Adobe CEO Shantanu Narayen on leveraging AI

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1:30But this isn't the first time Adobe CEO Shantanu Narayan has had to lead the iconic software company through a moment of monumental change. He spearheaded Adobe's transition to a cloud-based subscription model more than a decade ago. There was a lot of opposition from existing customers as well. Because they were a little skeptical and or cynical about why Adobe was doing it. But there was a lot of excitement. This transformation wasn't just about the sales model for Adobe. It also revealed a more powerful way to respond to customers' needs. People would sit around a room. You'd say, hey, I think these three features are most important.

2:15I would say, no, I think these three features are most important. Perhaps the person who had the loudest voice won. You know, that particular battle, right? Today, it's just the opposite. Shantanu is as passionate as ever about helping customers unleash their creativity. This week, we'll hear how he stays nimble, curious, and competitive while leading a global team of more than 30 ,000 people. You've got to have incredible talent at every position. It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. and then you go back to, this is totally going to be amazing.

2:52There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it. Just how you do it.

3:11This is Masters of Scale.

3:17I'm Reid Hoffman, your host. Adobe makes essential software for creative professionals. There's Photoshop for editing images, Illustrator for creating designs, and now even its own generative AI imaging tool, Firefly. Altogether, Adobe's offerings brought in more than$21 billion in revenue last year. I wanted to talk to CEO Shantanu Narayan about how he ensures that his long-established brand stays innovative.

3:52Shantanu, good to see you. Welcome to Masters of Scale. Thanks for having me, Reid. Excited. I've been looking forward to this a while. And one of the things that even with people I know that I love about doing this show, this interview, is to be able to ask some questions that we actually haven't covered in our various dinners and other things. So what was Adobe and the current state of software like when you first joined the company back in 1998? When I joined Adobe in 98, we were hard at work on InDesign. Adobe had this vision for how do we create a brand new platform from scratch that allows people to do professional layout.

4:35And that was one of my first products that I worked on at Adobe. Less than a decade after you joined Adobe, you became its CEO. Was it a goal of yours? What was the process in which that happened? Was it a surprise? It was a surprise. And, you know, even now when I look back upon it, Reid, you sort of have to pinch yourself because it was magical. I think the company went through a couple of big transformations. I joined in June of 98. There was an economic issue in Japan. The company hit the wall. And, you know, we had to have a very significant layoff. And the company sort of said, hey, we know we hired you as a quote-unquote GM, but we want you to head up all layout technology.

5:20Hopefully, the company saw something in me which said, okay, I'm a product guy at heart and we're a product company at heart, and I will do whatever the company wants, which was important. And I think it was that flexibility. I would also say, you know, you have to be right person, right time. and Bruce Chisholm, who was the CEO before me and in many ways gave me a lot of these opportunities, he was more on the sales and marketing side. And so I was lucky in that I complimented him with a lot of the business side. And then when he decided he wanted to retire, so I can honestly say it wasn't like, okay, I was plotting the, how do I get from point A to point B?

6:02I think I always showed initiative. I loved what I did. But when that final tap on the shoulder came and said, you know, we'd like you to be the next CEO, you know, one of the most professional moments of my life. It's been nearly 20 years, so it's been an awesome run. Let's start a little bit with your leadership approach. When you came into the job, what was your kind of theory of being kind of a CEO leading an organization like Adobe, you know, a scale public company? How has your approach changed? What would you say is kind of the key things that scale public CEOs should do in their leadership of the organization?

6:41I was fortunate in that I grew up within the company, as I said, and I was COO and I was, you know, head of products. And so I would say I made the mistake of thinking that, you know, even in this new role, I should just continue to do, you know, the kinds of things that I was doing. And I think, you know, all executives have to really sort of take a step back. I try and do that now every year and say, you know, there's so much sort of table stakes of what you do, but where can you really have impact and where can you really make a difference? Because when you have as vibrant an organization as Adobe has or the other companies, a lot of that, you have incredible employees who can take that on.

