An antitrust action against Microsoft for including its antivirus software with the Windows 10 operating system (OS) has been dropped by the Competition Commission of India (CCI). According to the regulator, there is no proof that Microsoft has imposed any limitations or requirements on customers’ usage of the antivirus program Microsoft Defender. According to the ruling, customers are allowed to install and utilise whatever third-party antivirus software they like, free from contractual or technical restrictions. The Commission does not believe that Microsoft has violated any of the provisions of section 4 of the Competition Act. Section 4 of the Act forbids companies from abusing their position as the market leader.
What Filed Complaint States?
When Microsoft debuted its Windows 10 operating system in 2015, the informant claimed in a complaint against the company that Microsoft Defender was pre-installed. According to the complaint, third-party developers may have their software pre-installed through agreements, but not pre-activated, because Windows devices are only permitted to have one default antivirus app. For an antivirus program to function, including to carry out automated background system scans—a key characteristic that sets antivirus software apart—it must be set as the default. It went on to say that the default antivirus program has access to crucial functions like automatic updates, real-time protection, and on-demand scanning, but third-party apps without default status cannot. Because of their incapacity to perform at their best, third-party antivirus programs may find it difficult to compete and may eventually be removed from devices.
Response from Microsoft
Microsoft defended itself by claiming that Microsoft Defender is a fundamental security component built into the Windows OS that offers real-time protection rather than a stand-alone offering. Microsoft underlined that Defender comes pre-installed on Windows OS and is not advertised or sold separately, so consumers do not have to pay more for it. Furthermore, Microsoft asserted that it does not hold a dominating position in the relevant market and that there is no compelling element requiring Windows customers to use Microsoft Defender as their only or primary antivirus program.
Who is CCI?
In India, the CCI serves as the competition watchdog. Although the Commission was created in 2003, it wasn’t until 2009 that it was completely operational. By actively engaging with all stakeholders, the government, and international jurisdiction, it seeks to create a competitive environment in the Indian economy. Preventing anti-competitive behaviour, fostering and maintaining market competition, safeguarding consumer interests, and promoting freedom of trade are the goals of the Commission.
In a unified declaration, Adobe and Figma disclosed the abandonment of their planned merger, attributing it to formidable obstacles encountered while seeking regulatory approvals from both the European Commission and the UK Competition and Markets Authority. This unexpected turn of events signifies the conclusion of a challenging fifteen-month regulatory review process for Adobe’s ambitious $20 billion bid to acquire Figma, a renowned design entity. The official termination of this acquisition, acknowledged by Figma’s Co-founder and CEO Dylan Field on December 18th, 2023, carries extensive implications for the design software landscape.
Established in 2012 by Evan Wallace and Dylan Field, Figma stands out as a highly efficient collaborative design tool with an expandable developer ecosystem. Known for its user-friendly interface and an array of essential design tools for developers, Figma facilitates seamless collaboration for remote teams.
The platform is versatile, running on any computer and enabling users to collaborate effortlessly across different operating systems, including PC, Mac, and Windows. Its browser-based interface resembles real-time collaboration in Google Docs, complete with clickable avatars that illuminate ongoing contributions by team members. This feature serves to prevent design discrepancies and ensures that teams stay synchronized both figuratively and literally.
Figma witnessed a substantial surge in popularity during the Covid-19 pandemic, owing to the rise of remote and hybrid work models. Presently, the platform boasts over 4 million users worldwide. Prior to the acquisition bid, Figma successfully secured nearly $333 million in funding from various investors, including noteworthy names like Index Ventures, Founders Fund, Andreessen Horowitz, and Fuel Capital.
In its last funding round, led by Durable Capital Partners, Figma achieved a valuation of $10 billion—a valuation notably lower than the $20 billion offered by Adobe in their acquisition proposal. Adobe’s pursuit of Figma can be attributed to a slowdown in the growth of its core business, compounded by the saturation of the market with new generations of design tools. Recognizing Figma as an up-and-coming player, Adobe aimed to tap into new avenues for growth through the acquisition.
Notably, Adobe XD, Adobe’s existing design product, has struggled to match Figma’s popularity. Adobe’s comparatively limited investment in the development of Adobe XD, in contrast to their other tools, underscored the need for a strategic move. Figma’s collaborative design tools for UI/UX offer a more shareable experience, addressing a specific area where Adobe currently falls short. The proposed acquisition thus aimed to bridge this gap in Adobe’s product portfolio and leverage Figma’s success in the rapidly evolving landscape of design software.
