Adobe Inc. (ADBE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Wolfe Research Webcast with Adobe hosted by Wolfe analyst, Alex Zukin. [Operator Instructions] And now I hand the call over to Alex.

Thank you so much, Jillian. I am absolutely thrilled to be joined by senior management from Adobe's Creative Cloud, the dynamic duo, David Wadhwani and Scott Belsky and obviously Jonathan. So guys, thank you for joining us today. Before we go into the traditional fireside, I just want to remind everybody, please submit questions in the chat. I will see them. I will ask them. Number two, we will all -- we will send you a survey at the end of this because otherwise, this would definitely not be a Zukin fireside to ask you how it went. And number three, I want to get an extra special intro to Scott. Scott wants to show -- so I'll just -- Scott, I'll hand it over to you.

Sure. Well, I thought that the topic of Creative Cloud Express might come up during this conversation. And so I went into the archive. So a few years ago, when the team was really starting to make the case to the company and in this case, to our Board, about the opportunity well beyond the core franchise and the customers that we typically were really focused in building products for. We decided to put together a little fun, quirky way of showing rather than telling the scope of this opportunity, I figured we would share a version of that now. [Presentation]

Well, now I have to match that voice for the rest of this activity. I'm going to be honest, that's going to be hard. But thank you.

I mean I think actually, Scott and David, that was a wonderfully beautifully simple explanation of the opportunity that lays ahead. And I guess my first question was going to be for David and it's connected to, somewhat I'm assuming connected to this, which is why did you decide to come back to Adobe? What did you see in the market that excited you about Adobe's position? And why not go be the CEO of a hot startup?

Yes. You know what, first of all, I think the video was a great tee up and Scott and team have done a nice job sort of orienting the vision around that. But it is one of the core reasons I came back, actually. So for those of you who I haven't had a chance to meet, I spent the last few years investing. I've gone -- run a company. I've been at Adobe for I think about 14 years. I left 6 years ago to run a company in the enterprise software space and then did some investing. And as I was investing, 3 things kept coming back as sort of really interesting thesis areas. One is the explosion of the need for content whether it's video content, whether it's design content around how the entire industry has to engage with their customers over digital. And with that, we were seeing this explosion in terms of creative professionals entering the market. We were seeing large enterprises and small businesses and everything in between investing more in terms of how they want to engage over digital and create the type of content they want to create and stand out. And so I just looked at this and I said the creative business for professionals is at the early stages of -- despite how long Adobe has been at it. The second thing that was clearly happening is clearly happening is this incredible rise of the creator economy. Today, there are 100 million small businesses in the world, and the majority of them say that their digital presence is more important than their physical presence. And when you think about that, and this is really the point of that video, this creator economy -- these noncreative professionals need to have ways to engage their base, and they need to do it through creative content that helps them stand out from everything else. And that was another thing I kept looking at saying, well, Adobe is incredibly well positioned for that. And then the third one was looking around at all of the work that was going on in these enterprises and mid-market and small businesses even around automating processes, predominantly focused around PDF or many of them just kept noticing were PDF. PDF has become the de facto standard for unstructured data. And PDF has become the de facto standard for how companies interact with each other, principally through e-signatures, but more and more in terms of the transactions between people. And again, kept coming back to my humble upbringings at Adobe from the years prior. And so all those things, it was -- these were the areas I was interested in, all 3 of these markets were exploding. And in talking to Shantanu and Scott and everyone else at Adobe, it was just clear that this is really where I wanted to be. Plus, it's just -- as you know, it's just a remarkable culture and a focused and competitive company, but also one of the incredible companies that have survived with a strong culture over decades.

Super clear. I'm going to butter you guys up before I get into the hard question. So this is a buttering up question. And now the buttering up question for Scott is, I guess, similar to David, you were the CEO of a hot startup. You were brought by Adobe and you're still here and running products for what is the largest product of the company in Creative Cloud. Same question, right? But also maybe for you, tailored into what we talked about before, which is -- what is -- I asked you what's your favorite -- from a few children, what's your favorite most exciting product you changed around a little bit. So feel free to do that again. But what is the most exciting element to you that you're seeing inside the company right now that may not be obvious to the rest of us?

