WEBVTT - AI Features Paying Dividends as Adobe Gives Strong Outlook

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>You're listening to Bloomberg Business Week with Carol Masser and

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<v Speaker 2>tim Stenoveek on Bloomberg Radio. I want to talk a

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<v Speaker 2>little bit about a company that kind of moving all

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<v Speaker 2>over the place. Adobe earnings out last night, shares bouncing

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<v Speaker 2>around hied by as much as four and a half

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<v Speaker 2>percent today as low as six tens of one percent

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<v Speaker 2>today as well, the company did give a strong quarterly

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<v Speaker 2>revenue outlook, suggesting that it's seeing a payoff from its

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<v Speaker 2>investment in AI features. The company also did boost its

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<v Speaker 2>annual forecast. I want to bring in a Neil chukovarthi

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<v Speaker 2>President Digital Experience, Worldwide Field Operations at Adobe. He joins

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<v Speaker 2>us from San Jose, California, and Neil, welcome. It's good

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<v Speaker 2>to talk to you again. It's been almost a year

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<v Speaker 2>since we last spoke. How are you good.

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<v Speaker 3>Thank you, Thank you for having me back.

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<v Speaker 2>Yeah, thanks so much for joining us on the program.

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<v Speaker 2>I want to talk a little bit about the stock

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<v Speaker 2>move today because it does seem like investors might be

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<v Speaker 2>missing something here. I did mention that the company boosted

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<v Speaker 2>its annual forecast, gave a strong quarterly revenue outlook. Analysts

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<v Speaker 2>on estimate gave a number that was at the bottom

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<v Speaker 2>of the range, and you came out with numbers that

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<v Speaker 2>said sales will be at the top of that range.

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<v Speaker 2>What are they missing today?

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<v Speaker 3>Look like you said we had a strong quarter. We

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<v Speaker 3>gave a really good guidance for our fiscal fourth quarter

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<v Speaker 3>as well. We are focused on building a long term

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<v Speaker 3>AI platform. We believe that this is a massive transformative moment,

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<v Speaker 3>just like we went from on prem software to SaaS

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<v Speaker 3>software and it will be as a leader in that.

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<v Speaker 3>We believe this is the next big transformation of taking

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<v Speaker 3>advantage of agentic AI and the transformation that's going on

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<v Speaker 3>and bringing the right AI functionality and models through all

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<v Speaker 3>of our software. I mean, our software is pretty much

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<v Speaker 3>ubiquitous as you know, in Photoshop and Acrobat and everything

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<v Speaker 3>we do with experienced cloud as well. And so we

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<v Speaker 3>think that from a long term perspective, we're really well positioned.

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<v Speaker 1>All right, so well positioned, and I think investors were

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<v Speaker 1>pleased initially. But if you look at what the street's

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<v Speaker 1>doing and Neil like you see Piper Sandler lower the

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<v Speaker 1>price target from five hundred to four seventy ubs, lowered

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<v Speaker 1>it from four hundred to three seventy five. Ever, Corsi

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<v Speaker 1>cut the price from four seventy five to four fifty.

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<v Speaker 1>Barclays did raise it from four sixty to four sixty five.

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<v Speaker 1>I guess I'm laying that out because maybe people say, okay,

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<v Speaker 1>but maybe not at this price or this valuation. Should

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<v Speaker 1>investors to some extent in terms of the efforts you

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<v Speaker 1>guys are doing when it comes to AI, maybe temper back,

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<v Speaker 1>pullback in terms of their expectations or how long this

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<v Speaker 1>might take and how long or how much it might cost.

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<v Speaker 3>We are focused on both delivering value over the near

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<v Speaker 3>term as well as the long term to shareholders, and

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<v Speaker 3>obviously go through everything that we're doing for our customers

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<v Speaker 3>and our partners. I understand you know, of course, that

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<v Speaker 3>there are a couple of differing opinions on one where

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<v Speaker 3>it might shake out, given all the transformation that's happening

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<v Speaker 3>with AI and some of this uncertainty around the market.

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<v Speaker 3>But we believe that, you know, we're fundamentally in a

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<v Speaker 3>really strong position. We talked specifically about you know, numbers

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<v Speaker 3>around AI. We actually share two metrics. One is AI

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<v Speaker 3>influenced annual recurring revenue, which costs five million dollars and

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<v Speaker 3>then AI first annual recurring revenue, which you know, earlier

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<v Speaker 3>in the year we had said we had set a

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<v Speaker 3>target of two hundred and fifty million dollars by the

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<v Speaker 3>end of the year, and just in the end of

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<v Speaker 3>the third quarter we had already achieved that target a

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<v Speaker 3>quarter early. So you know, the way we see it

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<v Speaker 3>is we are not only incorporating AI and the best

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<v Speaker 3>of AI models, not only our own Firefly, but also

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<v Speaker 3>third party models like Google and run May and so on,

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<v Speaker 3>making it available to our customers. We believe it's also

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<v Speaker 3>creating values in what we're showing through the monetization. So

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<v Speaker 3>I believe that, you know, over the course of the

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<v Speaker 3>next couple of quarters, the market will work itself out.

