How Shantanu Narayen transformed Adobe

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1:37 We didn't. AI models are upending the market for tools that help people make things like illustrations and animations. But 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.

2:10 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. I 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.

2:43 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 gotta have incredible talent at every position. It's like this gives a huge push. There are fires burning when you're going out. Such an idiot. And then you go back to this is totally gonna be amazing.

3:09 There are so many easy ways. So I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. Working out of a free bedroom apartment. We haven't made just how you do it. This is masters of scale. I'm Reed Hoffman, your host. Adobe makes essential software for creative professionals.

3:41 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. Santana, good to see you. Uh, welcome to Masters of Scale. Thanks for having me, Reed.

4:14 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

4:24 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 nineteen ninety eight. When I joined Adobe in ninety eight

4:38 We were hard at work on, you know, in design. Adobe had this vision for, you know, how do we create a brand new platform from scratch that allows people to, you know, do professional layout. And that was one of my first products that I worked on at uh Adobe. Less than a decade after you joined Adobe, you became its CO. Was it a goal of yours? What was the process in which that happened?

5:03 Was it a surprise? It was a surprise. And you know, even now when I look back upon it, Reed, you sort of have to pinch yourself because It was magical. I I think the company went through a couple of big transformations in I joined in June of ninety eight. There was uh an economic issue in Japan. The company hit the wall

5:24 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 you know, we want you to head up all layout technology. hopefully 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

5:43 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. Chizon, who is 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

6:03 I was lucky in that I complimented him with a lot of the business side. And then when he decided he wanted to uh retire, so I I can honestly say it wasn't like okay, I was plotting the how do I get from point A to point B. I think I always showed initiative. I 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.

6:32 It's been nearly twenty 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 CO leading a organization

6:45 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 COs should do in their leadership of the organization. I 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

7:06 I would say I 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

7:23 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. And so I think initially I was like okay, let me just continue to do the things that I was doing

7:48 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

8:27 As leaders, our most valuable commodity is time. So I 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 You know, let's just go keep doing what we did. But I

8:42 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, you know, want you To a pine and I'm very comfortable with it, but initially I think I would say, Wow This is where, you know, uh

9:02 A good group of people and so I I think That way also, uh, you know, my management style has changed a little bit. And how do you kind of balance between that setting of strategic Direction.

9:15 You know, the coordination of the exec staff, the Deliberate creation of culture. What are the kind of the elements that are Your style and what are the things that you would You know, kind of recommend other leaders

9:28 Pay attention to 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 CEO, you're hopefully creating a vision for the company.

9:46 You have to have the team in place and you know Who's the right team? Are you leveraging the superpowers of the team that exists, whether it's a small group or a large company. And third, I would say you have to have a

10:01 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 ten people reporting to me, right? And I have to, you know, make sure that I'm empowering them to do the right thing. So there is more commonality than I think people

10:27 Sometimes Appreciate it One of the kind 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? How were the risks? Managed, what made you conclude that this was

10:42 An important thing to do If you go back to, you know, where we were I mean the reality was the company was doing really quite well, but When the recession of two thousand and nine hit We were a considered purchase. And so given we were a considered purchase and potentially a discretionary purchase.

11:00 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. And so

11:24 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 twelve or eighteen month product cycle. Innovation doesn't happen in twelve or eighteen 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.

11:47 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? You mentioned the word risk, and sometimes I say read I didn't view it as risk. For some reason risk seems Irresponsible to me.

12:09 I would say we made an investment. And you know Sometimes those investments work and I 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

12:30 Uncertainty, concern reaction from Your customers, the creatives. How did you kind of navigate through that? It's a great question. And I as I think about it, and I think that's true even now with AI

12:44 You have always two sets of customers, one of whom who are gonna embrace that immediately And see the benefit of it. And there are others who are probably gonna be a little bit more inertia as it relates to change. Candidly.

12:59 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.

13:18 executing 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 you know, 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

13:47 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. That was the other You know, unintended benefit.

14:00 Everything that we were working on was We had no reason to hide from our customers, right? Reed? I mean we could basically even today we can say we're working on these ten features. If you want to vote on which ones are the most important, great, give us that feedback. When you had this secret of I'm working on this twelve or eighteen 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

14:28 you know, benefits that we got that weren't completely obvious. I I wish I could look at you and say, yeah, yeah, we knew all of that up front. We didn't. When Adobe switched to cloud based subscriptions for their software. Chantanou'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.

