the industry to completely re-think software development.
AUTOMATING SOFTWARE DEVELOPMENT
When telephones first came into existence, all calls were routed through switchboards and had to be connected by a live operator. It was long ago forecast that if telephone traffic continued to grow in this way, soon everybody in the world would have to be a switchboard operator. Of course, that has not happened, because automation was built into the systems to handle common tasks like connecting calls. We are quickly approaching analogous circumstances with the scale and diversity of application requirements users and customers want to address.
Many industry participants will tell you that the answer lies with new low-code/no-code frameworks. We think this is partially but not completely true. Low-code tools typically offer a graphical UI to simplify the process of structuring a program, and then the system assembles the actual code that gives machines their instructions behind-the-scenes. The issue for the users of these tools comes when they—or more likely their developers—have a subtler problem and need to go deeper. They quickly find that “behind the scenes” is a room with no doorway in. If the interface doesn’t have a tool for it, it doesn’t exist. In this sense, typical low-code frameworks fail to leverage the greatest thing about software, which is its rapid movement and fluidity. They all manipulate the same programming problems, but their different solutions are locked away in a more tightly-coupled data structure that their simplified UI hides from the user. This leaves their customers “vendor-locked” into that particular platform to the exclusion of anything else.
With Figma, there are multiple options for exporting the code and hosting it in a more traditional development environment – Figma doesn’t lock customers into a “closed” SaaS provider platform, allowing users to maintain control and governance over their data and IP using either their own captive infrastructure or external cloud services provider.
Developers and users need a completely new approach to automating development and workflows – one where open-source software development tools and libraries are modular and interchangeable and where automation of software development and re-use of software components can be realized in a variety of flexible configurations.
FIGMA IS A BIG PART OF THIS STORY BUT NOT THE WHOLE STORY
Figma’s tools are focused on front-end application development which has increasingly been de-coupled from deployment and back-end systems management, but that’s not the whole story. Next generation frameworks need to enable new methods of deploying applications providing transparent error handling, monitoring, and continuous integration/continuous deployment (CI/CD) as well as infrastructure management and tools.
In many ways, open innovation and open-source tools have virtually taken over the traditional software development world. Never before has open innovation been as much a part of software development as it is today. Open-source tools have become central to developers impacting every layer of the software stack, from operating systems and programming languages to middleware and development tools.
Commercial open-source players, along with cloud infrastructure vendors, are turning open-source software into the central organizing schema for all of software. Together, these capabilities are impacting the speed to market for applications, the leverage of critical resources and the economics of digital development by providing powerful infrastructure without having to invest significant up-front capital. The combined impacts of these capabilities are leveling the playing field for start-ups and new market entrants; open-source innovations are forcing the giant software incumbents to re-examine how they competitively develop software.
SOFTWARE FUTURES
If you pull on that thread even a little bit, it’s not hard to see that the days of the monolithic enterprise application software businesses are coming to an end.
Given the abundance of data that will flow through all of these systems, users increasingly need optimized tools to orchestrate the value presenting itself. At the same time, they will need to engage diverse business and technical personas to make use of the new tools.
But the software business cannot continue to do this the way they’re doing things now. It requires a radical rethinking of the software business model—including the fundamental notion that I need hundreds or thousands of over-priced “poets of code” working in my software business. Next-generation software tools will enable developers to build scalable software by allowing them to focus on business tasks, rather than worry about writing, piecing together, and maintaining fragmented code and building blocks.
Monolithic applications are a thing of the past. Applications are now distributed and dynamic in nature, needing to work across different cloud configurations, diverse locations and devices. Software development needs a completely new approach – one where open-source software development tools and libraries are modular and interchangeable and where applications can be decomposed into microservices and components that can be assembled and then re-used. New development frameworks will need to simplify application development and shorten time to market by better organizing developer tools and run-time support for multi-cloud, edge/IoT applications, new multimodal user experiences and application-specific hardware devices.
Software architecture is quickly becoming the foundation of every technology-driven organization; not just hardware and software companies but also any organization that is building digital capabilities. However, relatively few players understand how dramatically the software development arena has begun to change and the strategies they need to maximize value. ◆