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<v Speaker 2>You know, you mentioned the transformation that we're seeing as

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<v Speaker 2>a result of AI. Carol and I are really trying

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<v Speaker 2>to figure out and we ask everybody who comes across

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<v Speaker 2>our desk, what is going what is the future going

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<v Speaker 2>to look like? I mean, I was at this dinner

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<v Speaker 2>last month and Neil and it was all about AI,

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<v Speaker 2>and the topic of conversation that dominated most was like

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<v Speaker 2>what jobs are at risk here? And certainly a lot

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<v Speaker 2>of people talked about coding, but there's also the discussion

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<v Speaker 2>about creatives and to what extent the creative class could

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<v Speaker 2>actually see a hit to these jobs as a result

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<v Speaker 2>of AI tools that are available right now. And I'm

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<v Speaker 2>wondering how you think about that in your strategy, Like

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<v Speaker 2>how do you grow your revenue at Adobe if there

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<v Speaker 2>are potentially fewer people who need this software because it's

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<v Speaker 2>so easy to actually create using AI.

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<v Speaker 3>Yeah, you know, we see that AI will absolutely have

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<v Speaker 3>a transformative impact. But the way it will work, as

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<v Speaker 3>in every transformation, you know, if you think of the

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<v Speaker 3>last three transformations, the Internet transformation, the cloud transformation, the

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<v Speaker 3>mobile transformation, Adobe has been a winnowt in each of

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<v Speaker 3>these transformations, and the software does different things once you

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<v Speaker 3>go through the transformation. We see that in the world

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<v Speaker 3>of AI. What's going to happen is, you know, people

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<v Speaker 3>will embrace AI and people will use it. You know,

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<v Speaker 3>we share a number of twenty nine billion generations that

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<v Speaker 3>were done through our products through the including you know,

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<v Speaker 3>Photoshop and Premiere and so on, or people who are

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<v Speaker 3>already using these products incorporating AI into their work. The

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<v Speaker 3>way we see the future playing out is as AI

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<v Speaker 3>becomes ubiquitous and available through products like ours. What's expected

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<v Speaker 3>in the market will change, so you know, people are

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<v Speaker 3>not going to use just AI and automated because then

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<v Speaker 3>all of it will look alike. You know, your creative

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<v Speaker 3>work always needs to stand out. Every advertisement, everything that's

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<v Speaker 3>produced in Hollywood, even every business presentation needs to stand

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<v Speaker 3>out and standout. Content requires both that human creativity plus

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<v Speaker 3>the power of AI. So we believe that over time

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<v Speaker 3>it will absolutely be essential, but it won't be sufficient,

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<v Speaker 3>and that combination of creativity plus AI is what's going

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<v Speaker 3>to make content stand out.

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<v Speaker 2>How are you.

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<v Speaker 1>Thinking though about how AI will ultimately shake out? And

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<v Speaker 1>I think about you know, open Ai kind of figuring

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<v Speaker 1>out its future and restructuring to give nonprofit a stake,

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<v Speaker 1>but not necessarily just be a nonprofit. You've got Microsoft

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<v Speaker 1>and open Ai. Their non binding agreement will likely ease

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<v Speaker 1>concern about and then to their partnership. But at the

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<v Speaker 1>same time Microsoft is working it seems like focusing a

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<v Speaker 1>lot internally. There's a lot of churn, a lot of movement,

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<v Speaker 1>a lot of money. I mean, how do you make

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<v Speaker 1>sure you are either partnering with the right folks and

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<v Speaker 1>positioning yourself in the right way. Do you hold back

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<v Speaker 1>a little bit to see where the dust settles, the

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<v Speaker 1>AI dost settles.

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<v Speaker 3>H No. I think you have to be in the

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<v Speaker 3>moment in working with everybody like we are, whether it's

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<v Speaker 3>with open EI, with Microsoft, with Amazon, with Google, and

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<v Speaker 3>with the number of the other smaller players like Runway

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<v Speaker 3>and others. We are working with a variety of these players.