Regulatory Hurdles and Antitrust Concerns
The honeymoon phase was abruptly cut short as regulators in the UK and EU raised red flags over concerns of market dominance and potential stifling of innovation. The prospect of Adobe, an industry giant, absorbing the nimble Figma sparked antitrust concerns, particularly regarding the impact on competition and consumer choice.
Adobe is set to pay a termination fee amounting to $1 billion to Figma, a San Francisco-based company that has significantly expanded its workforce from 800 to 1300 employees over the past year. According to reports by Rauters, Figma anticipates a robust annual recurring revenue growth of 40%, reaching over $600 million this year. Notably, the company has maintained a positive cash flow, a key metric valued by potential IPO investors.
The concerns raised by Britain’s Competition and Markets Authority (CMA) last month emphasized the potential harm to innovation in software widely utilized by the majority of UK digital designers. Parallel concerns were echoed by the European Union regarding the possible decrease in competition within the industry.
The deal was bound to attract regulatory scrutiny given its substantial size and the consequential removal of one of Adobe’s major competitors from the market. Throughout the better part of 2023, the U.S. Department of Justice (DOJ) closely monitored the transaction but had not formally filed any lawsuit to impede its progress. Recent reports revealed that both Adobe and Figma engaged in discussions with the DOJ in a final attempt to prevent legal action before the weekend.
Data Highlights Market Dynamics
A study by the UK Competition and Markets Authority (CMA) shed light on Adobe’s dominant position, holding a staggering 70% share in the graphic design software market and an 85% share in the UX/UI design software market. Figma, with a 48% share in the latter, was perceived as a rising force that the CMA feared would be extinguished by the proposed merger.
In response to the regulatory hurdles, Shantanu Narayen, CEO of Adobe, expressed the companies’ strong disagreement with the recent regulatory findings. However, he emphasized the decision to move forward independently, stating, “Adobe and Figma shared a vision to jointly redefine the future of creativity and productivity.” Narayen added that both companies remain well positioned to capitalize on their substantial market opportunities and continue their mission to change the world through personalized digital experiences.
Figma’s rapid ascent, especially among web and mobile app designers, posed a direct threat to Adobe’s established market presence. Regulators worried that the merger could eliminate Figma’s independent drive, leading to adverse consequences such as price hikes, reduced options for consumers, and a negative impact on the broader design ecosystem.
Market Reaction and Future Prospects
As Adobe shares experienced a marginal increase in response to the termination news, the market is now closely watching how both companies will navigate their paths independently. Adobe, a heavyweight in the creative suite domain, faces the challenge of evolving to meet the needs of the next generation of designers. On the other hand, Figma, a rising star in design software, must chart its course for continued growth under heightened regulatory scrutiny.
A Broader Implication for Tech Mergers
Beyond the specific companies involved, this saga reflects a global wariness towards mega-mergers, particularly in the tech sector where healthy competition fuels innovation. The Adobe-Figma case underscores the increasing role of regulators in safeguarding fair competition and consumer welfare in the dynamic realm of software.
The Road Ahead for Adobe and Figma
The termination of the acquisition deal leaves both Adobe and Figma at a crossroads. Adobe now faces the challenge of charting a new course to attract the next generation of designers, while Figma must navigate its continued independent growth under heightened scrutiny.
Dylan Field emphasized the commitment to independence, stating, While we leave that future behind and continue on as an independent company, we are excited to find ways to partner for our users.
Shantanu Narayen’s statement underscores Adobe’s commitment to its “massive market opportunity” and the overarching goal of transforming the world through personalized digital experiences. While the merger may have faltered, both companies express confidence in their ability to pursue their respective missions independently.
The Future of Design Software: Collaboration or Consolidation?
The demise of the Adobe-Figma deal raises questions about the future of design software. Will the industry witness increased collaboration between established players and nimble startups, or will consolidation remain the dominant narrative? Only time will reveal the trajectory of the design software landscape.
The echoes of this abandoned acquisition will reverberate for years, serving as both a cautionary tale for future mergers and a rallying call for a diverse and dynamic design ecosystem where innovation can flourish. As the industry grapples with the aftermath, the design software landscape has been permanently altered, shaping the narrative of collaboration, competition, and consumer choice.
