How Adobe Will Compete with Free AI Tools and Protect Users' IP with CFO Dan Durn

Ann Berry (00:00):
How is Adobe going to compete with the free versions of generative AI tools? It feels as though the market's saying you might be doing it the right way, but the right way is maybe not fast enough or good enough.

Dan Durn (00:08):
So there isn't anything Adobe can't do except everything. 

Ann Berry (00:13):
Creating has never been easier. AI tools can generate images, build presentations, and even craft podcasts with just a few clicks. That means that anyone from casual users to professional designers can make content on the go with mobile first platforms like Canva or edit with features on social media apps like Instagram. Now, Adobe, a pioneer in digital creativity is trying to chart a new course. Amidst all that change, once mainly known for serving artists and creative professionals, Adobe has steadily pivoted to reach a broad audience. The company is leaning heavily into generative ai, integrating its Firefly model into core design products like Photoshop and Premier to build out text to video and automated image enhancements and with its flagship Acrobat product, Adobe is also stepping up features for businesses, adding AI assistance for legal workflows, for contract PDFs as one example, but is Adobe late to the game? 

(01:00)
Despite the innovation, Adobe has faced setbacks. The company's acquisition strategy was Delta Blow when it's planned. $20 billion purchase of Figma was scrapped in December, 2023 in the face of pressure from European regulators and Adobe stock is down more than 22% over the past year. While 2025 started strong with 5.7 billion in revenue in Q1, up 10% from last year and nearly two and a half billion dollars in operating cash inflow. The market is asking if the $125 million earned from AI powered tools is enough. We unpack all this and more with Adobe CFO dander. Let's get into it. Want to get straight to some of the news that's come out in recent days and it's really been about you personally buying about $500,000 in Adobe stock. It's usually a good sign when insiders decide to buy a company shares. Tell us what drove that decision for you. 

Dan Durn (01:51):
I think the company is better positioned today against the opportunities we see on the horizon than we probably ever have in our history. We're in the golden era of creativity where creativity is permeating itself into almost every industry and every role in those industries, and given how we're positioned against that opportunity, what I see on the horizon, the velocity of innovation at the company, I've got a strong point of view of what the future growth prospects of the company are, and I see an opportunity to put personal capital behind that point of view and that's the action you saw. 

Ann Berry (02:32):
Let's break down, down together where that opportunity sits in order to do that so that folks can follow along. Talk to us about the three different clouds that Adobe talks about. We've got the document cloud, the creative cloud, and the experience cloud. Describe each of those for us 

Dan Durn (02:47):
So when I take a step back, there's a fundamental shift happening in the global economy. The digitalization of the global economy is underway and if we were to go back over a century, oil and gas was the predominant driver of global economic growth for the better part of a century, and increasingly as the global economy shifts towards a more digital underpinning, digital content and data are going to be the increasing drivers of global economic growth. With that as a backdrop, Adobe is the digital content company with our creative cloud suite of products where we unlock a very powerful power and precision set of tools so that creators can bring what's in their mind's eye to life in the digital world. We're the digital document company, the world's information lives in PDF. There's 3 trillion PDFs in the world today, and it's all on the technology that we founded at our company and drives our Acrobat franchise and then our experience cloud business, we're the digital interface between a company and its customers providing the core infrastructure to connect through digital channels. Any one of those companies, any one of those businesses on a standalone basis would be a great company. All three of 'em together under one umbrella called Adobe. 

Ann Berry (04:16):
Dan, I want to push a little on the analogy with the oil and gas sector that you presented that as you said, the age of energy and fueling the industrial, the US industrial Revolution, but there is one big difference, at least in my mind and I want to sort of unpack this with you a bit. Oil and gas assets did not come for free. Getting access to oil and gas was not freely available, and what has sprung up in the last couple of years has been the proliferation of free AI driven tools. Talk to us about what that means for Adobe and I'll give you a specific example chat. GPT has just rolled out its next generation of imagery, ai, not necessarily free. Some versions are or is a very low cost. How is Adobe going to compete with the free versions of generative AI tools? 

