If the best way to predict the future is to invent it, then let’s get you ready to do just that. This podcast is created for the visionaries of today, who are charged with creating the digital experiences of tomorrow.
I’m your host, Paul Lima, Managing Partner at the Lima Consulting Group. From Wall Street to the Pentagon and Fortune 500’s alike, I’ve been a part of some of the largest digital transformations ever done.
We promise 3 things here, a strategic perspective, content geared for decision makers, and actionable insights to the real problems that digital visionaries can apply immediately.
Our first season is all about data, – it’s past, present and future.
Each Episodes has three segments, The Digital Pulse, The Quick HIT and The Decision Makers Advantage.
The Digital Pulse
We begin with the Digital Pulse, where we provide insightful and relevant perspectives to those who have leadership responsibilities. It’s more than a curation of industry news because we give our take on the latest happenings and reveal an insider’s perspective to arm you, the digital executive, from the shiny object syndrome that comes from within – perhaps from a well-intentioned board member or even a lurking detractor who may be resistant to change.
Then we shift gears and together, we’re going to go into beast mode and build your digital fitness by introducing you to the Quick HIIT – that stands for High Intensity Training. Practical, and short, this segment will keep you fresh and current and provide you the strategies and rubrics you need to lead your staff through the rapidly evolving changes so that you are best able to create winning customer experiences.
Finally, we’ll pivot to the Decision Makers Advantage, where we’ll slow down and discuss a topic with industry veterans who have been there and done it. This segment will reveal the unlocks that will augment your professional judgement and help you accelerate your corporations business objectives and personal career trajectory.
Those who listen to The Visionary’s Guide to the Digital Future have an unfair advantage as they invent the future with their finger on the Digital Pulse, having invested in their Digital fitness, and having gained a long-term perspective, mixed with practical ways to apply what they’ve learned within minutes.
Let us know if we’re helping you accelerate your business objectives. Subscribe to our show, message me directly on social media, or email me at [email protected].
This week on the Digital Pulse, we explore the Adobe acquisition of Figma.
So what were the vital stats? Well in mid-September, Adobe announced it had entered into a definitive merger agreement to acquire Figma, a leading web-first collaborative design platform, for approximately $20 billion in cash and stock.
Since they already have products that do some of what Figma does, it was a curious purchase at a horrific valuation (unless you were lucky enough to have participated as a private investor in Figma). Consider that by Adobe’s own press release, Figma has a total addressable market of $16.5 billion by 2025. In 2025! Like 3 years from now! And yet they paid $4 billion more than the entire TAM’s estimated three years from now. $20 billion.
Figma is expected to add approximately $200 million in net new Annual Recurring Revenue, ARR, this year (2022), surpassing $400 million in total ARR exiting 2022. With gross margins of approximately 90 percent and positive operating cash flows, Figma has built an efficient, high-growth business. Assume 35% net margin, that would mean that Adobe paid 142 times EBIDTA to acquire Figma. According to Microcap.co1, in their study of 95 SaaS company acquisitions, the median multiple against EBITA was 11.7x. It might take decades to break even on the Figma business line.
Adobe really bought it to avoid another competitor to acquire it and start winning with creatives. The valuation for FIGMA, according to #pitchbook , was $10 billion last year – in 2021. Probably Salesforce, Oracle or even Hubspot – one of the MarTech platform players — were bidding against Adobe. The threat of allowing one of their biggest MarTech competitors to have a terrific product to sell to creatives would have been absolutely unacceptable to Adobe. Especially if the competitor was bidding on both Canva, which is a complimentary platform to Figma. Let’s keep an eye out and see who winds up attempting to or successfully buys Canva, my bet is that was the competitor that Adobe was trying to box out. Canva just announced their valuation at $40 billion in their latest capital raise in September of this year.
So that’s why I say that #Adobe overpaid. And I’m not the only one. The stock tanked 12% immediately after the announcement. Prior to this, their largest acquisition was Marketo, which they bought for $4.75 billion, and there was a lot of business logic and code in that product.
Something that is going to be a challenge for Adobe in realizing value from Figma is that the architecture and storage layer and business layer of Figma is wildly different than that of Adobe’s unified architecture, so I wouldn’t expect much integration very quickly. To their credit, they do invest in bringing their acquisitions into the platform, but consider that with Marketo, we’re still at least 3 years away (in my opinion) from bringing that platform into the Adobe unified architecture. Marketo’s integration into the Experience Cloud has gone slowly with only a few features being tied into the platform, and that acquisition was in 2018.