14:56 And the data driven operating model talks about discover, trial, buy, use, and renew. It speaks to the customer life cycle. 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? What's the usage? And you know, then hopefully they're new.

15:17 And this focus on usage. started. How were products developed prior People would sit around a 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, you know, that particular battle, right? Today it's just the opposite. People are like, Hey, here are some ideas

15:39 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. And 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 gonna continue to invest in that.

15:59 Man. You know, those ironically, you have less debates when that's what the usage reflects. Go ahead. How Chantanue was leading Adobe through an AI-fueled transformation. Humans will never be more intelligent than AI.

16:24 Those were great at AI and those that went out of business because they weren't how do we build a future. That is human centered. I'm Rana El Chayubi. And on my podcast Pioneers of AI, we answer that question and so many more. As an AI scientist, entrepreneur, and investor, I know what it takes to build AI that works for everyone. Every week, I sit down with the pioneers shaping our future.

16:51 and we take you behind the scenes of the AI that's transforming our lives. Find pioneers of AI wherever you tune in. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show because every Friday we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely for From Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there.

17:39 Welcome back to Masters of Scale. You can find this conversation and more on our YouTube channel. Next, I wanted to talk to Chantanou 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, you know, technology uh shift that's happening.

18:00 We really try to take a step back and sort of say Вота сам кор гіпотез. That we believe in. That will guide the next few years of development in this particular area.

18:13 And I'll give you an example of some of the things that we said in AI. I 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?

18:40 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? And so Іно we have to embrace AI.

19:02 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.

19:16 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 gonna be the biggest boon to creativity because people can use other modalities to talk about what they want to do. Within the creation of the models. Let's be clear.

19:43 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, you know, 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, and that still guides us. You know, one of the things that I think

20:21 You know, you've done a you know, really good job at that a lot of tech companies and others are gonna have to figure out is like okay, so We're gonna be using an AI How much did you decide we're gonna train our own? How much did you decide I'm gonna leverage.

20:35 You know, open source, how much do you decide We're gonna 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 the various kind of Generative capabilities that are part of the

20:48 Our current world. You know, I I I part of what I've always admired, Reed, is Sandhill Road and how Sandhill Road, you know, says you know, as the biggest Creation of companies and Capital in the world is like Run multiple experiments, right? I mean

21:04 How can you say yes to as many of those things as you can because they're all learning and so I 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 кастиoma да.

21:27 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 I think they're different. PDF, we just recently introduced AI assistant for PDF or Acrobat, you can have a conversational interface now with the PDF. The next step clearly is how do you do it?

21:53 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 know, 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 gonna make and what's the path forward? But I think shutting down options too early in a company of our size and scale is actually a mistake. And so, you know 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

22:32 Why shut it down prematurely? You know, I'm just been here in New York launching my book Super Agency. Part of this is that AI is

22:41 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 it replacement? I think the reality with all technology, all automation is You know, I It introduces way more jobs.

22:59 And it disrupts some. And I I 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

23:17 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 and you know on where AGI is going and where all of the stuff is going. So I think you'll have both in parallel and every single

23:41 industrial revolution or you know, change that has happened has simultaneously disrupted some people. But created way more opportunity. And I hope uh this is the same. Yeah, I'm 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 changing, competition's changing, startups are changing in the Sand Hill Road throwing lots of different companies out and figuring that out.

24:08 How much of it Do you think Yeah it's kinda 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 and A or partnering or Licensing things.

24:20 I think we take an approach where let's understand the stuff that we do well. I 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 Yeah, I'm sure you'd agree there'd be four or five people who have the capital to create those large language models and Yeah, 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 gonna standardize on I it's no different. For me

24:54 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. We supported the Mac and we supported Windows. When iOS and Android came, we supported iOS and we supported Android and iOS.

25:16 I think in many ways, and I I'd be curious your take. All these models are gonna be a different form of platform. We should embrace that because uh 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. So yes.

25:46 We will partner, we will support the models. And we want to leverage. I mean I 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 like the Hollywood industry. When I go down there and talk to them, they all are like, Oh my God, AI And I'm kinda 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

26:15 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. I 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

26:38 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.

26:49 At the same time, to your point, the apprehension of what it means for certain roles, whether you're a scriptwriter, whether you're an actor, what that likeness is. frankly, it's the large studios that are gonna be at the forefront of determining what they do. But I 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. And how has AI changed?