7:25And so I think initially I was like, okay, let me just continue to do the things that I was doing. And in retrospect, that was a mistake because you always have to think about how you're disrupting yourself. You always have to think about where are you uniquely either qualified or expected to impact change. and impacting change, the larger the company gets, you know, the more difficult it potentially is. And so I would say the management style has changed a lot more as it relates to, you know, thinking about every year, okay, are there one or two areas that I should particularly focus on? I mean, AI, for example, and trying to understand AI over the last year has taken up a disproportionate amount of our time because we as leaders, our most valuable commodity is time.

8:13So I would say that's one learning. The second learning, I would say, is that when I first took over, I was like, wow, these are all my peers, and let's just go keep doing what we did. But I think as a leader, you have to be way more comfortable with ambiguity and way more comfortable with providing direction. I've been surprised to some degree how much people want you to opine, and I'm very comfortable with it. But initially, I think I would say, wow, this is where, you know, a good group of people. And so I think that way also, you know, my management style has changed a little bit. And how do you kind of balance between that setting of strategic direction, you know, the coordination of the exec staff, the deliberate creation of culture?

9:05What are the kind of the elements that are your style? Alan, what are the things that you would kind of recommend other leaders pay attention to as you put those together? I think most leaders, and it doesn't matter at what level you're providing leadership, you have to create a vision. And if you're a first-line manager, you're creating a vision for the group. If you're a CEO, you're hopefully creating a vision for the company. You have to have the team in place and, you know, who is the right team? Are you leveraging the superpowers of the team that exists, whether it's a small group or a large company?

9:42And third, I would say you have to have a cadence for execution because having the strategy without the associated execution is not going to be effective. And so I think with scale, how you do it and where you do it changes. But at the end of the day, I still have, you know, eight or 10 people reporting to me. And I have to make sure that I'm empowering them to do the right thing. So there is more commonality than I think people sometimes appreciate. One of the biggest pivots the company has made under your leadership, which is the shift to the creative cloud subscription model. How was it thought about?

10:21How were the risks managed? What made you conclude that this was an important thing to do? If you go back to where we were, I mean, the reality was the company was doing really quite well. But when the recession of 2009 hit, we were a considered purchase. And so given we were a considered purchase and potentially a discretionary purchase, the revenue dropped quite precipitously. And when the revenue drops in a company that is software, which, as you know, the biggest expense that you have is people-related expense. And so that really impacted me when we had to let people go because we were doing that not because of anything that they hadn't done, but because of the external environment.

11:06And so trying to achieve financial stability and financial, you know, sort of growth was a key priority. On the other side, the product teams would say, hey, we have this 12 or 18-month product cycle. Innovation doesn't happen in 12 or 18 months. It's happening at a far more rapid pace. Look at what's happening with the cloud. Look at what's happening with mobile. You know, I think people look at it and say, wow, Adobe was the first to pivot. Maybe we did just a better job of listening to, you know, what the incredible employees at the company were saying. Hey, why aren't you allowing us to innovate faster?

11:44You mentioned the word risk. And sometimes I say, Reid, I didn't view it as risk. For some reason, risk seems irresponsible to me. I would say we made an investment. And, you know, sometimes those investments work. Of all people, I mean, you're the leader in thinking about venture and how you do investments. And so we made that investment. If it didn't work, we would have had to adapt and transform. Well, I think this kind of transformation must have also been met with some uncertainty, concern, reaction from your customers, the creatives. How did you kind of navigate through that? It's a great question.

12:23And as I think about it, and I think that's true even now with AI, You have always two sets of customers, one of whom who are going to embrace that immediately and see the benefit of it. And there are others who are probably going to be a little bit more inertia as it relates to change. Candidly, there was a lot of opposition from existing customers as well because they were a little skeptical and or cynical about why Adobe was doing it. But there was a lot of excitement. The strategic decision to move to the cloud and the financial model in retrospect, that may have actually been the easy one.

13:02Executing on it, because in parallel, we actually allowed people to buy the perpetual version or the subscription business. We had to transform how the company thought about delivering software that was expected to be always on. We had to make sure that we had compatibility between each of the versions of Photoshop that were out there. So the heavy lifting on executing this flawlessly, in many ways, I think that's the underappreciated aspect of what the Adobe employees did. But I think, you know, that also stuck with me, which is let's be thoughtful. Let's be deliberate. Let's communicate with our customers.