Dan Durn (05:01):
Yeah, it's a great question and I think it's important against this backdrop in this inflection to take a step back, and this is not a market where one size fits all. As we think about our product capabilities and how it's leveraged against the needs of different customer groups, there's one grouping, business professionals and consumers, and there's a second group around creative professionals and marketing professionals and the needs of those two groups are very different in the business professionals and consumers. Those customers, we could touch billions of people in that market. They want an approachable ecosystem of tools and capabilities where you're democratizing access to those capabilities and you're allowing them in an easy touch way to accomplish objectives. The other customer grouping, creative and marketing professionals, this is where the tools that we produce are the lifeblood of how they earn a living and their need for power and precision and controllability and integrated workflows within the enterprise. 

(06:13)
That brings the creative department closer together with the marketing department in those end-to-end workflows so that you can serve up engagement with your customer base and connect that emotional connection, that brand affinity through a digital channel. Today, Adobe, we've got monthly active users within our digital media business of 750 million, so basically we're touching almost one in 10 people on the planet today, on a monthly basis, and we're doing it with a powerful set of tools that have a high degree of approachability and we're investing, but that's not going to be a winner take all game when you're serving the population of the planet. 

Ann Berry (07:01):
Just to push a bit more on this idea of the moat, and you said at the beginning of your Aunt Sudan that there isn't a winner takes all opportunity here. The converse has been shown in tech, right? If you think about search and you go back to what happened in search, you saw Google basically become the be hamoth globally. If you look in social media, you saw Facebook with Instagram and others become the be hamoth globally, so they didn't moment some time become the winners who took all. They also have been subsequently disrupted by free players free alternatives to search like a perplexity or a chat GPT and alternative players in the Facebook example with TikTok, so they have been disruptive. When you look at those precedents, what is the moat against Canva, against Midjourney, against chat, GPT? 

Dan Durn (07:48):
When I say winner, take all the business professionals and consumers, we don't view that as a winner take all market. We think the needs of those customers are going to span billions of people over time and everybody's going to come to the table with a different use case. We think we've got an incredibly strong competitive position in that business. Again, the PDF file format, it's where the world's information lives and we've got through our Acrobat franchise over 650 million monthly active users, people who are engaging with the ecosystem on a regular basis. We've got a clear leadership position there and like anything in technology, it's about the speed and velocity of innovation, how you're unlocking high value problems for your customers to keep them productive, and the engine of innovation at Adobe is moving at a faster velocity today than it ever has, and I don't know of anybody else in the space in technology that's innovating the way Adobe is across all four layers of the AI technology stack. At the bottom is data, then there's models, then there's agents and what we call interfaces, which are the products that our customers know and love. Adobe is innovating across all four layers of the AI technology stack to bring these capabilities to the forefront for customers in a way that's solving their highest value problem. 

Ann Berry (09:30):
Let's take the example of mobile. Photoshop is now coming to mobile. It's a real step in that direction, but others have done it first. When I think about Facetune for example, I grew up with Photoshopping being a verb, right? That seems to be the hallmark of really getting in front of your customers. A Photoshop was a verb. Facetune is now a verb, so is Adobe staying out in front quickly enough? 

Dan Durn (09:54):
Yeah. I think we're at the forefront of innovating with respect to creativity at a time when velocity of innovation matters, what you focus on, what you prioritize, how you narrow the aperture into the things that matter the most is really important. Otherwise, you try to do too much and the execution Christmas atrophies and the company becomes slow, right? At the time it needs to be fast, so there isn't anything Adobe can't do except everything, and so there has to be a prioritization and a sequence of what we're doing and you see that coming to life in the generative AI ecosystem, how we're deeply and natively embedding these capabilities into the products that define our leadership and our ecosystem. We are bringing Photoshop to mobile, but it's all in as part of an integrated r and d integrated product roadmap where not everything is possible all at once. We have to be very careful about how we sequence this engagement so that we're really setting up the foundation for that long-term growth and value creation journey that the company is on. 

Ann Berry (11:11):
Dan, how much has Adobe been able to articulate to its clients that it's differentiated in protecting their ip that Adobe is not training its models using the content in the input of the clients paying their subscription fee? 