27:23 Your job. What are the things that kind of change in the way that You operate as a CO, as Adobe CEO. Well, you know, I uh this is actually not Shantanu talking to you, it's my AI avatar because the real Shantanu is out now. I it's a great question and I'm not sure it's changed dramatically yet.

27:44 Honestly. And I think You know, you've seen the software development teams talk about how much more productive it's made them. You hear the marketing organizations talked about how the agility in the marketing campaigns has gone up dramatically. You know, for me, I I would say the biggest profound impact is I get a lot of mail. And a lot of them have PDF attachments and those are always the most

28:09 thoughtful ones that I have to spend time on. And using AI assistant for me in terms of nowadays every email that I get has the PDF attachment and it has the AI acrobat summary so that I can look at it. And so I think hopefully becoming more efficient, but I if you have any tips on what else I should be doing to make myself more productive, I'm I'm all ears.

28:31 I tend to think every professional will deploy with multiple AI agents. So almost everyone's doing mini management. And then that Then composes up. As you go through a company. And so part of the thing that I've been anticipating is the

28:46 future of how organizations are going to evolve is this notion of, you know, how are agents in the mix for individuals. And you know, you can put that in a kind of a joking way, Well, my agent will talk to your agent. But in the joke there's some interesting questions around information flow, decisioning Well Malign in your thinking associated with hey, agents at the end of the day have to understand roles and tasks and, you know, personas that they're trying to, you know

29:15 represent and how they engage. I mean I I think the ultimate proof of how effective an agent is is when an agent can interface with an agent and an inter agent can interface with a human. Obviously part of the Other amazing thing that AI brings. is enabling creativity across even a broader range.

29:37 of human beings and humanity. Where do you see that kind of space of creativity opening up? And where do you see kind of Some experiments that Adobe might run or things that might try to the broadening of creativity across the human population. Super, super excited about the prospect of that read.

29:56 And enabling anybody to, you know, be creative is something that's a passion of ours. And you know, more people are perhaps able to describe what they want to do in terms of creative expression than use the tools. And why isn't this the most empowering way for everybody to tell their story? On another dimension. Why is it in education right now that all education and reports are still primarily text and numbers? Why isn't there an animation and a video and an image and a link to something else and you know feedback associated with every piece? And so you know when people talk about STEM You know, and the importance of STEM, we like to talk about the importance of STEM. The world without arts would be a really boring place. I mean, can you imagine everything being one color and one font? And so

30:46 We think that it's gonna be a Massive unlock and one that we're super excited about. AI obviously creates huge amount of opportunity for reinvention. What are the principal challenges?

30:58 You see with it that you then Need to help. Adobe and The world navigate. Part of our values is how we think about

31:07 technology to uh, you know, transform and unintended consequences of it. And so are we, you know, scour the earth also to understand where they're good ideas and learning from them or buying them as companies. It requires us to be way more agile, it requires us to be way more vigilant. And it requires us to I you know to embrace our own products. I've also always said people build their best products when they use them themselves. And so I think everybody is trying to think about every company and are they gonna be a AI secular winner or an AI secular loser, right? And It's incumbent on Adobe and us as leaders to demonstrate why

31:47 AI is gonna make us even more of a leader than we are today. Tantanou, thank you very much. It's been a honor and pleasure as always, and I look forward to the next time we have dinner. Really enjoyed it, Reed. Thank you so much for having me on your show. I always love talking with Shant. I'm inspired by his optimism and curiosity about what our future holds.

32:13 His decades of leadership at Adobe are an unparalleled example of how curiosity can keep your business competitive and your culture innovative. I'm Reed Hoffman. Thanks for listening. Oh. Masters of Scale is a wait what original. Our executive producer is Eve Tro.

32:38 Our senior producer is Trisha Bobida. The production team includes Tucker Ligarski. Masha Makatunina. Brandon Klein? and Timothy Lou Lee.

32:48 Our senior talent executive. is Stephanie Stern. Mixing and Mastering by Aaron Bastanelli and Brian Pew. Original music by Ryan Holiday. Our head of podcast is Letal Malad.

33:01 The scripted narration of Reed Hoffman used in this episode was produced using R Speecher. Full consent and permission. Visit mastersofsc. To find the transcript for this episode and to subscribe to our newsletter.

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