Greetings! I want to thank everyone who's dialed in. You know, I'm thrilled, you know, today, here, because we have one of our premier companies in our franchise, Adobe, presenting with us. Our presenters, we've got Ashley Still, she's the Senior Vice President and General Manager of Digital Media. Of course, everyone knows Jonathan Vaas, who heads up the Investor Relations program for Adobe. Greetings to both of you. For our audience, there is a chat function if you'd like to ask any questions. We will do some Q&A at the end. Feel free to type in your chat questions, and I'll be happy to read them to Jonathan and Ashley. Why don't we start?
Ashley, maybe just to start the discussion, since I don't know if many of our listeners are familiar with you and your role at Adobe, so, maybe you could share that with us. You know, what is your role with the company, and, and where are you focused these days?
Sure. First, I've... thank you for having me. It's great to be here. Looking forward to the time today. I've been at Adobe for quite a while. I started about 20 years ago, and I joke that, you know, I get younger and younger every year than when I started. So it's great that they hired me out of high school. And, just kidding, of course. I have had many roles in the company at that time. My current role is Senior Vice President of Creative Product Group, and I'm responsible for product engineering and business strategy for Creative Cloud, which I'm sure you all have heard of.
So I'm really focused on product innovation, technology innovation, and of course, business innovation, around our core products, as well as emerging businesses, like Frame.io and 3D. You know, in my 20 years at Adobe, there has never been a time with kind of as much innovation and product opportunity as we have today, so it's a really exciting time.
Terrific. Well, maybe just starting out, you know, Ashley, you know, what are some of the things that have you most excited these days for the Creative Cloud and Digital Media business in general?
Yeah, absolutely. You know, we talk about our mission a lot. Many people at Adobe, and one of the reasons you see so many people with tenure, you know, we also talk about people, boomerangs are very common at Adobe, is, our mission really speaks to so many of us, and the opportunity to enable people and businesses to tell their story and expand their brands. As we say, "Change the world through digital experiences." There are a couple ways that I'm really excited that we're able to do that even more. First, our investments in Firefly, which I'm sure we'll talk about a lot today, and our investments in generative AI, and certainly also our investments in Adobe Express, which is our communicator offering.
It's web-based, template-driven, really enable us to expand the market for who can create great content. These are really purpose-built products for non-professionals. Many non-professional use our flagship products, but these really give us the ability to build both purpose-built product experiences as well as good markets that enable anyone to create whatever is in their mind's eye. Second, for Creative Cloud, just the amount that we can innovate in our flagship categories, and certainly I'll talk a lot about Photoshop, and Illustrator, and Premiere, and, you know, others, where we are fundamentally innovating on the core creative workflow, and that's exciting, right? That we...
It's not every year, right, where you are taking your core products and driving innovation that makes them more expressive, more productive, and that's exactly what we're doing now with, with our core product line. Third, content supply chain, and, and I know we'll talk a little bit more about this later as well. You know, I've been involved with our enterprise customers for a long time, and, and, you know, just these waves of digital maturity have, have always accelerated the need for content. You know, just when companies started creating websites, right, and then they had mobile apps, and then there was social. Just the, the waves of, of digitization across the enterprise, each one has exponentially increased the need for content. Now the trend of true personalization, means that more content is needed than ever.
Right now, it's really just not economically viable to get to true content personalization. If you take tools, workflows, and AI, and bring them together in a solution, there's a huge opportunity to actually meet this need. Those are just some of the things, and I'm sure we'll, we'll jump into them in more detail.
Absolutely. It's a great, great intro. Ashley, I gotta ask you at least the obligatory question about the macro and demand trends that are out there. Maybe if I asked it to you this way, that, you know, Digital Media business in general, it's been generating very strong results here in this fiscal year. What can you share with us in what you're seeing in terms of demand trends, you know, from those enterprise and, and consumer customers?
