MEMO FROM THE FUTURE: ADOBE

CEO Edition

INTERNAL STRATEGY BRIEF June 2030

SUBJECT: THE FORK IN THE ROAD — SECURING ADOBE'S NEXT DECADE

Dear Leadership Team,

When we gathered for our Q1 2026 strategy summit, we believed that Firefly and our embedded position in the creative workflow would inoculate us against generative AI disruption. We were confident. We were also, in some ways, wrong.

This memo is not a postmortem. It's a road map for the next chapter.

THE SITUATION TODAY

It's June 2030. Let me state the uncomfortable truths that our board and I have spent the last six months digesting:

Creative Cloud is contracting. We've lost 6 million subscribers since peak (24.1M in 2028 to 18.2M now). Our gross dollar retention rate fell to 88% last year—the first time in our history that we're losing money faster than we're acquiring it. The $72.49/month subscription that felt like a moat now feels like a price umbrella that competitors can undercut from below.

The junior creative is economically extinct. Our churn analysis shows that design studios, animation houses, and advertising agencies are operating with 30-40% smaller creative teams than they did in 2026. An art director who managed three juniors now manages zero juniors and uses Firefly for the work those juniors performed. This means we've lost an entire customer acquisition channel: the junior who starts at $20/month for Photoshop and upgrades to the Suite at $72.49/month is gone. That future customer no longer exists.

Free and cheap alternatives are genuinely good enough. I say this not with pride but with clear eyes: Midjourney at $10-30/month, DALL-E at $5/month, Runway at $15-30/month—these are not inferior products we're cannibalizing downmarket customers. They're genuinely better at specific tasks (image generation, video editing) than what we offer in Creative Cloud. Our Firefly integration is sophisticated, but it's not faster, cheaper, or easier to use than purpose-built AI tools.

The PDF business is thriving in a way we didn't predict. Document Cloud has become our growth engine. Acrobat Sign has a 65% net retention rate. Enterprise customers are expanding deployment as they automate document workflows with AI. The PDF—that unsexy, "solved" problem we've owned for 27 years—is more defensible against disruption than the creative tools we've obsessed over.

I say this to the Creative Cloud team who have built something exceptional: this is not your failure. You've built products that generations of creatives depend on. But the technology shift we're in moves faster than any product team can respond to. We needed to have seen this coming two years earlier, and we didn't.

WHY THIS HAPPENED

Let me walk through the strategic mistakes we made, because understanding them is essential to not repeating them:

Mistake 1: Believing in Our Moat

We believed that our installed base and ecosystem lock-in would protect Creative Cloud in the AI era. This was wrong because: lock-in only works if the customer continues to need the product. Once an alternative exists that does the core job (creating visual assets) for 10% of the price, switching costs evaporate. A designer who switches from Photoshop to Figma + Runway + Capcut (free) saves $72/month and gets 90% of the functionality. The sunk cost of learning Photoshop becomes irrelevant.

Mistake 2: Firefly as Defensive, Not Offensive

We integrated Firefly into Creative Cloud to keep customers from leaving. This was backwards. We should have either: - Built Firefly as a replacement for Creative Cloud (at $10-20/month, destroying the category from within), or - Positioned Firefly as a competitive advantage layer that justified higher pricing.

Instead, we embedded it in the existing product and then competed with free alternatives. We ended up defending a price point that was no longer defensible.

Mistake 3: Underestimating Commoditization Speed

I led a brainstorm in early 2027 where we projected that image generation would be commoditized by 2032-2033. We were off by 18 months. The speed of capability improvement in generative AI was exponential; our forecast was linear. By 2028, Midjourney and DALL-E were genuinely better at specific tasks than Firefly. By 2029, they had user bases larger than our Creative Cloud subscriber base.

Mistake 4: The Figma Acquisition Timing

We acquired Figma at peak valuation ($20 billion) at a moment when design tools were about to face the same commoditization as illustration and image editing. We haven't integrated it well because the two products were built on incompatible architectures. The upside we expected (20% annual growth + margin expansion) didn't materialize. Figma is a good business, but it's a good stable business, not a growth business. This has been a capital allocation miss.

THE DOCUMENT CLOUD REALIZATION

The one bright spot—and it's genuinely important—is that our Document Cloud business has become recession-proof in a way we didn't design for.