Yes. Well, I mean, first of all, the footnote in my entry into Adobe is, of course, David is the person who brought us into Adobe. And I got the opportunity to work with David on his staff for 3 years in my kind of -- before David moved on, and it was just -- so it's always been about team for me as well, team and customers. But I also -- I love moments in your career when there is a clear short-term, medium and long-term opportunity that gets you equally fired up. For the -- for us where we are right now, I'll just start with the long term first. I mean there's another next new medium that's going to define the way we work and live, and it's going to be immersive. Some people call this the metaverse, but what it really is, is it's just -- it's a virtual experience that we can cohabitate and anything is possible in that world, whether it's through VR, or augmented reality, there's a number of contenders. But we, as a company, have a history of transitioning our customers to the next new medium, graphic designers to web, web to mobile, et cetera. And to be at the center of the business that's going to help the world's creatives adopt this new medium that will fall completely flat unless it's rich with interactive, personalized, engaging experiences is really cool. And we've built an incredible team around this, and we can, of course, talk about that later in the chat if people want to. In terms of the medium-term opportunity, it's really to bring Creative Cloud to the web and make Creative Cloud as much about collaboration as it is about creativity, right? We've always focused our core customer is the one who's pushing the pixel is the actual creator. But it turns out that on average, they have 8 to 10 people that are stakeholders of their work. It could be clients and people that their clients work with. It could be a whole team at an agency. It could be the CEO who wants to understand where her product is or the Chief Legal Officer that wants to approve the copy before it goes to production, everyone has stakeholders. And for us to embrace stakeholders as part of the creative experience, it's just a huge opportunity for our core business. Frame.io, of course, was an acquisition that made us best in class on the video side of this. And I've shared in some of our other meetings that really only 1% or so of Premiere Pro customers are using Frame.io before the acquisition. And yet so many of Frame.io customers, of course, are Premiere Pro customers. It was just astonishing to us that 99% of people who are editing video in our products and I assume others as well are still collaborating in the old-fashioned way, which is extraordinarily painful and time consuming. And that still goes for all the other segments of creativity as well. So the near-term opportunity -- second -- the medium-term opportunity is to just absolutely nail collaboration across all of the -- the whole franchise, which would have a great impact on the business, of course, as well. And then on the near term, on the very near-term opportunity, which is we're making inroads every day is really around bringing creativity to all and making creativity more accessible. We can make our core customers, our pros in their first mile experience of our products, more successful by teaching them by giving them things to start using from the onset and those move the needle. It helps obviously retain customers, but it also helps customers feel successful, which leads to them telling other people to join the franchise and the opportunity around Creative Cloud Express, making sure that every other person that either comes into our funnel or should, but doesn't yet is able to succeed using our products. And Creative Cloud Express is the rallying cry of the company right now to take some of the very best around and really package it for this web and mobile customer that is really more focused on outcomes than process. And so that's a near-term opportunity. So those 3 vertical -- those 3 horizons get me really excited every day.

Perfect. Well, let's take it up a notch. And let's go with where the video kind of ended, which is Creative Cloud Express creativity for everyone. Some -- you threw out a little bit if we wanted people to create flyers and invites. And the #1 question I get, and I'm sure Mr. Vaas gets from most investors right now, particularly in light of the last quarter, really the second half of last year, what about the competition? What about Canva and Figma? And aren't they -- for the first time -- not for the first time, the first time in recent memory Adobe has real competition, and they're taking share. So let's talk about the key elements. Both of you, VC backgrounds, not that long ago, saw these companies in the markets. What is the competitive environment? What is the answer? If it's an answer or if let's say an opportunity? I want both of you individually to address this topic because I think it's one that's near and dear to investor hearts.

Yes. Maybe I'll go -- I'll kick it off and then Scott, please feel free to add and jump in. So at a high level, I think you have to look at, first of all, look at just the fundamentals of Adobe's business. I mean we ended last year with adding almost $2 billion of net new ARR. So clearly, the foundation and the tailwind that's been driving us is there and has been consistently there for a long time. Secondly, we guided our highest guide ever for FY '22 in the digital media business. And that's the foundation of how we think about where we're going. It's very consistent with the kinds of guides we've given historically and it gives you a sense of where we're going now. Some of this, I think it's worth just sort of addressing directly comes from questions that we've had in the second half of the year and associated with sort of how people are interpreting the results we had. And there is some episodic activity that is harder to predict with the pandemic. We've talked a bunch about in the past things associated with summer travel. We've talked about sort of some changes in terms of holiday season buying behavior. But those are 2 episodic events that when you look at it in the context of the performance last year and you look at the -- in the context of the guide, really underscores how confident we are about the market opportunity ahead, right? We also talked about recently how we're thinking about the market, which is different than what we've thought about before. We really look at the creative professional market as one that's accelerating and growing very quickly. We see this new creator economy for communicators coming out, and we said that's about a $30 billion, $34 billion market, I believe we said. And we have a Document Cloud business that's also playing into this big TAM. You add all that together, you have a $100 billion TAM that we're going after. Now as a company like Adobe historically was playing in a smaller TAM and had a very large presence in that TAM. As this TAM explodes, you should expect to see some competition participating in parts of that TAM. The surface area is so significant, we should expect to see other entrants playing in and around similar areas. But I'm going to go back to where Scott was leaving off. If you think about it in that context of the professional base, when you look at the fact that there are more creative pros needed in companies than ever before, that's obviously a big tailwind for us. When you look at it in the context of video and the explosion of video, we have this long tail of video production now happening. If you look at any of the streaming companies, they've got this massive base of people creating long tail content, but you also see this incredible rise in terms of people that are creating content for YouTube. You see this incredible growth in terms of corporate marketing videos that are being created and we see an enormous opportunity there. 3D and immersive and the rising metaverse, that also, as Scott mentioned, this is a new format that's coming up. So a huge opportunity for us there as well in addition to the collaboration capability. So if you think about where we sit and how our file formats create a differentiated position for us in the Creative Pro base, we feel really good about it. Now if you look at that second foundation in terms of how we're approaching creative -- the creator economy and communicators in particular, a lot of the work that we've done over the last few years has led us to this moment. We've generated over 400 million Adobe IDs through our mobile apps. We have -- our mobile apps last year grew over 55% year-over-year. And then Creative Cloud Express and the launch of that really represents the aggregation point of all that learning and that technology in addition to the work that Scott and team have been doing around bringing some of the core capabilities and our flagship apps to web and mobile so that they can participate and be part of this really easy onboarding into this frictionless creation process for that. And then we don't talk a lot about Document Cloud. It's the secret sort of thing that keeps going. But if you look at Document Cloud, that grew about 30% last year. We have nearly $2 billion of ARR there. We talked about how PDF has become the de facto standard. But the reason that's so important is that we have 2.5 billion devices out there with Acrobat or Reader installed. And we've proven over the last few years the ability to actually use that footprint to drive more usage of services. So we grew Adobe Sign utilization through Acrobat about 85% last year from a usage perspective through Acrobat. So you see that we have all of the levers. So that's really what gives rise. You've got this massive TAM. You've got these tailwinds that have been helping us over the last decade and are getting stronger because of the TAM over the next decade. And we have all these sort of differentiated layers that we can sort of keep pounding on going forward, which is what gave rise to the guide we have for this year.