Dan Durn (11:26):
Yeah. This is where I think our approach is very differentiated in the market. We only train on data that the company has access and the rights to. We put a lot of effort into our models to make them commercially safe. We're not infringing on other people's ip, we're not scraping the internet for all of the data that's out there. We're very differentiated on this front. The content authenticity initiative, this was founded by Adobe. This is about a digital nutrition label in the era where computer generated machine generated images can create sometimes a trust issue with the population having a digital nutrition label where you can verify, then trust exactly where that image came from. Were foundational in bringing well over 2000 institutions and organizations to the table around content authenticity, creating an open set of standards that everybody can leverage to create that digital nutrition label. This just goes to the seriousness with which we take our role as a leader in the market to bring these technologies to life in a very responsible way. 

Ann Berry (12:46):
Do you think, Dan, that there is a risk that we are past the point in this generative AI space where folks trying to do it the right way that you are, are just going to get punished and that folks who are going to end up winning are those who are just running fast and breaking things? I'm really curious to get your perspective on that because Adobe has had really good coverage around, to your point, trying to be collaborative, trying to have things done in a commercially safe way, and yet you look at your share price and it feels as though the market's saying you might be doing it the right way, but the right way is maybe not fast enough or good enough. 

Dan Durn (13:18):
I've got a high degree of confidence that we're doing things the right way and the way that will perpetuate the leadership of the company. If we take a step back, we've got 3.5 billion of AI influenced revenue inside of the company. There's also a set of products that we're monetizing today that generated zero in revenue at the beginning of 2024 that now have 125 million book of business that's growing. It's going to double in the next three quarters exiting 2025. I don't know of anybody else who's monetizing the technology and embedding it in their portfolio at a faster pace and higher quality way than Adobe. When I take a step back, I think capital markets, I'm a believer in efficient capital markets, but they're not always efficient in every single period of time. I think we're at a period of time where this inflection shaping the market. 

(14:20)
It's creating uncertainty in investors' minds of who the winners and losers are going to be as this inflection takes hold. The good thing, and that can be an intellectual debate today because we're so early in the inflection, the good thing is over time the clear winners are going to emerge. I've got a high degree of confidence that our approach is the right one. At our recent customer summit, we saw companies like Coca-Cola, ServiceNow, Marriott, JP Morgan, talk about how Adobe is really enabling where the industry is going in a way that's driving differentiation, the way that's driving that emotional connection with brands through a digital channel. I don't see anybody else bringing those capabilities to bear the way we are, so I don't view us as being behind. I actually view us as being on the forefront. 

Ann Berry (15:17):
You'll believe that the capital markets are efficient. You've described a lot that's going on down, that's positive and you've done it with real specificity. What is it going to take for the market to share your conviction? 

Dan Durn (15:28):
I think we've got the right strategy and I think we've got the right vision around how to engage with the community. It's an execution story. We're early in the inflection and we've got a great foundation and a great start. We've got to execute against that opportunity. We've got to execute against the vision and the strategy that the company has and we've got to deliver quarter in and quarter out. The type of results that you saw in Q1 where growing double digit at scale, you see the margins of the company strong, 47.5% operating margins, $2.5 billion of operating cashflow. Q1 record all time record for us, RPO, almost 20 billion growing 12% year over year, so it's an execution story going forward. 

Ann Berry (16:17):
Dan, we're going to wrap there with a couple of rapid fire questions, so we've got three for you today. The first is, if you could master one Adobe Creative Suite tool, which one would it be? 

Dan Durn (16:27):
For me, it would be Express. Now I can make birthday cards and anniversary cards for the family, whereas in the past, that wouldn't have been a productive exercise for me personally. 

Ann Berry (16:36):
Let's talk about some of the design influences at Adobe and for which the company is. If Adobe could time travel and partner with any historical artist, who should it be? 

Dan Durn (16:47):
For me, I would go with Van Gogh. 

Ann Berry (16:49):
And what company other than your own do you admire the most at Adobe? Cannot be the answer, 

Dan Durn (16:56):
Probably Nvidia. 

Ann Berry (16:58):
Dan Dunn, Adobe, CFO. Thank you so much for joining. Come back. There's a lot going on at the company. There's a lot going on in generative ai. We'd love to hear your perspectives coming up in 25. I'm Anne Barry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you learn something today, don't forget to like, subscribe, and share with your friends. Our upcoming episodes will feature CEOs and CFOs from Roblox and Hasbro and many more. We'll see you next time.