Here's what happened: as companies embraced AI automation, they realized that the information chokepoint was document processing. Contracts, financial statements, compliance documentation, healthcare records—these exist as PDFs, and AI-powered extraction/analysis/summarization of this data unlocked enormous efficiency.

Acrobat became, almost accidentally, the infrastructure layer for AI-assisted document workflows. An enterprise using our document tools could: - Extract data from PDFs at scale with AI - Auto-classify documents - Generate summaries - Flag anomalies

And—this is key—they needed a trusted vendor for this work. PDF security, compliance certifications, audit trails—these aren't commodity features. If you're processing healthcare or financial documents, you need a vendor with HIPAA/SOC 2 certifications and a legal team to defend you if something goes wrong.

This is the opposite of Creative Cloud, where "good enough" free alternatives work perfectly fine.

Document Cloud has 14.8 million subscribers, up from 12.1 million two years ago. More importantly, the average contract value is higher, the margins are higher, and the customer retention is higher. We're seeing enterprise deployments of 500+ seats at $280-320 per seat annually. These are sticky, high-quality customers.

THE STRATEGIC CHOICE AHEAD

We stand at a fork in the road, and I want to be transparent about the options because they will determine whether Adobe thrives or becomes a legacy software company by 2035.

Option A: Defend Creative Cloud

Thesis: Creative Cloud is still worth $7+ billion in revenue. Rather than concede the category to free alternatives, we double down on professional creators who can't use free tools—video professionals, advanced color graders, 3D designers, game developers.

Actions: - Segment the market: abandon the "creator" market to free tools. Reposition Creative Cloud as "Professional Creative Production Suite" priced at $99-149/month for professionals earning $100K+. - Make Firefly 10x better at video. This is our last competitive window. Video generation is still in early days; if we can achieve feature parity with Runway while maintaining our professional ecosystem, this is defensible. - Acquire specialized AI tools: Runway, Ideogram, or smaller teams specializing in 3D generation, sound design AI, animation AI. Bundle these into a comprehensive ecosystem that free tools can't replicate. - Focus on vertical markets: film & TV production, game development, advertising agencies. These are high-ARPU customers where the suite justifies premium pricing.

Financial outlook: Creative Cloud stabilizes at 15-18 million subscribers, high ARPU ($120-150/month), resulting in $2.5-3.0 billion in revenue with 70-75% gross margins. This is a smaller business than it is today but profitable and defensible.

Risk: This assumes we can segment the market cleanly (professionals vs. amateurs) and that free alternatives don't migrate upmarket. If Runway launches "Studio" at $50/month with 90% of the professional capability, this strategy fails.

Option B: Become a Document/Data Intelligence Company

Thesis: Document Cloud is the genuine growth engine. Rather than defending a declining creative business, we lean into the fact that enterprise document processing + AI is a $150+ billion TAM by 2035.

Actions: - Expand Document Cloud with AI features: legal contract analysis, financial document extraction, healthcare record processing, regulatory compliance checks. Build vertical-specific versions. - Acquire or partner with AI foundation model providers to ensure we have the best models for document understanding. - Expand Acrobat Sign into broader workflow automation. If we're processing documents, we should own the full lifecycle from creation to signature to archive. - Gradually de-emphasize Creative Cloud. We don't exit the business abruptly, but we shift R&D spending from Creative Cloud (20% of budget) to Document Cloud (50% of budget). - Target large enterprises with $100M+ annual document processing costs. Convince them that our AI document platform will save them $5M+ annually through automation.

Financial outlook: Document Cloud becomes a $8-12 billion business by 2035. Creative Cloud shrinks to a $3-4 billion legacy business. Blended gross margins fall to 75% (from current 81%) but net retention rates remain 65%+ across the combined entity.

Risk: We downsize a beloved brand and lay off thousands of Creative Cloud employees. The optionality of creative growth disappears. If, in 2033-2034, creative AI tools become less commoditized (e.g., regulatory restrictions on generative AI limit free alternatives), we miss the recovery.

Option C: Divide the Company

Thesis: The two businesses are fundamentally different and would be worth more separately than together.