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<v Speaker 3>You know, in terms of how it's evolving, there will

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<v Speaker 3>obviously be a couple of you know, LLLM providers who

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<v Speaker 3>will be like the new operating systems of the world,

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<v Speaker 3>so you know, there'll be probably three, four or five

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<v Speaker 3>of them. There will always already be a lot of

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<v Speaker 3>players who specialize in particular areas. Maybe that's video, maybe

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<v Speaker 3>that's a vertical, maybe there's a specific niche that they

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<v Speaker 3>focus on. There will also be a lot of AI

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<v Speaker 3>language models that will run on device, you know, whether

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<v Speaker 3>it's working with like a Qualcom or other providers, there

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<v Speaker 3>will be a lot of on device on computer local

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<v Speaker 3>AI they'll run as well. So it'll be this combination

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<v Speaker 3>of different AI architectures. And one of the things that

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<v Speaker 3>we're doing as a software provider is how do we

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<v Speaker 3>make sure that our next generation of AI architecture can

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<v Speaker 3>work and take advantage of all of these so that

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<v Speaker 3>you know, from a consumer perspective and from an enterprise

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<v Speaker 3>customer perspective, they get the best of both worlds. They

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<v Speaker 3>get the power of the software that does exactly what

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<v Speaker 3>they need, and they get the power of AI.

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<v Speaker 2>We're speaking with Anil chuck Rivart, the President Digital Experience

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<v Speaker 2>Business Worldwide Field Operations AD Adobe, joining us from San Jose.

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<v Speaker 2>I think a lot about price elasticity with products such

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<v Speaker 2>as these, and as we see price increases on the

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<v Speaker 2>consumer side from companies ranging from digital media to SaaS companies,

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<v Speaker 2>how do you think about elasticity and price From your perspective,

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<v Speaker 2>how much can you raise prices?

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<v Speaker 3>We believe it's directly correlated with value, and that's what

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<v Speaker 3>we have done over the last few years. As our

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<v Speaker 3>customers see increasing value and as long as it is

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<v Speaker 3>tied to their business outcomes, will continue to see the

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<v Speaker 3>ability for them to pay higher prices. And so you know,

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<v Speaker 3>in the individual's market, for example, we see that, you know,

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<v Speaker 3>as long as they can amplify their own creativity and

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<v Speaker 3>then that shows up in whatever their own business model is,

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<v Speaker 3>they may be a solopreneur. They may be a freelancer,

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<v Speaker 3>they may be working on behalf of somebody else. As

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<v Speaker 3>long as it shows up in value for them, is

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<v Speaker 3>that increasing value will provide us elasticity. From an enterprise perspective,

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<v Speaker 3>it's really tied to business value as they look at

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<v Speaker 3>their business outcomes in terms of increasing their own agility,

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<v Speaker 3>in terms of their overall efficiency, in terms of being

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<v Speaker 3>able to personalize their customer experiences through better content and

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<v Speaker 3>better data. That will tie to the what they are

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<v Speaker 3>willing to pay for software like hours, So it'll be

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<v Speaker 3>it's all completely correlated with the value we're creating for them.

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<v Speaker 1>Hey, one thing I want to just you know, talk

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<v Speaker 1>a little bit more about your business is how does

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<v Speaker 1>your business get impacted with consolidation the traditional advertising industry.

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<v Speaker 3>What we are seeing the ad platforms is there's obviously

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<v Speaker 3>a lot of interest in a lot of new ad channels,

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<v Speaker 3>whether it is connected TV, streaming, retail media networks. A

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<v Speaker 3>lot of interest there in addition to the traditional platforms.

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<v Speaker 3>So when we talk to enterprise customers, you want to

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<v Speaker 3>do is to say, hey, look now I have you

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<v Speaker 3>know I used to deal with three or four channels.

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<v Speaker 3>I'm now dealing with fifty plus channels. The advantage if

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<v Speaker 3>I can do it right, is I get a much

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<v Speaker 3>better ROI through a cost per click or even being

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<v Speaker 3>able to reach the right audience or even getting the

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<v Speaker 3>full loop of data on what's working and what's not.

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<v Speaker 3>But in order to be able to do that, I

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<v Speaker 3>need to have the right content and the right agility

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<v Speaker 3>to be able to work with fifty plus channels. And

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<v Speaker 3>so that's really what we are offering with our products

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<v Speaker 3>like Adobe gen Studio, which is the end to end

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<v Speaker 3>content supply chain offering and through the Adobe Experience platform.

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<v Speaker 2>And Neil, always love it when you join us. Appreciate

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<v Speaker 2>you taking the time, especially on the first day the

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<v Speaker 2>stock traded after those earnings came out. Anil Chuck Rovarthi,

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<v Speaker 2>President Digital Experience Business, Worldwide Field Operations at Adobe, joining

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<v Speaker 2>us from San Jose, California.

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<v Speaker 1>Thanks again and Neil