Artwork generated using only the generative tool available in Adobe’s photo-editing software, Photoshop. (Image: Arvelisse Bonilla Ramos / Adobe Stock)
Richard Artze, a professional graphic designer since 2009, is used to improving the quality of his work by staying up-to-date on new technologies, most recently by incorporating generative artificial intelligence in his work done in Adobe Illustrator and Photoshop.
“It makes my life easier and time efficient,” said Artze, 34 years old.
For more than a decade, Adobe has been investing in AI. Now it expects artificial intelligence to become a crucial source of revenue as it aims to attract amateur designers and experienced creatives like Artze to use its powerful tools. In March it unveiled Firefly, a set of generative AI models that have since been integrated across many of its products.
In the six months before the public launch of Firefly, beta version users generated over 3 billion images, making it the most popular AI image generation model designed for commercial use worldwide. The Generative Fill tool in Photoshop had 10 times the adoption rate compared to previous releases, according to Adobe. This means that the software generated original images using users basic text commands.
The move to commercialize Firefly tools gives Adobe the opportunity to add new users, by converting people from its free program versions into premium paying subscribers and content contributors. This will help Adobe grow its business since it uses its own stock photography library to train generative AI models. It could also keep Adobe ahead of competitors aiming to bring AI tools to image editing and other consumer software products.
“Adobe’s ground-breaking innovation positions us to lead the new era of generative AI given our rich datasets, foundation models and ubiquitous product interfaces,” Chief Executive Shantanu Narayen said on the second-quarter earnings press release. Narayen has been CEO since 2007 and is spearheading the commercialization of AI into Adobe’s suite of products.
Generative AI Using Adobe Photoshop by Arvelisse Bonilla Ramos
Generative AI uses vast datasets and machine learning models to produce customized results. The AI model is trained on hundreds of millions of pictures to discover patterns and create new generative models. Firefly can be currently found in Photoshop, Illustrator, Adobe Express, and Adobe Stock and includes the capacity to generate images from basic text prompts and remove distractions from photos.
Adobe’s ventures into AI also come with a price — a literal one that is. The company is raising prices across its software subscription plans. It has also established a system of credits to limit the frequency that its AI tools can be used in each plan.
“We expect there to be limited push back from customers,” Michael Turrin, a research analyst at Wells Fargo Securities wrote in a note to investors. Turrin noted that the move carries risk since some users could balk at paying for pricier software in the current economic climate.
Given the substantial computing needs for AI content generation and costs surrounding the technology, Adobe announced a price delay to the extra generative credits users might need after exhausting their monthly AI plan usage. Creative Cloud, Adobe Firefly, Adobe Express, and Adobe Stock subscribers will not encounter credit restrictions until next year.
Daniel Durn, Adobe’s chief financial officer, assured investors at Adobe’s annual MAX product showcase in October that despite concerns of slight decreases, profit margins are expected to remain stable as Adobe continues its investment in AI. In the third quarter, Adobe disclosed operating margins of 46%.
The AI shift has boosted Adobe’s stock more than 84% this year, with analysts and users positively welcoming the recent changes. The stock is outperforming its rivals including Salesforce, and Google parent Alphabet. The tech-heavy Nasdaq Composite has had a gain of almost 36% over the same period.
The company reported record sales in its most recent quarter, bringing in $4.89 billion, an increase of 13% from the previous year in the same period. Net operating income was $1.70 billion while net income was $1.40 billion in the quarter. Adobe projects to bring in nearly $19 billion in revenue this fiscal year, a jump of roughly $2 billion from 2022. Executives say that AI and other digital innovations will have a bigger effect on financial results in 2024.
Adobe has around 30 million Creative Cloud users, in contrast to Microsoft Office Commercial seats, which amount to about 380 million. Keith Bachman, a senior research analyst at BMO Capital Markets, stated to investors that this is a large pool of users Adobe can tap into. “We believe that Adobe has a credible path to up-selling new users to single app subscriptions with products like Photoshop and Illustrator using the same gen AI tools that are in Firefly and Express.”
During the third-quarter reported by Adobe, 95% of its total revenue came from subscription revenue.
Some content creators have expressed concerns about copyright rules and the potential for images being used without their permission.
“When I saw the integration I had mixed feelings. It makes our work easier because we can skip certain steps that are complicated. But I do not see any creative process behind the work that is being created,” said Angel Gabriel Ramos Lugo, 26, a Puerto Rico-based designer.
Adobe recently announced content credential tags that are able to identify human artwork from machine-generated graphics. Users can choose if they want or not to have their creations be used to train AI for Adobe models. A bonus fee is also in the works for contributions used since 2022.
“Of course, we don’t expect everyone to like the way we use generative AI, and that’s OK. But our approach to building it puts accountability, responsibility, and transparency at its center,” said Narayen to Harvard Business Review.
These efforts to protect users and their creations stemmed from the legal woes that targeted Stable Diffusion, Midjourney and DeviantArt back in January. The suit claimed these companies trained their gen AI models using the artists' images without their permission. A California judge sided with the companies on Oct. 30.
“Adobe is in a fortunate position,” said Matthew Sag, a professor at Emory University Law School and a copyright law expert. “With the ability to create in house they can offer a level of certainty that they’re not going to be subjected to allegations. That is difficult for other companies to offer.”
Adobe’s research and development costs went up to $2.6 billion during the nine months ending on Sept. 1, a 17% change from the year prior. Some factors included the recruitment and employment of software developers, according to SEC filings.
But these investments have enabled Adobe to ultimately develop, deploy and monetize Firefly.
“I think Adobe’s strategy has been careful. It’s been smart,” expressed Sag. “From the legal side, they’ve created a market niche.”
Adobe hopes the coming enhancements to its fold returns bigger revenues. “We expect to see hundreds of millions of new users,” added Narayen.