Absolutely. Certainly I can comment on what we've seen kind of year to date and spoken about in our Q2 results. Demand continues to be strong. We're particularly seeing strength in traffic, which is great to see, and this is really across the board. We for our Flagships, Acrobat, Photoshop, Lightroom. You know, I one of my roles at Adobe was bringing Acrobat Web and Acrobat Mobile to market, certainly those are performing incredibly well in terms of top of funnel. Really again, speaks to our ability to expand our customer base across our product line, right? That's one of the things that's just been phenomenal to see with Acrobat.
PLG, or product-led growth, continues to be a great driver, certainly for Acrobat Web and Mobile, which I discussed, but also, we've been investing in PLG motions for Photoshop as well, actually within the application. Photoshop is a product where the aspiration to create in Photoshop just continues to grow, across customer segments, and, we're using PLG to, to make different types of customers successful as they, as they match their aspiration for Photoshop to their usage of Photoshop. Lightroom continues to have a really strong, strong year. Lightroom Mobile, we continue to invest and have just made that application easier and easier and more and more delightful to use.
We're seeing growth in mobile-only users of Lightroom that are both adopting and, and also converting to paid, which is also great to see. We have had some of the most successful betas in company history, or really the most successful betas in company history this year, and we continue to see really strong demand and usage of those betas. Firefly has had 1 billion images created, and actually, this past week, we also passed 1 billion images created in Photoshop through Generative Fill, which we'll talk more about as well. Both a lot of demand across the portfolio and then a lot of engagement with product innovation that we're bringing to market. Express is also having a great year. The scale and pace in product innovation is really unparalleled.
We're putting out more than 100 releases a year on the Express side. Huge beta release in June that really advances the state-of-the-art with video and design, all in the same editor within Express. Feedback has been incredibly strong, and particularly with Creative Cloud customers. We have some features that really make Express incredibly unique for Creative Cloud customers, like linked assets and PDF editing that I can talk a little bit more about later. A lot of our Creative Cloud customers, we see really starting to engage with and adopt Express.
Um-
Those great. I'll see if Jonathan has any other comments.
Yeah, I, I, I couldn't resist either. When you asked me about demand, it, it reminded me of some investor events we did right at the beginning of the year. Investors have been hearing a bunch of different things from different companies in terms of what the macro is looking like this year and what they're seeing in demand. I, you know, I think we've been pretty consistent this year in saying, you know, from, from what we're seeing in consumers all the way up to the enterprise, we see strong demand. It goes to show you the importance of our markets where we compete. I, I often say, you know, only half joking, that digital content and the hierarchy of needs is, you know, somewhere between air and food for the way people live their lives every day.
It's so critical to the experience of what we do every single day and how we relate to the world. Enterprises, especially the largest enterprises, really aren't slowing down in investing for what they believe digitization means in the future, personalization at scale. All year long, we've talked about these big transformational deals we've done in Digital Experience with bringing together real-time data together with content supply chain and really a platform approach of buying our solutions. It just shows you how important that vision is, that these large enterprises are making those sorts of investments.
Yeah.
It's been exciting to see the resilience in our markets and demand, at, at a time when that, that isn't necessarily true across different categories of software. I, I, I would also add, I think overall, we're starting to see, that the economy has been resilient, the consumer's been resilient, and, we, we feel good about how we're positioned.
Perfect. Actually circling back on the content supply chain evolution, you kind of talked about that a little bit. Maybe diving into that, from your perspective, has the acceleration in content velocity and in personalization with content, is that driving demand? For the Creative Suite within Adobe, and maybe you can touch upon some of the key growth areas within content generation for the Creative Cloud products.
Absolutely. I loved Jonathan's analogy or metaphor, right, to human needs. I would actually argue that demand for content is actually more elastic than sleep or food, right? Like, there's, there's a certain point where you saturate your sleep or, or hopefully saturate, you know, how much you're eating a day. What we've seen is this very elastic demand for content as technology and enables more consumption of that content, right? That really goes to a few things. It has business ROI, right? The better your content and the more personalized your content is, it drives business results. Second, there's more and more channels, right, to reach consumers. Those two vectors are really driving this kind of insatiable demand for content.