The price Adobe paid for Figma is 5x the size of their largest deal to date and it didn’t really come with any earth-shattering technology or new client base. Miro, Mural, Prezi, Google’s Jamboard, Fresco, Grafitti and Microsoft Whiteboard all have similar feature sets. The ability to zoom into a digital whiteboard or canvas is a dime a dozen. And — If you’re a creative, and you use Figma, you already use the Adobe Creative Suite.
So this wasn’t an offensive strategy, it was pure defense. The tech needs to be integrated and Adobe – and this is typical of any acquirer — takes years to do that. They paid an insane premium, they bought an overlapping product suite, they didn’t acquire many if any more customers. But they did remove the option value from competitors to enter Adobe’s dominance in selling to creatives. Overall, it could be the right move, but a big price tag that may take decades to break even. And that’s my beat on the digital pulse.
The Quick Hit
Welcome to the Quick Hit. Let’s invest in our digital fitness and get busy with some of my greatest hits from the speaking circuit. The Quick Hit is designed to ground you in an insight that you can immediately apply in creating the digital future.
This season is about data. So what better place to start than understanding the impact that Data is having in our society, our companies and even in your 401(k).
Who has power? If you consider companies with the largest market capitalizations, then since 1870, that would be the oil and gas industry. Since 1870 it was the oil industry that had an outsized influence in power in every dimension you could think of. Since then, they have been the largest companies in each of their respective continents. They adopted many of the aspects of the colonization playbook of the Iberian peninsula and their influence in modern society is astonishing.
From Africa’s tumultuous rise of its poorest country becoming it’s richest on a per capita basis, Equatorial Guinea, to our own American journey of John D. Rockefeller, considered by most as the wealthiest human being to have ever lived, the oil and gas industry’s influence is everywhere. To put that in context in todays dollars, Rockefeller had $420 billion in todays dollars.2 – Elon currently has $212 B – so yeah – Rockefeller was twice as rich as Elon.
But power has changed hands, and unlike other transitions of power, be they peaceful or violent, this transition happened under our noses and most folks didn’t even know it happened.
But perhaps there isn’t a watershed date that future generations will be able to point to that showed the moment where this transition occurred. You know – like the song about when Columbus sailed the ocean blue in 14 hundred and 92.
But the balance of power has quietly shifted to organizations that are bigger than all but 5 countries. These companies have – relative to other industries- few laws that govern their operations. And the consumption of these companies – well – the average citizen in developing nations interacts with these brands for 7 hours and 11 minutes per day. 3
So in 2006, the biggest companies as defined by their market cap were Exxon, GE, Microsoft, Citigroup, British Petroleum and Royal Dutch Shell Petroleum. The group of the major oil companies have their own name — Big Oil – that’s the name used to describe the world’s six or seven largest publicly traded oil and gas companies, also known as supermajors. Their fossil fuels lobby is a force that has always punched above its weight.
Fast forward 10 years – 2016. Exxon dropped to the 5th on the list, and the companies above it learned how to collect and monetize data – data about their consumers, their users – data about us.
Fast forward 5 more years – by 2021, Exxon dropped out of the top 30. Notice that a new entrant in the oil and gas industry emerged then, that being a newly formed company called Saudi Aramco. If you’re unfamiliar with them, that’s the privatization of the Crown Prince of Saudi Arabia’s oil and gas reserves. Why would the royal family take the country’s oil assets public? Well, they wanted to diversify out of oil, — cash out if you will — , and invest their private fortune in tech, of course.
We’ve entered the fourth industrial revolution. This revolution is also called the Digital Revolution. Klaus Schwab, founder of the World Economic forum, and the force behind the Davos Forum hosted annually in Switzerland, recognized that the types of challenges we faced in the past are going to require dramatically new ways of thinking to solve the challenges in our present and in our future.
So what have we to learn between this analogy between oil and data in addressing the digital future and why should senior executives care?
Over the past 18 years, I’ve been hired to assess various digital business models and operating models for companies large and small, in just about every case, our analysis shows that data is greater in value than all but one asset. It’s greater than most companies real-properties, most intellectual property, their licenses, their capital, their equipment and physical assets, and trade secrets.
In many industries it is even greater than the value of the knowledge workers a company employs. There is no doubt in my mind that it is true for most businesses with very rare exceptions in software and some highly scalable light-manufacturing applications. And it is always more valuable than cash in our models.