I think the only couple of things I would just add as I think about competition from the -- with the product lens, first of all, it is exciting that VCs see the same thing we're seeing. And 5-plus years ago, you didn't see any material dollars going into creative tools. I think now everyone sees that everyone wants to stand out creatively. And so there's so many different approaches that entrepreneurs will take there. And it's exciting. I mean, first of all, a lot of these are technologies that we can play with. A lot of these tools we're developing plugins for interoperability with and we imagine the future stacks of creativity being inclusive of that. And I think that the fact that we have lots of customers using competitive video editors, like Final Cut leveraging Creative Cloud and Frame.io, especially for collaboration, is just an example of that. Best to market, better than first to market. Also I really want to make sure that we're learning from all the signals as well as our own experiments that we've done over the years that led up to Creative Cloud Express to make sure that we can really win verb by verb, all the creative tasks people want to accomplish. But finally, this is the unique view I get as the person leading product is just the ecosystem that we're building underneath all this stuff. So it's a shared foundation of services across Creative Cloud Express, Creative Cloud, all the web apps that we're building and the collaborative capabilities. And when you start to see what can be done on top of that, whether it's Creative Pros, developing stuff in our Pro tools that then become purchasable or leverageable templates by the non-pros in Creative Cloud Express, whether it be our unrivaled stock collection of 250 million-plus images in Adobe Stock and all the different asset types that we're making available to some of the Express customers. Our unrivaled font collection, as you see the future of immersive and all of the core components that allow them to be successful in that space. There's a lot of core technology that Adobe has that we're making accessible. And I think that part of our strategy going forward is going to be to make this ecosystem really sing and differentiate what we can bring to customers. So that's another comment on the competition front.

Jonathan didn't like when I asked this question this way. But have they awoken a sleeping bear in the sense of like how fired up is the company to kind of finally have someone to fight against and someone to challenge to galvanize both internal champions, product teams, dollars, investments? Is that a thing?

Well, listen, I mean I'm sure David has a view on this as well, but I think legacy is a blessing and a curse, right? I mean we have an incredible legacy. We have these ubiquitous file formats, et cetera. And there's always a risk that a company can rest on laurels, right? And for the last few years, we've seen the TAM explosion, we've been very awakened to the opportunity. But all of this helps. I mean the company, I feel like our strategy is more sound than it's ever been. People are galvanized. The types of new talent that are coming in and the reasons they say they're coming and joining us, that's what really gets me jazzed every morning. But David, I'm sure you have a view as well.

Yes. It's an interesting question. One of the things that I think we talked about this yesterday, Alex, is that I always described working at Adobe, and I get to come back to this situation as being a kid in the candy store. Literally, every meeting you go to with a demo, you just -- you kind of walk out and say, is that possible? Like did someone just mock that up? Or is that really what's happening? And if you think about what's happening with the work we're doing around AI, the work we've been doing around bringing the capabilities with like decades of investment in the desktop so that it can work natively in the web and mobile. What we see is that we have now with Creative Cloud Express, and we have now, as Scott's been working with web and mobile for like Photoshop web and Illustrator web and the collaboration vehicles, we have this new place that we can sort of take that technology, atomize it, reconstitute it for user journey experience and onboarding of a very different class of customers, both in terms of pros but also in terms of non-pros. That foundation is what jazzes us every day. And to Scott's point, the TAM is just so big. And so the question is like how are we going to build this new muscle that really gives us the opportunity to go after that. And that has been incredibly, I think, vital to sort of just getting everyone excited. But yes, we wake up every day, jazzed about this fact that there are these new directions we can go that were never possible a few years ago.

Perfect. Well before I ask you the question that another separate [ theme ] people are asking me to ask you. I want to go and bash, not bash, but I want to ask the second big negative question that I think you -- the first one was competition and clearly, that was the reason for the [indiscernible]. The second one was, oh my god, the pull forward. It's all about the pull forward and how much there was pull forward in front office spend into last year. So I want you guys to directly address that. That was the thesis coming out from some of our competitors. What have you seen? Because I do -- by the way, I do subscribe to the fact that there may have been some pull forward for individuals that became digitally savvy and wanted to change direction, whether it was resigned from their boring jobs and become TikTok superstars and influencers. I grant that there may have been some pull forward on the individual side for Adobe. But I'm curious, I want you guys to just address the pull-forward dynamic, yes or no head on, on both individual SMBs and maybe even outside of digital media and digital experience, if there was any, so just hit that topic, if you will.

