Adobe Systems, which owns products such as Photoshop and Acrobat Reader was quick to reinvent itself for the cloud era, and move into services, notably, digital marketing. Shantanu Narayen, President and CEO of the $4.14 billion tech company, talks to Business Today on why bold decisions are important. Excerpts:
Q. This is 25 years of airbrushing reality with Photoshop. How long do you think this product of yours will endure?
A. Photoshop has not just endured, it has thrived because of the innovations we continue to make. Images are so pervasive today. Technologies and products thrive when you look at it not as a product for a particular task but as an area. When you think about images, and what's happening, it is still the tip of the iceberg. Photoshop has created industries, it has been used in textiles, is used in publishing, now on Web. In retail, (as well as) in other industries, there is a lot of opportunity. Next, there will be 3D printing. As long as you use the right lens, pun unintended, to think about what the opportunity is, it is just massive.
Q. 3D printing is being talked about as the next big disruptor. You think Photoshop will play a part?
A. You still need an application to run 3D printing. The fundamental issue is that 3D models are hard for people to create. If you can take a 2D picture and do a 3D model with it, that's magic. We see it being used in the film industry too. The reality is that today you have high-end proprietary systems that are still used to edit films. Gone Girl was done using Adobe Premier Pro. 3D is going to transform the industry. Everybody will be able to make a movie with it.
Q. Do you see a full-length commercial movie shot entirely on a phone camera happening?
A. I actually do. TV episodes have already been completely shot on phone cameras. Look at the way publishing has been democratised. Adobe created desktop publishing. But the vision was how to democratise the ability to publish for people who want to express the idea. Today, people are expressing more ideas using images and videos, and not just plain text. Therefore, the next generation of storytelling will happen by definition through crowdsourcing, through mobile phones. We think Photoshop will be part of that journey.
Q. From installed software to the cloud era, how did you choose the right moment to make the transformation in your business models? Did you get lucky with your timing?
A. We like to believe that it was more than luck. We would like to believe it was clarity of thinking and execution that played a part. There are three things to keep in mind when an organisation goes through such a transformation.
One, one must articulate a vision of how it will be better value for the customer. We were fundamentally of the opinion that moving to cloud would offer better value for our customers. We could innovate at a faster pace. Instead of a 12- or 18-month product cycle, we could innovate any time a new device would come out, or the product had a compelling offer. We also thought we could attract a whole new generation of people with affordable pricing on the cloud. I would argue that we were very clear about the vision of why we were going to do it.
Two, every time you say "preserve status quo", it is a failing business strategy. The reason we are incredibly successful is we are constantly thinking about how technology can disrupt us. You cannot be in denial of macro trends. You need to have awareness, humility and understanding that things can change. And, if you don't change, or if you don't lead the change, bad things can happen to you.
Three, and I cannot overemphasise it, is the people. Magic happens when you get the right people. Once you have painted the picture, then you get out of the way. Let people do the magic. This is what we did with the Creative Cloud where customers saw, hey there is innovation coming at a quicker pace and began innovating too. So, it is all about painting the vision and then executing it.
Companies that talk of great strategies and don't execute them fail. Companies that only talk about execution in the here and now, without strategy, also fail.
On the question of timing, we were the first. But we did it with a lot of discipline and thinking. We ran a pilot in some countries, and we got feedback. In some ways the shift was more thoughtful than people give us credit for. People give us credit for bold decisions. But bold decisions come with the adage that a sportsman in the US used: "The more I practice the luckier I got". We put in a lot of hard work.
Q. Where do the insights for new products come from?
A. For me it is always about how does one anticipate customer pain points and help them by providing technology solutions. My belief is, we bring insights in how technology can help. Customers get the insights by articulating their pain points. For instance, the publishing industry is still trying to understand how media is going to transform when it is all digital. You are the experts in storytelling. For us the focus point is how we bring a technology to transform storytelling. At the end of the day, we are very much a product company.
Q. As the world moves to different revenue models, usage-based and outcome-based, how do you cope? You have moved to a subscription-based, pay-per-use-based and SAAS (software as a service) model. It must have hurt financially?
A. The good news is that we have been through the transition already. If you look at our Q1 result you will see the transition is, for the most part, behind us. But while going through the transition you have to have fortitude. One thing companies need to do is be transparent. Also, revenue is not always a metric. Usage is. That gives people confidence that strategy is on the right track. In our case, really, it was about understanding trends and looking at where we think the industry is headed. Ten years ago there was bundling of channels in terms of video experience. Now it is about unbundling the channels to monetise it more. If you understand what the trends are and if you have the right metrics to understand it, and see if you are making progress, the transition is easier.
Q. Often, during the transition, shareholders are not patient. Several companies changing their models have lost their leadership due to shareholder activism. How do you deal with that?
A. We had, what will go down as, a seminal analyst meeting in 2011 where we talked about where we are headed as a company. I think shareholders are incredibly perceptive if you are clear about where you are headed. If you provide milestones along the way and if you measure yourself against the milestones so that people have something to calibrate you against, they understand. If you simply say "trust me" and then not be transparent, you will not be rewarded. The general advice is: if there is change, then you have to be clear about the metrics that demonstrate how you are going to make progress.
Q. You have built your digital marketing portfolio through acquisitions. Omniture, Efficient Frontier and Neolane, among others. How do you zero in on companies? How do you deal with deals that get away?
A. This is such a large opportunity that in the grand scheme of things, you just have to stay focused. To use a sporting analogy - nobody is going to make a century every time they go out to bat. As long as you score more often than you fail, that's progress. Specifically, for Adobe, in digital marketing we have a very comprehensive platform right now. We have made smart acquisitions including Omniture and Neolane. We always look for great tech and great people. Conversely, if the cultural fit is not there, we will walk away. Our success is predicated on amplifying any product we buy into our company.
Q. So, what are the lessons on doing smart acquisitions?
A. One, look at the strategic rationale. We spend a lot of time on it. Two, key is to do a really deep dive into the technology. Make sure there is depth in technology of the company. We are, after all, a product company and for us the technology is important. Three, equally important is people. If there is not a cultural fit, you can fool yourself thinking it will happen. We have spent an inordinate number of time making sure there is a cultural fit.
Q. How soon does it take for integration?
A. It depends on the size. The recipe we follow for all our acquisitions is we appoint a sponsor within a company to make sure the integration goes right. Brad Rencher (Senior Vice-President of Digital Marketing) may be sponsor for one. David Wadhwani (Senior Vice-President of Digital Media) may be for another. So, we have the notion of an executive sponsor - a person who is going to carry forward the integration over the line. We are focused and disciplined on that.
Q. During the business model reengineering, which were the toughest pieces and which were the easiest?
A. Instead of toughest challenges, I would say the thing I underestimated was how important it was to keep communicating - internally and externally to the company, why we were making this change. In your mind you have made that switch. But successful companies have to keep reiterating the communication. That is one of the learnings. Overcommunicate where you are going. You also have to keep inspecting where you are going, even if it is only a small part of the business, rather than where you have come from. The tendency is to focus on where the power is. If you are making a change, new businesses normally do not "have power" because they do not have the revenue. But your actions are going to signal a lot to people. As a leader, wherever you are going, you have to focus a lot on it. Backsliding will send a very mixed message.
The easiest part of the change was the fundamental belief that we could deliver more value to customers. That is what gave us the confidence.