I see it in my own children, whether it's TikTok or whatever it might be. We see a lot of demand, not just for creative tools, but again, it's the combination of tools, workflow, and AI that we're really seeing a demand for in the enterprise. That is when we refer to content supply chain, what we're referring to is whether it be marketing use cases, media use cases, but the need to have this broad solution, really end-to-end solution, that starts from ideation all the way through execution and publishing to digital channels, and the optimization of that content. You know, whether it's Creative Cloud, Workfront, AEM, Firefly, Express, right?
What are the, the combination of tools and workflows, and, and making sure that those are integrated, so that if you're enabling your marketers to create content in Express, so that not every, you know, content request is going back to your very constrained studio, that content is available in AEM automatically, right. That you have, brand guidelines and templates that are maybe created in Creative Cloud, but available and kind of enforced, if you will, within Express. Workfront, of course, has been a total game changer for many of our customers to really kind of make sense of the madness of the projects that people are working on, the budgets, the schedules, and giving organizations, the ability to actually, have visibility across all of the projects that, that are operating, across the enterprise.
Of course, AEM, really foundational as a source of truth and a way to publish and optimize across all of these channels. All of this is resonating with our enterprise customers, both individually, but increasingly as part of an integrated solution that increases productivity and, and again, just gives more visibility for both the experience optimization, as well as the cost optimization within the enterprise going forward.
Great. Ashley, I'd like to switch the conversation now over to generative AI here. Very topical. Maybe we'll start first big picture here, and then we can, you know, dive in, into Firefly, as we progress. Maybe just starting from a real high level with generative AI. You know, we get a big questions all the time, whether Adobe is gonna be a winner or loser in generative AI. I think the consensus view, my view, is Adobe is clearly a winner. There are naysayers out there that they think it could be cannibalistic to some of the core creative tool sets like you have with Lightroom and Photoshop, Illustrator, et cetera, as customers, they migrate to what could be a faster, easier, less creative level of effort software with Firefly or with Express.
What gives you the confidence that Adobe is going to be a winner in generative AI?
Sure. Well, first I'll go back to, you know, my... What I've seen and, and, and my experience is that, the demand for creativity and, and kind of expression, as well as the demand for businesses for content, is incredibly elastic, right? Demand is not fixed. So as you have new ways of creation, more people come into the market, right? So we talk about this in two ways: how we raise the ceiling or advance the state-of-the-art for creative professionals, and then how we expand the tent for everybody else. There are a lot of people in the world that don't create content today, right? It's too hard. They don't believe they have the creative skills. They don't enjoy the, the creative process, as much as, as others do.
All of that is an opportunity to bring those people into the creative process, right? We've seen this with Firefly. People who are not, you know, they, they don't aspire to learn Photoshop, they can go to Firefly, type in their idea, and they have content, right? We see this with Express. You can go, you can browse templates, you can browse stock content, you can now again, the text-to-image with your own ideas through Firefly and Express, and now they're creating content. Bringing people into the market with new products and, and ways of creating is, is an incredibly interesting and, and meaningful way to expand Adobe's opportunity, but also just to expand the market.
When, when we talk about raising the ceiling or advancing the state-of-the-art, creative professionals, first of all, when they are more productive, they tend to create more content, right? They create better content, more impactful content, and that's again, what we see with AI, where they're not just, using AI, you know, to replace what they're doing. They're integrating it into their workflows, and they're producing better content, more content, et cetera. We see this both as an opportunity to just make our tools and products more valuable for the creative, creative professional, but really also, expand the tent, if you will, to bringing more people into the market.
Ashley, just to touch on that point, 'cause a, a question came in from an investor, and I think, I think you just answered it, but, but just wanna make sure so we can answer their question. The, the question is, will AI reduce the number of digital content creators in the future, you know, ultimately leading to a, to a smaller TAM...
Yeah
... or, or do you believe the opposite, that it's actually gonna increase?