Yes. Yes. First of all, the advantaged position we're in at Adobe is that we're a diversified company with diversified sort of sources of opportunity, right? If you look at sort of the impact of COVID 2 years ago, what we saw was this great awakening from an individual or digital channel perspective. And we saw some weight from our small -- think of it from the context of a small, medium business, right, where in that first year, there was -- that dynamic played out. This last year in FY '21, we saw that SMB business and our reseller business and our business around Creative Cloud teams start to come back in a very strong way because businesses were starting to open and revitalize and go. So you see these sort of -- the fact that we're diversified gives us a bit of the balance there. Now if you then look at it and you take a step back, the big question and the thesis you all need to deliver, I know what my position is, I know what Adobe's position is, is that were those changes that happened over the last 2 years, are they durable or not, right? And I look at the market and I say there's enormous durability to it. I talked to many other executives and CEOs and companies, small startups and large enterprises. And no one is going to go back to the way they worked, right? There's going to be some people that go back into the office, some people that stay remote, but we are going to be in a very different position. And even if we do go back into the office, this work that we've done around automation, around different kinds of engagement around employee flexibility, that's going to be around and persistent. And there's so much sort of context that's created there. And people have also realized as they've rushed to engage their consumers or their customers digitally, it's a more effective and more efficient way to do business. So I believe very strongly and the durability of what came out of there. Now the question then is that if that's durable and we have this balance, what were some of the effects that we felt. And it comes back to these what I really refer to as these episodic events, right? We had an episodic event with summer travel. I don't know about you guys, but I hit the road with my family, and I'm assuming and hoping you guys got a chance to go out there as well and spend a bunch of time, more so than I have ever done in the summer, right? And I think we see that in multiple ways you can look at it through the context of hotel bookings and travel in the past there. And then if you look at it from a holiday buying season, if you look at -- and we said this on the last call we did. We have this -- we have a very good model with -- that we triangulate with our -- with DDOM, we have a model we triangulate with Adobe Digital Index and we talk to a bunch of other sort of sources to get the source of data, all of which implied the -- that the holiday buying season, those 2 weeks in particular, that were Black Friday and Cyber Monday, we're going to have a traditional spike. Some people don't realize, but we have always run campaigns, run promotions, increased spend for those 2 weeks, and we have a very significant business in those 2 weeks. It didn't materialize the way it has historically, right? And so those are the 2 episodic differences we've seen. Are there more episodic differences? Perhaps. But I look at the data and I say the durability of what changed 2 years ago is a durable tailwind that I think we're going to benefit for quite a while.

Scott, anything to add to that?

Nothing to add. I think he covered it.

Okay. The next question, which I've had a number of questions posted in the forum about and I'm going to ask some of them specifically, but it's -- and we talked about this -- actually, both of you talked about this independently, individually on both days, but the phrase I -- that really resonated with me was this notion that -- and it sounds like you guys talked about this a little bit, but you've had a price point that's been doing double duty to some extent with the customers. And with the introduction of Creative Cloud Express, there's this notion that you're liberated from that dimension of a kind of one-size-fits-all pricing umbrella. So this is going to be a multipart long-tier discussion, I feel like. But I want to start it off with, as one of the architects of the original Adobe Creative Cloud pricing model, David, just take us back a little bit and let's talk about what was the design of the original pricing packaging? And where do you see the ability to effectively increase that value umbrella and therefore, price umbrella today over the course of the next few years?

Yes. Great question. And it is really, if you go back 11 years ago when we were in the midst of having the discussions around moving to Creative Cloud, we looked at a lot of pros and cons. As you can imagine, we did a lot of pricing modeling work. And the core conviction we had then was that our pricing was fundamentally preventing us from being able to broaden the market. And at that time, you remember there was a very high perpetual number. So we decided to move to subscription and bring the price down on a monthly basis. In doing that, we then had a secondary decision to make, is that we knew that the core product innovation was going to be targeted at professional users. That's our core market. We're going to keep with our flagship applications keep going and driving that because we see incredible opportunity there. But we also always had a halo effect of users that were coming in around that, right? And so fundamentally, this gave us the opportunity to ask the question about how big could that halo be. And so as we've now invested more substantially and as we have talked more deeply about that, we decided that our conviction was that halo could be a lot larger. And so we priced it in a way that while we were building it for professionals, we've priced it in a way for individuals that fit in that halo. And many of those individuals that fit in that halo really are effectively people that we consider part of the creator economy or sort of the high end of consumer. So fundamentally -- and that has worked incredibly well as you see because it's not only increased the number -- the lifetime value of a creative professional, but it's also brought in a whole host of more people. We've never given out a precise number, but we have been pretty clear that more and more of our user base are non-professionals, right? So fundamentally that worked. However, now we have, as to your point, we have offerings in the market that are doing double duty. They're providing the value to a professional, but they're priced for a broader base. As we bring in things like Creative Cloud Express, as we develop things like Scott's been developing with 3D and our substance 3D line, we're looking at things a little bit differently. The 3D products are not baked into our Creative Cloud product. With Creative Cloud Express, we have a free and a $10 tier that's lower priced. And that lets us start to really think about how we optimize pricing and connect it to the value people are getting from the product set itself. I want to be clear, this is not -- in our mind, this is not open season to just sort of start willy-nilly raising prices but it is an opportunity to optimize the business. And when we say optimize the business, there are 2 things we balance. One is maximizing revenue and ARR to the company by connecting to value. But the other one is also maximizing users, right, and engagement from a broad set of users. So we're constantly looking at how we balance those things as we grow our offerings and as we broaden our market opportunity.