So if that’s true, do we leave our company’s cash in all sorts of nooks and crannies lying around the office? No way – we have standards for how we account for all of our income – governance if you will. And more importantly, there is a single consensus view within the organization of how we account for all aspects of financial management – and so should it be for our data. We have auditing firms and General Accepted Accounting Principles – rules and enforcement mechanisms and an internal controls apparatus that companies deploy. So here’s our takeaway from the quick HIT. Data should be treated as the valuable asset that it is, indeed, it’s the core asset for why the new titans of industry dethroned Big Oil.
There’s a lot more that we can learn by drawing from the analogy of the great oil barons. And that’s exactly our topic for the decision Makers advantage.
The Decision Makers Advantage
Welcome back to the Decision Makers Advantage, our segment of the show where we reveal the unlocks that will augment your professional judgement and help you accelerate your corporate business objectives and personal career trajectory.
Today we’re talking about the transition of power from oil to data.
The wealthiest person in history, Rockefeller was twice as wealthy as Elon Musk. But consider that in terms of the maturity cycle of data we are still in the early innings. That means that there is still a lot of headroom for companies that are monetizing data – if you think that you’re company has missed the chance to participate, there is still plenty of room for innovation.
Data is still underappreciated and in many companies — unrecognized by knowledge workers for the worth that it has. I would say that’s true also for investors – that they don’t value companies with an eye towards the value of the data that the corporation has. Think of data as an oil reserve, how can it be refined, and what value do those parts of our globe carry – what have oil reserves meant to contries that have them?
There’s a lot to learn by drawing from the analogy of the great oil barons.
So let me ask, how did our great grandmothers see at night? Say before 1870? Can you tell me when electricity first was installed in a home or building of any kind? Take a wild guess?
The first house to be powered was J.P. Morgan’s. You see, Morgan funded Thomas Edison who used the bankers house as a Beta test. But the detractors began discounting the achievement from the very beginning, starting with JP Morgan’s own father the night they flipped the switch at the “launch party“ – electricity was too risky as an investment and it might be a fad!, he warned. So if Junius Spencer Morgan, who was JP’s own father, couldn’t recognize the value of electricity, why do you think your board of directors will value your digital transformation initiative?
It’s not like Junius came from a line of uneducated luddites. One of Junius’s in-laws relatives was James Pierpont (1659-1714), who was a founder of Yale University; and Junius’s own father was a founder of the Aetna Insurance Company.4
In an effort to preserve his customer base, especially the lucrative customers in Manhattan, Rockefeller created FUD (fear, uncertainty and doubt) about the safety of electricity. New Yorkers had none of it, and switched to electric light bulbs very rapidly. Kerosene lamps – ah that was for those who couldn’t get access to electricity— so passé.
New York politicians were also sick of getting held hostage to the rail barons who were using their distribution monopolies to take profits and exercise undue influence in politics. In other words, the ecosystem of companies that supported oil grew along with the commodity.
The steel, rail, oil and newspaper tycoons really were the top beneficiaries of the industrial revolutions, and boy – were were busy protecting their monopolies. They bought presidencies, judges, even countries, and they yielded great power at a time when government didn’t know how to deal with such powerful entities that were “too big” – too big – meaning too powerful, monopolies – companies that were “too big to fail”.
And this story repeats itself on every continent. Ever since Rockefeller founded Standard Oil in 1870 , every continent’s largest company has always been the respective oil company.
Fast forward to 1911, and as part of a general public concern of several monopolies, the Supreme Court determined that Standard oil was in violation of the Sherman anti-Trust act. Standard Oil was broken up into 34 smaller companies, some of them you may have heard of, Exxon, Mobil, – now ExxonMobile, Esso, Marathon Petroleum, Amoco and Chevron to name a few. From about 1870 until 2006, Exxon lead the 2nd and 3rd Industrial revolutions. It was only 4 years ago when companies that collect and store data all overtook the market cap of the energy companies.
But crude oil is just a commodity, so why did Standard Oil emerge as the monopoly? For that, we need to understand the value chain. Crude oil is a raw commodity – it comes from the earth. While it’s super valuable, it’s traded on the commodity markets and whether taken out of the ground in Texas or off the coast of Brazil, its properties are essentially the same – some regions require less refining, other regions, more, but it’s all crude oil. Hydrocarbon deposits of naturally occurring petroleum. From there, the refineries take the crude oil and distill it into various petroleum products, everything from diesel, to gasoline, kerosene and even jet fuel. And the final stage is that other manufacturers take the refined oil and use it to power machines, and to manufacturer thousands if not hundreds of thousands of different products, like fishing rods, kayaks and boats, nail polish, guitar strings, parachutes and even panty hose.
