Adobe positions its approach to generative AI pricing
Steven Forth is a Managing Partner at Ibbaka. Connect on LinkedIn
Adobe is a role model for the transition to SaaS. Salesforce popularized the SaaS paradigm and made it acceptable for buyers and users, but it was Adobe that showed the way for many companies as they transitioned from on premise models to subscription models.
These two companies have now signaled that they intend to extend that leadership into generative AI for B2B applications.
Salesforce is betting big on what it is calling the agent economy and has introduced AgentForce, see Will Salesforce’s stance on agent pricing frame AI pricing generally?
Adobe has now signaled its own transformation in two ways.
CEO Shantanu Narayen has released a video on Bloomberg setting out Adobe’s strategy (Bloomberg Video released October 14, 2024, see summary below).
Adobe’s AI Video Tools Will Be Priced DifferentlyThe Adobe Digital Academy has announced plans to teach 30 million people AI, content creation, and marketing skills by 2030 (Fast Company Article published October 14, 2024)
Using generative AI effectively requires new skills and growing the number of people with these skills will increase demand
Implications for packaging and pricing
A number of things jump out from this.
A concern with costs
The need for multiple revenue streams
The opportunity to create custom models
It is by now well recognized that generative AI applications will have higher operating costs than conventional SaaS applications and that this will lead to lower operating margins (we expect the average SaaS margin to go down about 30 percentage points). Any pricing model will need to address this.
Generative AI applications can be much more flexible and adaptive than conventional applications. This will open up many new pricing and monetization which Adobe plans to test.
One example of this is customizing models. In the future, most of us will want to use models customized for our own style (as designers) and will pay for the value of these customizations. This will likely be offered to large companies first and then move down to smaller teams and all the way to the individual. At Ibbaka we expect this evolution to happen relatively quickly, over the next three years. (Hugging Face recently passed the one million mark, it has more than one million different models available. Hugging Face website accessed October 24, 2024)
Adobe does not seem to be ready to let go of per seat or per user pricing, but is rather adding more flexibility to per user plans while raising prices for generative AI functionality.
Question: Should Adobe continue to anchor on users?
Generative AI Credits: Adobe's AI tools, such as those powered by Firefly, use a credit-based system. Users consume credits each time they generate content using AI features. The number of credits available depends on the user's subscription plan.
Price Increases: The integration of AI features has led to price increases across Adobe's subscription plans. For instance, the Creative Cloud All Apps plan increased from $54.99 to $59.99 per month due to the inclusion of AI capabilities like Firefly.
Flexible Plans: Adobe offers different levels of access based on subscription tiers, with higher-tier plans providing more generative credits. For example, the Creative Cloud All Apps plan includes 1,000 generative credits per month.
Adobe is not alone in wanting hire prices for AI functionality. There are reports that Canva is charging as much as 3X for AI enabled applications. See Canva says its AI features are worth the 300 percent price increase, published September 3, 2024 in The Verge.
Summary of Narayen’s video (generated by Perplexity)
Adobe's New AI Video Tools
Adobe unveiled new AI tools for creating and modifying videos, joining other tech companies in capitalizing on the demand for generative AI technology.
.Key Features:
Firefly video models integrated into Adobe's video editing applications like Premiere Pro and After Effects
Ability to extend existing video footage using AI
Capability to analyze and edit every frame of a video, allowing for easier removal of unwanted elements
Technical Aspects:
The video tools are more computationally intensive than previous AI image tools
Adobe is partnering with chip manufacturers and cloud providers to ensure optimal performance
Business Strategy
Pricing and Accessibility:
Initially offered in beta form without usage limits
Different pricing models may be introduced for video tools in the future, as video generation is more expensive
Monetization Plans:
Multiple revenue streams, including subscription tiers, add-on services, and enterprise solutions
Custom models for large enterprises to use their own assets
Partnerships and Competition:
Adobe is partnering with companies like Runway for third-party model support
The company aims to support various AI models, recognizing that each may have unique strengths
Shantanu Narayen emphasized Adobe's leadership in delivering generative AI software and expressed confidence in the value these tools will bring to customers, ultimately driving monetization for the company
Post on pricing generative AI
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