Scott, let's talk -- I want you to comment on pricing and value delivery in this equation as well and what the levers are to the point I think David mentioned the 3D substance product, but you also have collaboration. And we also have talked about both Sign and Acrobat also in the construct of that Creative Cloud pricing.

And Scott, it might be useful also to just touch on the free base that you've been building, too.

Yes. No, absolutely. And I think first of all, it's been exciting to see the Adobe Substance 3D Collection in market. I mean this was the first -- I mean, I guess, other than Stock, which has also been add-on, but this was -- this is a bit of a departure. Let's make a totally different price point with a different type of customer, whether we're delivering a lot more value that's a lot more scarce in the market. And this is a business that grew a little over 100% last year I believe. So this is -- from a product perspective, I mean I want every customer to be successful. That's my goal. And for the customers that are more on the light and accessible side, very outcome-driven customers, these are customers that oftentimes need to have a freemium experience. And so I'm focused on getting as many people into that funnel as possible, making sure as many of them feel successful as quickly as possible. And then I want them to realize value and retain. And there's all sorts of things we can do to make sure that, that ultimately yields conversion and even further than that, retention and then maybe even conversion to a Creative Cloud. And one of the visions of building this on the same platform is allowing someone who comes in and wants to just edit a photo and searches Google to do that, into someone who says, I want to take this further. I want to learn a product like Photoshop, I want to start using Lightroom and take my photography seriously now that I'm a parent or whatever the case may be. And so that's certainly part of the mass equation here. And the fact that the whole company now does, in fact, value number of users and the data that they are successful as opposed to just ARR is important, right? We have to make sure that we're thinking that way given the market expansion opportunity that we're facing. But I think that the flexibility on pricing that David talked about also allows us to think about the stakeholder business opportunity for Creative Cloud. There are a lot of people that are going to want to be constituents or stakeholders of content, whether it's someone sharing something. Frame.io is already -- it's a stand-alone business with an add-on, you can call it, but there's all sorts of ways that we can bring review and approval capabilities into all of our products. And I'm sure that's going to be something that's additive, right, to our offering. It's a different type of value for a different type of customer, and we should monetize that.

How do you make sure that you don't have people going in the other direction, people dropping from a tier where they are being monetized more than their usage and they drop to an Express tier where they're paying less? Some of that we talked a little bit about on the previous call about it actually might even drive retention higher because you have all these umbrellas. But how do you think about that? And then for David, if you think about strategically pricing, packaging, bundling, who do you think -- who's a good model for investors to think about or look at? Is it Microsoft with kind of E1, E3, E5? Is it one of the security vendors like where do you -- who do you want to model off of or take an example from?

Scott, do you want to kick off?

Sure. Yes, I'll kick off and just say that, first of all, customers that cancel, they do so because they didn't feel like they could be successful, right? And they didn't recognize or weren't able to realize the value, right, that they were paying for. And we have a number of data points to suggest that Creative Cloud Express capabilities, quick actions, that sort of thing, really increases the value of Creative Cloud. I mean if you think about a video editor who makes a video and then wants to put that video on YouTube, they need a thumbnail. How are they going to make a thumbnail? Well, they could learn Illustrator. They can hire someone to do it or they can now jump into Creative Cloud Express and just do that. And that could be why they retain for us versus going to a competitor or whatever else. So I mean that obviously is just one of many, many examples, but I do think that Creative Cloud Express adds value to Creative Cloud, number one. Number two is that we're being very thoughtful about how we're thinking about the nonbranded search traffic for people who want to get something done quickly versus the people that want to just get Photoshop. And of course, we are not going to do anything to get in the way of people who are coming and want to just get Photoshop or Illustrator or any of our named brands, they're going to do so with as little friction as possible and as little distraction as possible. But I'm really interested in all the people that are doing these nonbranded searches for things they want to just accomplish quickly that we can accomplish with Creative Cloud Express for them and also maybe awaken them to the broader possibilities of their own creativity as a human. So I think that we have to make sure that we bring these capabilities into the right funnels in the right places. And David's team, leveraging that evolved version of DDOM, our data-driven operating model, they're laser-focused on every little signal for every verb branded and nonbranded search term to ensure that we do that.