What Rockefeller figured out was that that the raw commodity had to be processed. And that required refining it. And once he learned to standardize the process for refining it, he literally slapped that on as the brand, naming his company, Standard Oil. The brand spoke to the concerns about gas igniting because less sophisticated crude oil well diggers were using moonshine like refining processes, and they started shipping it via rail where there were often explosions. So he essentially figured out how to take a raw material and apply a process that increased its value. He processed the commodity to a state of readiness where any machine could use it. We’re going to come back to that analogy with data.
But why was oil so valuable for so long? What does oil power?
Oil powers machines. // It fuels engines. // It can also be made into derivative products. Oil powered the first three industrial revolutions.
So if oil powers machines, what does data power?
Data powers decisions. It powers the digital revolution. // Better said, data fuels the decision sciences.
Decision Sciences is an interdisciplinary field that draws on economics, math, management sciences, machine learning, AI, statistical decision theory, operations research, actuarial sciences, behavioral decision theory and cognitive psychology and many many other disciplines.
In other words, it’s the logic that powers a decision. An algorithm. An equation. Said another way, it’s the learnings accumulated over a career. It’s what enables experienced executives to make good decisions.
However that logic is captured, it’s the data that enabled the experiments and observations made over large numbers of interactions and spans of time to find the insights and intelligence to improve decisions. To provide the judgment to determine the next best action.
In order to power a machine, Oil is refined in only one of the 700 refineries in operation today. Similarly, in order to power a decision, data needs to be refined, we often refer to this as data governance, normalizing it, scrubbing it, standardizing it, cleaning it & making it trustworthy. Sound familiar?
But unlike oil – anyone with knowledge about the data can do that on any computer.
Data can be used simultaneously, and it doesn’t expire.
In the future, we’re going to be able create value from data within milliseconds of when it’s collected. For example, consider tools like otter.ai that simultaneously convert speech to text during our zoom call. Or OneMeta.ai – which has a real-time simultaneous translation engine that uses Natural Language Processing for speech to speech. You speak one language and everyone on the call can select their native language and they instantly hear you in their language.
We can use data – observable recordings of ourselves and the world around us – to better serve digital experiences by providing helpful experiences at scale.
Yeah – spooky – I know. So that introduces several related issues related to ethics. Noone captures these nuances better than Shoshanna Zuboff, in her book “Surveillance Capitalism”. It means that we need to better define what constitutes “Information” – who should know it, who decides who should know – and even “who decides who decides. Every industry is already or quickly becoming an Information Science. And combined with these predictive outcomes, some of which are stunningly accurate, we can reduce risks and with better foresight, we even begin to change man’s relationship with time. These are topics we’ll be more fully exploring this season in future episodes.
My hope in sharing this with you is to help you consider how your organization is refinining your raw data. Are you treating it like a commodity or are you adding value to your data by putting it through a refining process? Are you centralizing it and standardizing it? Are you segmenting it, and then using it to personalize the experiences that your stakeholders, and customers need?
Are you using it to create relevant content? Are you using it to better price your offerings or perhaps you feel like you’re leaving money on the table by having a single price for all types of users?
Are you using it in your product development life cycles? It touches every aspect of the value chain – every cost drive and value driver.
Are you using data to create customer experiences – and digital customer experiences to take market share and earn your customers’ loyalty?
If we thought the previous 3 industrial revolutions were big – and hey – going to the moon and mars is something our great grandmothers couldn’t even imagine – the leap that we will take as we learn how to leverage data into improved decision making will be exponentially bigger.
So there you have, the next time someone compares oil to data you’ll be prepared to weigh in with some insights of your own. But more importantly, you now understand that data is more valuable than money, than IP, than equipment and even your staff. It powers decisions, and it is the raw ingredient you will use to create winning customer experiences.
And if JP Morgans’s own father, who founded the bank we know today, called electricity and the oil that powered the industrial revolutions that gave rise to The modern economy a fad— don’t be surprised when your board asks you to prove out the company’s Digital transformation with baby steps and with a series of under funded projects. Hopefully with what you’ll learn in the Decision Makers advantage today and in future episodes, you will be prepared to break the inertia and build out a robust business case.
What else did I miss in our comparison of oil and data? Where do you agree, or disagree? I would love to engage with you about your perspectives!
Stay tuned to the Visionary’s Guide to the Digital Future where we explore all of that and more. In the meantime, share the graphic below and join in on the conversation to weigh in on your opinion about what senior executives need to know about how to unlock the value of their data.
Please share your feedback with us on social media and follow us on Youtube, Twitter, LinkedIN and Facebook. I am Paul Lima, host of The Visionary’s Guide to the Digital Future. I’ll see you, in the Digital Future.
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