Adobe's acquisition of Figma is bad for everyone (except Adobe)

Adobe is planning to acquire Figma. This is bad for everyone (except Adobe).

Let’s dig in!

Innovate or acquire

Figma has become the industry’s favorite UI/UX tools. That’s bad for Adobe, who sells UI/UX tools.

Adobe had two options: innovate or acquire.

They failed at the former, so they chose the latter. This is normal common when organizations reach a certain size. Organizational structure and market leadership lead to risk aversion, which makes innovation increasingly difficult.

This move is good for Adobe, but it sucks for everyone else.

Competition is good, actually

Dave Rupert suggested that this is actually competition doing its job.

Figma built a better mouse trap for product design and got $20B because of it. They were the better competitor in that competition and received a cash reward.

And he’s right!

Figma did build a better product, and its founders and early investors will be financially rewarded for that. But that doesn’t mean competition did its job.

This acquisition is happening because Adobe can’t compete.

In these acquisitions, it’s usually the founders in a few early investors to see a majority of a financial windfall. Employees? Not so much. Many of them lose their jobs to “redundancy” with the acquiring company.

Customers? Not great for them either.

I expect, in the long term, that prices will go up while the product itself stagnates. Eventually, a new competitor will emerge and the process will repeat.

What competition looks like

When competition actually does its job, multiple companies exist in a space, each pushing the other to continually innovate and improve.

As both (or multiple) products improve, each carves out its own niche within the marketplace.

By focusing closely the needs of their unique customer base, each is financially rewarded not with a giant payout, but with loyal customers that pay well year-after-year.

Stop serving your customers, and that goes away.

That’s what makes competition so powerful. When one company buys another, that incentive goes away, and products stagnate. There’s no reason to innovate or care about your customers at all. What other choice do they have?

An example of good competition

For an obvious example, look at Apple versus Microsoft. For years, Microsoft was on top. Then, Apple out-innovated them to the point that business users started demanding that their companies provide Macs instead of PCs.

Then Apple got too comfortable, Microsoft redoubled its focus on developers, and through a mix of innovation and, honestly, acquisition, put Apple on the defensive again.

Both have fiercely loyal fan bases. Both have been heavily financially rewarded because of their competition with each other.

The acquisition exception

There are, of course, times where acquisitions aren’t terrible.

Sometimes, a product is at risk of going out-of-business because it can’t make its financial model work. An acquisition that integrates it with another product can literally save it from extinction.

That’s more an exception than the norm, but it happens.

Other times, acquisitions allow two products to be more deeply integrated, and that can be good. But it also means that those deep integrations only exist within the parent company’s suite of products.

Rich APIs that let various third-party products integrate is, in my opinion, better for consumers.

It also creates a rich economy of third-party service providers who create and manage integrations. It’s far less appealing for companies, though. They lose some control, and generally, for-profit organizations don’t like that.

Wrapping up

Just to summarize…

1. Competition is good
2. Acquisitions usually signal that a company cannot compete/innovate
3. Acquisitions remove competition, and that’s bad