Yes. And just adding to that before getting to the pricing packaging sort of modeling, exactly as Scott talked about, we are now in a position where we have a certain set of assets that are so different than what we had in the past, right, that let us think about the onboarding in a very different way. One of the things that Scott and I are driving internally in a significant way is around the evolution from what we've been doing and probably best of breed at, which is marketing-led growth, where we drive awareness and brand. People will go do a search for Photoshop. We bring them over to Adobe. We show them the different kinds of ways they can engage with Photoshop and we sold them Photoshop and they download it. So a very different model. Scott's saying they're go and build type, create a flyer or remove background and express their intent, but it's a very broad set of engagement where they're expressing their intent. And we're grabbing them, bringing them directly into the product and having them have success in the web or mobile product in a matter of a few minutes. And then we look at converting them to paid after they've used the free product for a while. And that product-led growth motion is enormously -- it's a new burner for us that we can really turn on and focus again, also on the Document Cloud side, where we have frictionless Acrobat web now that has already proven with our strategy around buying Acrobat verbs, or PDF verbs has been very supportive for us. Specifically to who we look at, look, we certainly look at every pricing move that happens in the market. Microsoft has made some, Netflix has made some. So we look at it for every subscription business that's oriented a consumer. We're looking at businesses that are more sort of broad-based products to large enterprises and everything in between. At the end of the day, pricing always comes down to price to value and the ability to sort of create clear separations in terms of what that value is and then optimize the pricing for that value. So yes, I think you can read from what we're seeing is that we want to optimize the lines of offerings that we have in market. And by the way, we talked about it in the context of Creative Cloud. But it's also important to talk about in the context of Document Cloud. I touched on this earlier, but we have been, as a strategy, bringing Adobe Sign closer and closer to Acrobat and Reader over the last few years. We have this incredible surface area in terms of Acrobat now where we've got Adobe Scan and Acrobat on mobile. We've got Reader and Acrobat on desktop. We got Reader and Acrobat now in Chrome as an extension and Edge as an extension. We have our collaboration services. We have our signature services. And that entire surface area as we bring those closer and closer together and apply the same sort of product-led growth motions to drive utilization of the services really lets us think differently about the lineup for Acrobat as well because the amount of value that we've been adding I think can be streamlined for the right buyer and the right way too. So yes, we're excited and it is about tiering and figuring out where on that tier it makes sense for buyers.

Very clear. I'm going to go now switch gears a little bit to 2 product-focused questions and completely different segments of your product portfolio. Scott, I'd be remiss the way that we originally set up this NDR almost now a year ago was a chance to chat about NFTs and the metaverse. And so we -- sometimes we start getting these questions a little bit, maybe a decade, maybe 2 before they become relevant. But I want -- it's a small task. Can you help us understand what the hell the metaverse means in the context of an investor and an enterprise software company, even consumer software company like Adobe? Why and how you're well positioned? And connect it, if you can, to products, take it out of the buzzword and into the meaning stage and tie it also into the NFT realm, if you will.

Yes, absolutely. It's a tall order. I'm going to try really quickly. The -- well, first of all, what is the metaverse? I mean the metaverse is a descriptor for an immersive experience that we're going to cohabitate with copresence for work or living fund purposes. So whether it be us together in a game, us together in some virtual work environment with a VR headset or some sort of experience that we have to -- augmented reality or some immersive web experience. I mean these are all immersive experiences that some people would frame as the metaverse, right? But let's take a step back and let's talk about the here and now. I mean it's an interesting thing to think also about how do I get into the metaverse? Like how do I become metaverse ready as a company? And in fact, more so than ever in recent memory, I am getting requests from our sales teams to talk to our customers in the enterprise who are asking this question. They're like, what do we do? Like what is this and what do we do? And I always start with this here and now question around how they develop marketing collateral and how they develop products in the product development pipeline, whether you make something bottled or shoes or whatever the case may be. And in both instances, it's -- there's a lot of friction. It's cumbersome. It's expensive and time-consuming workflows, whether it's marketing collateral, where you've got to go into a photo studio and shoot the product. And you have like a food person who actually styles food, believe it or not, that's actually a thing, right? And all these other expensive people in a COVID unsafe world, right? And it's like it's kind of crazy. And then in this collateral, once it's shot, it has to be shot on different scenes for different regions and different cultures and whatever the case may be. And then when you're actually using it in market, if you want to change it, you've got to go all the way back again. Fast forward to now, some of the most early adopting companies of this tech realize that they can actually render these objects as opposed to shoot them and then they can place them in a product like we have called stager that can make the materials and textures as photorealistic as you can imagine using products like the Substance products, and then you can take actual synthetic photographs in all these different scenes with perfect lighting, et cetera, and that's your marketing collateral. That's your e-commerce collateral. That's what you're putting on your Amazon product page and it's faster, it's cheaper and it's more creative because you can actually do more things and expand possibilities. And so as customers -- and a lot of customers were forced to realize this during the pandemic. And those who did, it's transformed the way that they work. And so I'm sitting in the middle of this digital transformation, I'm realizing, wow, I mean every company is going to be doing this someday, probably someday soon because it's just a win-win-win. And then when you think about the actual product development pipeline, these sneaker companies or whatever the case may be, they make mockups, they send them overseas in order to just get something to hold to see what it's really going to look like. Now they can all do this synthetically and make a lot of -- they can even test with customers in Instagram ads with something that's completely synthetic and doesn't even exist in the physical world yet. So suffice to say, like we're in the early innings here. Now this is important because it not only addresses the -- makes -- it helps companies be more creative with less cost, which everyone is going to say yes for, why not, but it also makes them metaverse ready because all these 3D rendered objects are now ready to export into experiences. So if you're Hermes or Gucci or Pepsi, you have your objects ready to go. And if you have the opportunity to do a promotion in Fortnite or a promotion in some other game in Oculus, you can just have those objects ready to be ported into these immersive experiences that we're all going to have. When we're in these experiences, we're still going to want to have fashion. We're still going to want to culturally flex ourselves and our taste in the sneakers we wear. I mean Nike just paid a lot of money to acquire an NFT sneaker company, that's entirely virtual. And so that's great. All these objects will be into these immersive experiences, but there's one problem. They're digital. So how do we actually have the notion of scarcity and provenance for these objects? How does LVMH ensure that their objects are actually their objects as they're being encountered in these digital experiences that people have? And the answer to that, of course, is the blockchain. It's perfect. It's -- making all these objects in non-fungible token that can be registered and tracked in a public ledger and it's clear who the owner is and whether it's legitimate. And in fact, Adobe is already developing a lot of blockchain technology to ensure that these are viewed as legitimate and help artists get the credit for their work and help brands get the credit for their IP. So it's all going to connect. And actually, it's exciting to see the early adoption for the reasons I cited in the beginning and recognize where it's actually going to all go.