13:41That was the other, you know, unintended benefit. Everything that we were working on, we had no reason to hide from our customers, right, Reid? I mean, we could basically, even today, we can say we're working on these 10 features. If you want to vote on which ones are the most important, great. Give us that feedback. When you had this secretive, I'm working on this 12 or 18 months and I can't talk to you because if I talk to you, you may not buy my current version. So, you know, it was self-reinforced by all these incredible, you know, benefits that we got that weren't completely obvious. I wish I could look at you and say, yeah, we knew all of that up front.

14:18We didn't. When Adobe switched to cloud-based subscriptions for their software, Shantanu's teams not only had to sell the product in new ways, but also measure success differently. So at the same time that we created this new model, we actually instituted within the company what we call a data-driven operating model. And the data-driven operating model talks about discover, trial, buy, use, and renew. It speaks to the customer lifecycle. So we said, hey, in this new model, how are customers going to discover us? How are they going to try out the software? What do they buy? What's the right version?

14:56What's the usage? And then hopefully they're new. And this focus on usage started. How were products developed prior? People would sit around the room. You'd say, hey, I think these three features are most important. I would say, no, I think these three features are most important. Perhaps the person who had the loudest voice won. that particular battle, right? Today, it's just the opposite. People are like, hey, here are some ideas. Either engage with your community or even better, put it into the software, market it, and see what gets used. And we had real surprises of what people were using.

15:33And it empowered product people because they finally could, in these meetings, tell us, hey, we know exactly what features are being used, so we're going to continue to invest in that. And, you know, those, ironically, you have less debates when that's what the usage reflects. Still ahead, how Shantanu is leading Adobe through an AI-fueled transformation.

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17:37So if you're scaling, make it simple with Deal. Go to deel.com slash mos and get up to three months free. Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel. Next, I wanted to talk to Shantanu about Adobe's approach to AI. One of the things I think we do reasonably well at the company, Reed, is when you have such a profound technology shift that's happening, we really try to take a step back and sort of say, what are some core hypotheses that we believe in that will guide the next few years of development in this particular area? And I'll give you an example of some of the things that we said in AI.

18:25I mean, we represent the creative community. So we said, if we create models, one of the things that we have to do is create a model where every piece of data that went into the creation of that model, we can testify to the fact that, you know, we have license to do that. We created a hypothesis where we said, what do people fear the most when you're trying to do creative expression? The blank page. So if AI can enable you to take the idea that's in your head and express it in forms that are different from just using a menu, but you can have a conversational interface with it, why wouldn't that further make our products more affordable, more accessible, more fun to use?

19:08And so, you know, we have to embrace AI, despite, you know, people saying potentially that there's opposition to it because it may replace humans. We said, people who use AI, this is an augmentation tool, and it will potentially replace people who don't use AI. And then if we don't do it as Adobe, somebody else is going to do it, and we will find ourselves disrupted. And so I think as we started to think about it, we said on the ideation of creativity, on the prototyping, at the front end of the entire process, this is going to be the biggest boon to creativity because people can use other modalities to talk about what they want to do.

19:48within the creation of the models, let's be clear. Let's be clear on how we build our own models and why that's important for us for controllability. Let's understand how we support third-party models because, as you know, all of these models will have slightly different characteristics, profiles, behaviors. And then we said, but at the end of the day, it's in the interfaces that we build that humans will actually derive the value associated with it. So I think we had really good discourse and conversations around what is our stack, what's our framework, and what are we doing in each one of these spaces across customer segments?

20:27And that still guides us. You know, one of the things that I think, you know, you've done a really good job at that a lot of tech companies and others are going to have to figure out is like, okay, so we're going to be using an AI. How much did you decide we're going to train our own? How much did you decide I'm going to leverage, you know, open source? How much did you decide we're going to partner? What were the balances of those considerations? Where are you now? Where do you think you're going in terms of the models and the various kind of generative capabilities that are part of our current world?

