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The Saaspocalypse may have claimed another scalp! Adobe said Thursday its longtime CEO and chair, Shantanu Narayen, had decided to give up the job as soon as his replacement can be found. Less than two months ago, Adobe had given Narayen an annual grant of stock, to vest based on the company's stock performance 2028, suggesting the board wasn’t expecting the CEO to leave anytime soon.
Perhaps after 18 years at the company, and with AI roiling the software sector, Narayen decided enough was enough. (He follows out the door most recently Carl Eschenbach, CEO of another software firm Workday, whose cofounder Aneel Bhusri decided he wanted to take back the reins.)
Publicly, Narayen—who is in his early 60s—gave no clue what had prompted his decision. In a note to staff, as well as in comments on an earnings call, Narayen delivered the usual impossible-to-decipher corporate blather. “I’m even more excited about what we have been accomplishing” with the “AI transformation,” he told analysts.
Asked what kind of CEO the board was looking for, he mentioned someone who could look around corners on the AI front. That was about as close as he came to suggesting he felt Adobe needed a CEO with a fresh outlook for the new era. (Not surprisingly, the analysts were too busy congratulating him on his tenure to ask why he’s leaving.)
One thing is for sure: Life in the AI era is only going to get tougher for software firms, a reality reflected by the 35% drop in Adobe’s stock price since last summer (and that’s not taking into account the 7% drop in after-hours trading on Thursday as investors responded to the news). Adobe’s revenue growth has slowed to around 10% in recent years, less than half its expansion rate from the 2017–19 era. While the company has introduced its own AI-powered products, including agents, it faces lots of competition. No one could blame Narayen for deciding he’ll let someone else deal with the challenge.
Enterprise Software’s Secret Weapon
Speaking of enterprise software, here’s a counterintuitive reason to be positive about how AI will affect the sector: Many software companies are so overstaffed that by embracing AI and cutting staff they can sharply lift their profit margins.
Until recently, that wasn’t the argument too many software executives were making as they defended their position. They preferred to point out the advantages of their tried-and-true software over less-proven products from startups. But that’s changing.
Atlassian on Wednesday said it was cutting 10% of its workforce so it can reorganize its “teams to move with more focus and speed.” More overtly, on Tuesday, Oracle’s co-CEO, Mike Sicilia, noted that Oracle’s adoption of AI tools meant “smaller engineering teams [could] deliver more complete solutions to our customers more quickly.”
Last September, the company’s executive chair, Larry Ellison, told analysts, “The number of people we need [to build software applications] is substantially less” due to new AI tools. Oracle last year announced staffing cuts. (Snowflake executives last month made similar comments.)
To be sure, lots of companies in tech—and elsewhere—have cited AI’s benefits as a reason to cut staff (Block is exhibit A on that point). But enterprise software could benefit more from this trend because of its relatively high staffing levels. Take Oracle: As of its last fiscal year, the software and cloud firm’s revenue per employee was $354,000, well below Microsoft’s $1.2 million.
Atlassian was only slightly better: Based on its June 30 numbers, its employees generated average revenue of $378,000. That’s below the numbers for ServiceNow and Salesforce, neither of which is a paragon of efficiency. Salesforce, for instance, has more employees than Meta Platforms, which generates about five times the revenue.
What hurts these software firms is their armies of salespeople, while a digital media company like Meta drives much of its ad revenue from automated technologies. Do enterprise software firms need as many salespeople as they have? Palantir Technologies CEO Alexander Karp doesn’t think so. Palantir doesn’t have much of a salesforce, and yet it posted 70% revenue growth last quarter. Its revenue per employee was $1.01 million as of the most recent fiscal year.
Salesforce CEO Marc Benioff takes a different view. Last September he said millions of people who had contacted Salesforce over the years hadn’t been called back “because we didn’t have enough people.” Now, though, he said new AI agents could respond to those potential customers. The bottom line is that AI will make enterprise software more efficient, even if it increases competition.
In Other News
• Microsoft Executive Vice President Rajesh Jha, who oversees the business unit that includes Windows, Office and Microsoft’s Surface devices, will retire July 1, he said in a memo to staff Thursday. Jha has spent more than 35 years at Microsoft, including two decades at the helm of the company’s Office product group.
• Salesforce has raised $25 billion in bonds, the company confirmed, and has struck deals with “financial institutions” to buy back that much in stock. A $25 billion buyback would shrink its outstanding shares by about 13%.
• Zihang Dai, a co-founder of xAI, has left Elon Musk’s AI firm, Business Insider reported on Thursday, the latest in a string of high-profile exits this year. Another co-founder, Guodong Zhang, is also planning to leave, the report said.
• BuzzFeed is “exploring strategic options” to close the gap between its roughly $26 million market capitalization and what executives see as the value of the digital media firm’s assets, the company said Thursday. BuzzFeed shares fell 10% in after-hours trading. More here.
Today on The Information’s TITV
Check out today’s episode of TITV in which we speak with Lux Capital about the risks facing the tech sector.
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