Actions: - Spin off Document Cloud as a separate public company (or sell to a strategic buyer like Microsoft, IBM, or Salesforce). - Document Cloud becomes "Adobe Documents" or "AcrobatCorp" — a pure-play enterprise document AI platform. - Adobe becomes "Adobe Creative" — a smaller, focused creative software company. - This unlocks valuation: Document Cloud trades at 18-20x EBITDA (high-margin, stable growth), Creative Cloud trades at 8-10x EBITDA (mature/declining). Together they trade at 12x, implying conglomerate discount of $15-20 billion.

Financial outlook: Post-spin, Adobe Creative is valued at $22-25 billion, Adobe Documents at $65-75 billion. Combined valuation: $90-100 billion, vs. $160 billion today. But if the spin unlocks capital allocation efficiency, combined value could grow to $120-140 billion within 3 years.

Risk: Execution complexity. Splitting a 38-year-old company is not easy. We'd likely need to do this with the help of an investment bank, and the process itself might distract management for 18 months.

MY RECOMMENDATION

After extensive deliberation with the board, I'm recommending a hybrid approach: prioritize Document Cloud growth while maintaining Creative Cloud as a sustainable, high-margin business—but not as a growth priority.

Here's the logic:

1. We don't have the runway to win a price war against free alternatives in creative tools. The customer acquisition cost has risen while the LTV has fallen. This is a business with negative unit economics heading forward.

2. Document Cloud is genuinely defensible and growing. Doubling down here compounds our advantages and locks in enterprise relationships that will be valuable for the next decade.

3. We need to be ruthlessly honest about Creative Cloud's future: it will be a $3-4 billion revenue business by 2035, not a $10 billion business. We need to plan for that reality and optimize the business for profitability rather than growth.

4. We should maintain creative optionality: if Firefly video generation becomes genuinely differentiated, if we acquire a killer AI tool, or if regulatory restrictions on generative AI emerge, we want to be positioned to capitalize. But we shouldn't bet the company on this upside.

THE ORGANIZATIONAL CHANGES REQUIRED

This strategy necessitates significant organizational restructuring, and I want to be direct about the human impact:

Creative Cloud organization: Reduce headcount by 25-30% (approximately 2,000-2,400 people). This is not because these employees have failed, but because the business model they're optimizing for is no longer viable. We'll need to offer generous severance and career transition support.

Document Cloud organization: Increase headcount by 40-50% (hiring 600-800 people). We're building a new platform from components we already own, which means we need talent in: AI/ML, vertical-specific domain expertise, enterprise sales, and cloud infrastructure.

R&D allocation: Shift from 40% Creative / 35% Document / 25% Other to 25% Creative / 55% Document / 20% Other.

Go-to-market: Create separate sales organizations for Document Cloud (targeting enterprises with $100M+ document processing spend) and Creative Cloud (focused on retention and upsell to existing professional base).

TIMELINE

• Q3 2030: Board approval of strategy. Begin external communication to investors and employees.
• Q4 2030: Organizational restructuring completed. New Document Cloud leadership team in place.
• 2031-2032: Demonstrate Document Cloud growth acceleration. Target 25%+ YoY growth. Communicate to the market that Adobe is a document intelligence company first, creative software company second.
• 2032-2033: Evaluate strategic options: continue building independently, spin off Document Cloud, or explore strategic partnerships/acquisitions.

CLOSING THOUGHT

I've been the CEO of Adobe for six years, and I've had the privilege of leading one of the greatest software companies ever built. The technology that disrupts you doesn't care about your history. It doesn't care that you've been dominant for 27 years. It only cares about economics, speed, and whether you're solving the problem the customer needs solved today.

Creative Cloud solved a problem brilliantly: how do creatives get professional tools they can afford? We owned that for 20 years.

Today's problem is different: how do enterprises process, understand, and act on the trillions of documents that are their most valuable assets? And how do they do this as AI makes document intelligence accessible for the first time?

That's the problem Document Cloud solves.

We have the assets, the customer base, and the financial resources to win in this space. But we have to make a clear choice about where we're allocating capital and attention. We can't be everything. We have to be excellent at one thing.

This memo outlines my recommendation for how we do that.

I look forward to your feedback.

Shantanu

Internal Distribution: Board of Directors, Executive Committee, Direct Reports