21:00Part of what I've always admired, Reed, is Sandhill Road and how Sandhill Road says, as the biggest creation of companies and capital in the world, is like, run multiple experiments, right? I mean, how can you say yes to as many of those things as you can? because they're all learning. And so I think it's probably fair to say at Adobe, we're running experiments and innovating across each one of those, you know, different approaches. On the marketing side, where, you know, we have one of the largest marketing technology businesses in the world, that's where we process so much customer data. There, the customers are like, hey, we don't want our data used for you to commercialize, but if you can learn from our data and others' data in an anonymous way, great then that improves the state of the art for everybody so i think they're different pdf we just recently introduced ai assistant for pdf for acrobat you can have a conversational interface now with a pdf the next step clearly is how do you do it across all of the documents we announced that contracts ai which understand contracts and the semantic meaning of it so i think like all good companies, you experiment in different ways, and then you sort of bring the teams together and say, hey, how do we learn, and what's the assertion that we're going to make, and what's the path forward?

22:24But I think shutting down options too early in a company of our size and scale is actually a mistake. And so this is all about learning and experimentation. And then at some point, you have to make a decision, and you have to say, okay, this is the path that we're doing it, But why shut it down prematurely? You know, I've just been here in New York launching my book, Super Agency. Part of this is that AI is augmentation, amplification intelligence. It gives us superpowers. Obviously, one of the things that people have as a worry as workers is, you know, where is a replacement? I think the reality with all technology, all automation is, you know, it introduces way more jobs and it disrupts some.

23:10And I don't think AI will be that different. And a lot of the automation or menial things that people do, it'll force individuals to rise to a higher plane in terms of the work that they do. For creativity, we think it's that, hey, focus on that emotional story that you're trying to do and, you know, focus on the customer segment. But it will change a lot of the, I would say, grunt work. And some people will find that threatening. But you've spent way more time on where AGI is going and where all of this stuff is going. So I think you'll have both in parallel. And every single industrial revolution or change that has happened has simultaneously disrupted some people, but created way more opportunity.

24:00And I hope this is the same. Yeah, I obviously completely agree. When you're looking at the future, it's through glass darkly. All kinds of things are changing. Customers are changing. Technology is changing. Competition is changing. Startups are changing. And the Sand Hill Road, throwing lots of different companies out and figuring that out. How much of it do you think is kind of like a, hey, we've got this true north of how we're building, we're doing it internally. And how much of it will be M &A or partnering or licensing things? I think we take an approach where let's understand the stuff that we do well.

24:34I mean, with Acrobat and with AI Assistant and the pure tech stuff, we focus more on the applicability on that. We, you know, the large language models, I'm sure you'd agree there'd be four or five people who have the capital to create those large language models. And, you know, there'll be maybe one open source. So I think we take a very prudent, pragmatic approach. And the reality is also, you know, if you're an enterprise customer, some of you are going to standardize on. And it's no different for me in how Adobe has thrived by saying if they're different operating systems or platform, it's in Adobe's best interest to support whatever operating system or platform becomes the platform in which people want to accomplish what we want.

25:17We supported the Mac and we supported Windows. When iOS and Android came, we supported iOS and we supported Android and iOS. I think in many ways, and I'd be curious, it's your take, all these models are going to be a different form of platform. We should embrace that because, you know, you have to go to where people are, right? And so at least I think of some of these models, similar to how I've thought of operating systems. And it's like, hey, where do we leverage the functionality that's there? And where do we augment it by doing something? And so we're like, hey, let's go find another hill to climb where we can add differentiated values.

25:55So yes, we will partner, we will support the models, and we want to leverage. I mean, this has also become such a scale game in terms of dollars of investments that we'd be crazy not to leverage some of that investment. And how are you finding your interface with the Hollywood industry? When I go down there and talk to them, they all are like, oh my God, AI. And I'm kind of like, no, no, you should be saying, oh my God, AI. There's things you can do now. How are you finding that? And are they beginning to realize what the kind of creative potential is? I think so. I mean, people understand the cost of producing these movies, I mean, and the production and the post-production costs.

26:36I mean, take animation, right? And think about how much cost goes into the animation. So I think on the one hand, they're all incredibly excited about the prospect of dramatically increasing the amount of media that they can create for the same cost and accelerate the time to production. That excitement, I think, exists. At the same time, to your point, the apprehension of what it means for certain roles, whether you're a script writer, whether you're an actor, what that likeness is. frankly, it's the large studios that are going to be at the forefront of determining what they do. But I think the tide is turning in terms of the fact that the genie is out of the bottle right now and people recognize that this is something that they have to embrace and to what degree and at what pace they embrace it, I think depends on who you are in that chain.