It's very clear. And you've talked about this in one of our other meetings, so I got the sneak preview, but it's extremely exciting because, again, now tie into how Adobe sits at the center of both of these trends over the course of the next 5 to 10 years?

Yes. Well, I mean, if you look at any AAA gaming company, they definitely have our Adobe Substance 3D tools in their stack, whether they're using Unity or whatever the case may be for the run time, they are using our products to make objects look -- 3D objects look amazing. And we're building out the entire Adobe Substance 3D Collection to add more value there. And of course, this is the new price point that David talked about earlier. We're also starting to say, okay, what parts of the blockchain technology we're building. We have something called the content authenticity initiative. We have a number of partners like Twitter, New York Times, others that are part of this. It's all about the -- it's all about ensuring that an NFT has the provenance of who actually created it. How to leverage that technology in the actual tools? We have it in Photoshop now. We announced that at the end of last year. How do we bring it into these 3D tools? And then how do we interoperate with a lot of the partners in the hardware and OS manufacturers out there? Whether it's meta or any of these other companies that are developing these immersive experiences, they recognize that these experiences will fall completely flat unless they are filled with rich, interactive, personalized and engaging experiences. And the only way to get there is to get the millions of creatives using Creative Cloud to start to create for those experiences. So they're coming to us, right? And of course, we also want to work with them. So I'm optimistic about how all that will unfold.

The next product question, David, is for you. And it is around and Scott, for you as well, the holy grail of Adobe has always been, you sit at -- the creator of the content is using the same technology as the person that distributes that content in the marketing department to their stakeholders as the person that understands what that content, how it was consumed, distributed, analyzed and then even what they bought from that content. So the entire life cycle of content sits within the Adobe ecosystem. What is -- what are you -- it always seems that you've kind of underachieved the possible of that kind of wholly virtuous cycle between digital media and digital experience. Now it does seem like Workfront is a bridge, is a connector there, it's a thread that you're pulling. And again, for both of you, what is the -- how do we supersize the possible there? And what does that mean ultimately for Adobe?

Yes. Happy to start, and Scott, please feel free to jump in. So you hit the nail on the head, which is that there's -- we've got -- clearly we're creating the content, and we've always been streamlining the position of that content into AEM Assets, right? And that's something that we have. We've worked with many of our enterprise customers to make sure that that end-to-end workflow works well. But the missing piece really has been around the workflow and sort of all of the pieces that sort of come together to give you that end-to-end experience where multiple stakeholders, to Scott's point earlier as we were talking about Frame.io, can really participate in the life cycle of that content and make rich decisions in that front. So the combination of what we've been doing around with Creative Cloud and AEM Assets now with Workfront sitting in there as well, makes a big difference. We already talked about Frame.io and how that is really for specific workflows associated with video. But the other thing we haven't really talked about also is that the teams have been hard at work developing just raw APIs that can be accessed and exposed. Both on the document side with sign-based APIs and document APIs for PDF, but also on the creative side around video and imaging and photography-based APIs. What this also does in the context of how the larger enterprises, in particular, are moving with custom development of low-code, no-code tools has allowed them to leverage AEM for the -- leverage Creative Cloud for the creation of the content, leverage AEM for the residency of the content, leverage Frame.io and Workfront for the interactions and the workflows around that event and leverage the APIs for integrating batch processes and things into custom experiences in enterprise, too. So the mix of all of those things matter. The other part that Anil and I have been talking quite a bit about is that we do need to align our go-to-market around more solutioning in these areas. So you can expect to see us developing very focused go-to-market motions around how all of these pieces can come together in different verticals as you go through because someone like a media and entertainment company may have very different needs from a traditional corporate marketing department as well. And how you sort of streamline that process of onboarding into this is going to be key.

