Adobe Systems Inc. (NASDAQ:ADBE) may be best known for its ubiquitous Portable Document Format (PDF), which is used in the creation and exchange of documents. The company is also well-known for its suite of creative products like photo editing software Photoshop, Illustrator software for creating scalable graphics and artwork, and desktop publishing software InDesign.
Over the last several years, Adobe embarked on a mission to migrate its business, and has gradually evolved from a company producing and selling creative programs to a software-as-a-service (SaaS) company that provides subscriptions to a suite of products hosted on the web. During its transition, the company has also become a force in the area of web analytics. Adobe is currently working to integrate artificial intelligence (AI) into its products, via a system it dubbed Sensei, for use by cloud customers. Sensei is a Japanese word which means an honored teacher or mentor.
Excitement about developments in AI
Machine learning, a subdiscipline of AI, endows computers with the ability to learn, combining software models and complex algorithms that can search through massive amounts of data for hidden patterns and insights. These programs can apply what they have learned while adapting to new information.
During its most recent earnings conference call, Adobe stated (emphasis mine):
Last month we held our internal Tech Summit where we announced our commitment to train every one of our technical employees in artificial intelligence fundamentals. We also demonstrated the incredible work happening across the company.
Partnering for the AI revolution
The company has revealed several recent collaborations in pursuit of its AI agenda. Last week, it announced a partnership with Microsoft (NASDAQ:MSFT) that would integrate customer relationship management (CRM) data from Microsoft's Azure cloud and the Adobe Cloud. Applying machine-learning techniques across the data will provide advertisers with additional insights, help manage advertising across a variety of platforms, and allow for more targeted and personalized messages. The companies are also sharing data models and core libraries between Sensei and Microsoft's AI assistant Cortana, and will collaborate on ways to leverage Microsoft's virtual-reality HoloLens headset for advertising.
Sensei will be powered by graphics processing units (GPUs) from industry leader NVIDIA (NASDAQ:NVDA), which Adobe already uses in many of its creative products. The companies have an ongoing collaboration to develop and optimize these graphics chips for new applications. NVIDIA GPUs have been widely used to accelerate the training of AI systems due to their massive parallel-processing capabilities, and are already employed by Microsoft's Azure Cloud, where Sensei is being hosted.
Adobe is partnering with Amazon.com (NASDAQ:AMZN) and its virtual assistant Alexa to develop skills that will integrate with its Experience Cloud and provide customers the status of their rewards miles from hotels and airlines. Alexa will also recommend activities or promotions based on customer profiles, and Adobe says it will do so while still protecting user privacy. Alexa and its Echo smart-home speaker possess over 10,000 skills and were the hit of the holiday season for Amazon. With a user base estimated to be nearing 10% of U.S. households, this could provide a rich source of additional data for Adobe.
Joining an emerging trend
Adobe has produced impressive gains during its transition. In its most recent quarter, the company reported record results in a variety of metrics including revenue, earnings, and cash flow. Its revenue increased 22% over the prior-year quarter, while net income grew an impressive 42% year over year. The company finished 2016 with a record $5.85 billion in annual revenue, $4.01 billion of which was recurring, and $2.01 billion in deferred revenue.
Adobe joins a growing trend of companies jumping on the AI bandwagon to improve their businesses and gain competitive advantages. Adobe says that it has been using similar technology for some time and that this is just the next logical step. There's no way to quantify how the company will benefit financially from its venture into AI, but it provides intriguing opportunities, and companies that don't make use of the latest technology risk being left behind.
Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors; LinkedIn is owned by Microsoft. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Nvidia. The Motley Fool recommends Adobe Systems. The Motley Fool has a disclosure policy.