I believe no. I think we will see, as with all, you know, significant technologies, like, that jobs evolve, right? I think you will see some jobs be automated, right? Other jobs emerge. For example, one of the things that we see is that people who have a design background actually write different prompts than people who don't. Someone still has to drive the AI, right? Someone still has to say: "How do I produce on-brand content, impactful, expressive content," working with the AI and then evolving and editing the content that emerges from the AI, right? I think there will be more of those jobs in the market. There are, there are jobs right now where it might be just localizing or taking a single asset and producing 20 different versions of the aspect ratio, right?
Because you've got different places that you need to use that image. That work will likely be absorbed. I think the balance of there will be an increase. Think about, again, any technology. Think about the web, right? There were certain jobs that probably were absorbed as businesses invested more in digital channels, and there were jobs that were created. There certainly will be an evolution in the types of creative roles, but I don't think at the macro you'll see a shrinking of the market opportunity.
I have, I have some other thoughts here as well. One thing we talk about a lot is the way personalization at scale, or you could call it content velocity, is driving needs for creators to produce way more than they used to. You know, the, the world I grew up in, a brand might have a piece of content that would last a year. Today, the shelf life of content is a much shorter period of time, and, and brands are producing way more content for, for different types of people in different areas and meeting them where their interests are. Creators say in the next few years that the amount of content they'll have to produce will, will increase fivefold from where it is today.
I, I don't believe that the, the, the productivity enhancements from generative AI will even be enough to meet that need. It'll, it'll help, but in some ways, I also think this is similar to what Adobe, with our creative business, has been doing for decades, which is, if you, if you go back 10 years and ask a Photoshop user how they spend their time, they'd spend hours of their day masking objects.
Yep.
Now they can mask objects in a click, but they're so they're doing more deep ideation, better work in the tools, producing more. I think this, there are parallels with all sorts of other industries. When, when knowledge workers became more productive with the PC, when, when engineers become more productive, people actually invest more in them because, because that productivity dividend drives business outcomes.
Yeah.
There's a number of reasons why we're bullish, you know, even on seats with the productivity enhancements of generative AI.
Ashley, let's, let's talk about Firefly, Adobe specifically. maybe just taking from a step back, what is Firefly? You know, is Firefly.
Yeah
... a standalone product, or is it an embedded technologies within the core Creative Suite or products? What's generally available today with Firefly?
Yep. Yes to, to both of those and more. Firefly is first and foremost Adobe's family of creative generative models, and we started with text-to-image. You know, Firefly is not an LLM. It's not a large language model. It's a diffusion model. It creates media, right? Pixels, we've started to expand into vectors. Certainly on our roadmap is video and 3D and, you know, you can think of every media type. Firefly is also not one single model, right? It started as one model, but you, you really should think of it as a family of models. There are different ways that we then productize Firefly. Firefly is a product in and of itself.
There's a Firefly website where, again, anyone with access to a browser and has an idea can create images, can recolor vectors, can play with Generative Fill as well within the Firefly product experience. I'll talk a little bit more about commercialization later. We have said that we will make Firefly a standalone product. We also are building unique and relevant workflows leveraging Firefly within our flagship applications, and one of the best examples of this is Generative Fill in Photoshop. What Generative Fill does is it is deeply integrated into the core of the Photoshop workflows. Photoshop is unique because, as Jonathan said, you can select down to the pixel level, right? Then you can also composite using layers in Photoshop.
All of that now works with generative AI. If you select an object or you select just an area of the image, you can enter a text prompt to either add or remove content to that image. When that content is generated, it's using all of the data from your selection and the context of the image in addition to your text prompt. It is literally uniquely generating content for that specific piece of content, as well as your ideas or your prompts. This is what's resonating so much with Photoshop customers, because it's putting the power of AI into the hands of the creative professional. It's their ideas, their content, and that's where we see all of these productivity and expressiv- and expressiveness gains with Generative Fill.