Yes. A couple of quick things I would add is once -- as our products are becoming more web applications, Creative Cloud Express, Photoshop on the web and Illustrator on the web, it makes it a lot easier for my colleague Amit, who runs product on the digital experience side and I to start to think about how to bring something to the surface for our customer. A lot of his DX customers are using web apps. And if you're a marketer doing a campaign and you hover over an image and you click edit and suddenly you can actually edit in Photoshop on the web quickly, that's just one of those unlocks, I think, for bringing the digital experience, digital media products together. But we also -- I think in years past, we've sort of tried to have this big grand vision of the clouds coming together and everything, kumbaya and harmony and peace in the world. The reality is that creators think differently, marketers oftentimes work through other people to work with creatives, people use different project names and different folder names and whatever else. And so what Amit and I have started to do is really start to anchor on the customer problem. And so for example, at Workfront -- someone in Workfront, who is managing a marketing campaign wants to be able to assign tasks directly to a creative who's delivering assets for that campaign. And now we have something called Creative Cloud Spaces coming to market, which is how Creative Cloud teams will come together around all the resources that they need, the external web links, the files, why not the tasks. And so we have the Spaces team and the Workfront team thinking about how to bring these tasks, these needs of the marketing colleagues to the surface using the infrastructure of Spaces. So we're really doing it piece by piece and which is why I always believe if you're going to build a bridge between 2 businesses, you have to first start with threads that build up to be a bridge and you also have to start from one side or the other side. And so we're doing that based on where the customer need is. And I'm a lot more optimistic about some really cool functionalities we'll bring to the market as a result.

Guys, this has been incredible. I want to give the last kind of question, what didn't we cover that you're passionate about or you feel like is important to leave the audience with? We have a large audience here, and I want to make sure, a, to be respectful of your time, but also, b, to give you a chance to talk about anything that you think is very important that you either saw the questions in the forum that you want to make sure you hit or any message that you want to make sure you can get across.

Yes. I'll jump in. We touched on this a little bit. But one of the really interesting inflection points that we're at is really fundamentally, how does product and business work together at Adobe? Scott and team have been and on the Document Cloud side too have been doing an amazing amount of work over the last few years that is just starting to see the light of day, right? We touched on the fact, as Scott mentioned, quick actions. Quick actions are basically, hey, I want to come in, I want to remove background and I want to leave, right, really fast web native and mobile native. But that's the foundation of years of work to take things like Photoshop or Premiere or After Effects or InDesign and make them web and mobile native so that we can really reshape and randomize. You talked about the collaboration capabilities in Photoshop now web and Illustrator web. We talked about Acrobat web being present. We talked about this -- the connection of the user journeys across our mobile and web capabilities. This fundamentally changes how we can think about our go-to-market motion. Again, from that original market-led motion that we've really perfected over the last decade to a marketing product led and product-led motion going forward. So one of the things that I think I'm most excited about is working closely with Scott and his team around sort of this cultural evolution. We have gotten questions about sort of how do you think about and evolve Adobe's culture for the next decade? We feel like we're in this massive opportunity ahead, and we feel like there's this incredible opportunity to operate differently as a company going forward, much like we operated differently as we transitioned to Creative Cloud 10 years ago. So there's a lot of energy in this company about taking all of these pieces and doing business on them and extending into the 0 friction premium product-led growth motion going forward. So probably worth hitting on that a little bit harder than we did.

Yes, that's a good point. And I mean that cultural transformation is -- I mean it's a big one because you have teams who are used to having to just ship an updated version of their software, and the rest takes care of itself. I mean it's a totally different culture now, different tools at work, different types of meetings, different types of processes and measures. And it's -- that's been a few years in the making, but it's great when it starts to feel like it's the muscle memory of the organization. I mean the one thing that we didn't talk about that I think will always be underestimated until people really start to see the impact is AI. We brought some of the most killer features that have received the most fanfare from customers in recent years, Neural Filters in Photoshop, speech to text in Premiere Pro, so people can just literally type in and find things in a film that they're editing and just edit from there. These are major unlocks and I think we're very much in the beginning. Now we've had hundreds of people in the company focused on AI, and we've been collecting data, right, on how things are made, how creatives are operating and that are feeding algorithms for masking and removing imagery and removing something from a moving video or moving an object or a person from moving video. I mean some of these AI breakthroughs save our customers days, hours and some -- hours or sometimes days or longer or just enable the impossible. But this AI, what it also really does is it allows people to make something amazing with less time. And so seeing the AI is really as useful for our pros as it is for the non-pros in Creative Cloud Express, bringing some of those things to the market. We have a few; things under production that actually suggest to you how to make something look better. Imagine predictive text when you're typing and it tells you sort of what you're likely to want to say or even the sentence you're likely to want to write, imagine that but for creativity. That becomes a real moat for us. I mean it becomes a real strength of the company that no one is really in a better position than us to deliver within the product experience. And I hope that not too long from now, I will say, wow, that's a major differentiator of anywhere in market where we're really competitive.

Guys, this has been absolutely scintillating conversation. I want to let you go back to your day jobs or early Thursday drinks. But with that, honestly, thank you very much. This has been unbelievably informative. I think both of you did a fantastic job. Jonathan, thank you so much for helping set it up. To the investors whose questions I didn't ask, I apologize. It was just -- there was so much kind of goodness back and forth and so rare to have both of these guys at one time. I tried as best as I could to group some of the questions together and ask some of the harder hitting ones. Thank you, everybody. Have a great rest of the day and look forward to all -- following all the great success.

Thanks for hosting, Alex.

Thanks, Alex.

See you all soon. Thank you guys.