That is just getting great response, as is Firefly as a standalone product. We're also integrating Firefly into some of the DX products, particularly AEM. Again, you can think of needing to create images, illustrations, et cetera, within the AEM environment. Adobe Express is also a great example of where we're really changing the underlying workflow and enabling people to create images, create text effects, all within Express, but integrated with the templates and other capabilities that already exist there. Lastly, we also announced an offering for Firefly and Express in Enterprise. We believe, you know, there's some unique capabilities of that offering. We're offering indemnification, which we'll talk a little bit more about later as well.
One of the things that's unique for enterprise and how we'll evolve that productization of Firefly is Custom Models, bring your own data, all of those capabilities that enable enterprises to really have Firefly understand their brand and really help them produce content at scale.
Terrific. Ashley, terrific. Can you talk a little bit-- Before we get onto the monetization path for Firefly, can you talk a little bit about the moat, about the differentiation? We actually had a question from an investor, and, you know, they were curious your thoughts if generative AI makes the competitive landscape tougher for Adobe, since there's more existing models.
Mm-hmm
... maybe just talk about the differentiation and the moat for Firefly.
Yeah. One of the, one of the decisions that we made in bringing Firefly to market is, we, we had two goals. Obviously, we have to have the best model, right? It has to produce, amazing, high-quality content, given, you know, the, the markets that we're in, but it also needs to be commercially viable. When we were talking to customers, you know, a year, one and a half ago, about generative AI, the biggest thing that we heard was the legal considerations for practically how they could use generative AI to scale and to create.
The, the decision that we made was to focus on training Firefly, all the, the first Firefly model and all subsequent models, training it on content where we have an explicit license to that content, or that a the, the license is open and available to everybody. We used Adobe Stock content. We're unique that we actually have a, a, a, a library of millions and millions and millions of assets that we can use, that, that we have the rights to, to train Firefly with. It's not just those rights, but we also have a moderation process for that content, and we always have. So when, when contributors submit content to Stock, there are human moderators that make sure that there are model releases, that, there's not offensive content, et cetera, et cetera.
All of that means that we have just an incredibly unique training set. That's first and foremost. Second, I think we're differentiated because we have not just the AI, but we have the tools, and they're integrated together. We see this, you know, a wealth of examples. It's hard to find, particularly in professional use cases and business use cases, where AI content is being used unedited, right? AI might be using, being used for ideation, but when you actually get into the workflows that businesses have to produce content, that content is certainly being accelerated by AI, but clearly the tooling is still driving the output. Only Adobe really has both the AI as well as the tools and workflows.
Commercial, commercial safety, as well as, the, the integration with the tooling are really differentiated.
Perfect. Well, let's talk about the monetization path with, Firefly. I guess we'll start first with, with the model, the monetization model. Is it, is it gonna be subscription-based, transaction-based, consumption-based? We've heard about credit packs. How should we think about the monetization-
Sure.
Model for Firefly?
Yeah. There, there's not a single way we will monetize Firefly. You know, there are a number of ways that we'll begin monetizing Firefly this year, and certainly more in the future, right? I would think of this as a evolution, right? I mean, this is... Think of Firefly as a foundational way we can create product value for a very long time to come, right? First, I'll say that. Again, that's one of the reasons why I'm so excited about generative AI and the trends, because it's just a wealth of opportunity to continue to create customer value and product value over, you know, the next five years, right, and longer. First, I'll just reiterate things that we've said, you know, over the past couple months and reinforce them.
First, Firefly will be available both of it as a standalone freemium offering, as I said before, for consumers, as well as an enterprise offering, and we've announced both, right? The enterprise offering is also available. Firefly will also enable us to expand value within our flagship applications, and that gives us the opportunity to drive higher ARPUs, as well as higher retention. Again, the engagement that we're seeing, I'll just say it again, we have a beta. You have to download a separate application, and there have been 1 billion images created in this beta. That's-- If that is not engagement, you know, it's, it's hard to find a better example. Third, you talked about credit packs. We certainly will have credit packs available for customers who want faster results.
I mean, remember, one of the variables with generative AI is all of this is hitting today a server, and it needs GPU capacity. One of the ways that we can kind of monetize and create value is the speed at which you, you want results, or are you always in the priority lane, so to speak. I don't know if everyone has fast track, right? Certainly APIs, and APIs are relevant not only to a developer community, but certainly enterprise, and I talked about that as well, being able to create Custom Models with their proprietary content. Certainly, partnerships enable us to both expand our reach and top of funnel, but also can offer specific monetization opportunities as well.
Express as well, you know, in addition to Creative Cloud and our flagships, expanding value there. Lots of monetization opportunities, both in the near term, not even getting to new products that we may create.
Terrific! Actually, we had a question from an investor about just the distribution and the go-to-market strategy. How to think about that with Firefly from the company?
Certainly. You know, first, Adobe is in a great position where we just have a massive footprint across digital channel and enterprise. We already have an incredibly scaled go-to-market. Firefly, you know, both fits into our existing channels and also gives us an opportunity to expand them. Again, you know, it's. Think about the power of when we, when we brought products to the web, anyone with a browser could access those products, right? Now we're bringing products to the web, where the only thing you need to be able to do is type to, to engage with our products. It's just this next level of expansion of, you know. Think about Acrobat as our, our, the, the product that is most broadly distributed, and this has an even lower barrier to engagement and adoption than something like Reader, right?
Which, which, again, is just massive. Then, you know, we have a lot of existing products that we can make better, and increase both the demand for those products, as well as the value of those products. Of course, we have a lot of ideas for standalone offerings, beyond Firefly.
Great. Jonathan, maybe this is a question for you in terms of the thinking about the financials impact to Firefly. What's the right way of thinking, maybe not the magnitude, but maybe at least from a timing perspective, when Firefly will start having some impact to net new ARR, and then, also on the expense side? Starting to think about when, you know, that could have an impact to the financials?
Yeah, sure. Like Ashley said, there's a number of ways we're gonna monetize this. You'll see announcements around those monetization methodologies this year. You know, as we look into 2024, certainly we expect Firefly to be a contributor to our ARR. We'll wrap more color and context around that, I'm sure at Q3 earnings, which isn't far away, as well as an investor event we'll have at MAX. On the cost side, you know, I think investors have been really pleased that we've been able to drive the adoption in these betas when we're still pre-monetization. Like Ashley said, more than 1 billion generations. That right now is R&D expense for us because we're not monetizing this yet.
You'll see a small shift when we start to monetize this of some of those costs moving up to COGS, but we're talking about a small shift, but you'll make up for that on the operating line. We think, you know, in the long run, these technologies are gonna be very, very profitable for us and of course, drive growth. We're certainly thinking about it as drivers, not just of top line, but growth and profitability.
Ashley, we're almost out of time. I just wanted to ask you one just quick question about the Express business, 'cause that clearly has been a highlight, you know, for the company and the business here this fiscal year. Can you share with us, you know, what is driving the up-tick in that, that business this year? Then, maybe anything else that you'd like to share in terms of either the growth or the product roadmap, strategy for Express?
Yeah, absolutely. First, Express is just a fantastic product, and it's, you know, increasingly unique in its ability to enable communicators to edit video, animate images, edit, edit images, and take all of that content and produce fantastic digital work, whether it's social media posts, presentations, whatever it might be. First, I think just the underlying product innovation is driving a lot of interest and demand. Then second, as I mentioned before, you know, there are some incredibly unique integrations with Creative Cloud and flagship applications like Photoshop now. For example, you can link assets between Express and Photoshop, so as you, you know, update that content in Photoshop, it just automatically updates in Express.
That saves time, and again, we already see communicators using not just a single tool, but, but a variety of tools, and they're sometimes working with creative professionals as well. We're able to just make those workflows really seamless. Lastly, as I mentioned before, we've brought PDF workflows into Express as well. Being able to import PDFs, edit them, add templates to PDFs, again, just a very common use case for communicators that we've made incredibly easy, but also, kind of visually impactful within Express.
We're out of time. Ashley, Jonathan, I wanna thank you very much for presenting Adobe today. You know, it's great seeing both of you. Thank you.
Thank you so much.
Thanks, Mike.