Jerusalem based unicorn Lightricks is mainly known for its lead Facetune app, which has become one of the most popular video and image editing mobile apps. Now several months after the company announced a round of layoffs, Lightricks is expanding its area of activity into the crowded field of desktop and web image and video editing. The company is also continuing to increase its focus on developing monetization tools for social media content creators and influencers.
In May 2022, Lightricks acquired Kodi Cat, a Beersheva studio of content developers specializing in web development. Lightricks declined to say how much it paid for the acquisition. Several months prior to that Lightricks acquired Popular Pays for several tens of millions of dollars – a Chicago-based company that acts as a kind of digital marketplace mediating between artists and influencers and brands. Lightricks CEO Dr. Zeev Farbman explained that the decision was due to the need to focus on the company’s new content worlds. He said, “We have been expanding our back-end and web ‘muscles’ for a long time, with the integration of AI.”
80% of the capabilities with 20% of the load
Lightricks was founded in 2013 and just two months later launched its first app – Facetune. While the leading editing software at the time such as Adobe’s Photoshop were complicated to use and appealed to professionals, Lightricks built a popular, more user-friendly app that was still powerful and impressive. The company is now trying to transfer this convenient functionality for desktop users as well: “We will try to take the value of AI technology and make products that give you 80% of the power of Photoshop and Adobe Premiere, but with 20% of their cognitive load. We will make products that are much simpler.”
Lightricks claims that it is the biggest player in mobile photo and video editing apps that require customer registration. The company’s apps hold about 20% of the market, which has annual revenue of $1billion. The rest of the market is divided between about 10 smaller companies.
The company realized that their main growth engine was close to its full potential and that they needed new ways to increase profits. “If we do a very good job in mobile, we will reach $300 million revenue in two years,” explains Farbman. “It is very important to say, the entire category is shrinking, people are paying less, and in general, Apple does not officially admit it yet, but according to Morgan Stanley’s estimates, all the purchases in the App Store are shrinking. So we said that if we say that we have a source of income that currently gives us a little over $200 million a year, if we increase by 20%, that’s amazing, but it’s not sufficient.”
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Farbman recounts that in the managerial discussions that preceded the decision on the change of direction, they identified the world of content creators on social networks as a possible engine of growth. According to a Forbes survey, the willingness of brands to spend on advertising with the help of content creators and influencers on social networks is worth an estimated $15 to 20 billion annually.
“It’s a long-term trend, which stems from how peoples’ attention is focused,” explained Farbman. “As soon as that attention goes somewhere else (and not to traditional advertising), that’s where the money goes – with a certain delay. The story in TikTok is that classic advertising does not work there. This is an example of why brands are more willing to go there. This market is very open, and there is no clear market leader. We wouldn’t have gone in there if we didn’t think there was a huge opportunity there.”
As a result of the focus on the content creators, the understanding also sunk in that there is a need to make the tools that the company has developed so far only for mobile – also for desktop users. At this stage the dilemma arose as to whether the tools should be installed directly on the device (native – similar to Word), or on the web (similar to Google Docs). “Historically, due to a lot of considerations, we tried to ‘push’ the algorithm to the graphic hardware of the device, but with AI right now this is impossible. I think that in a year or two many things will be able to run natively.”
According to Farbman, the tools developed by the company will operate on the web within a few years: “We want all our flagship apps to be on the web as well – we will start seeing a large part of these things in a year. It is a very long journey, but one that we have already begun.”
Declaration of war or preparing for an acquisition
Farbman’s mention of image and video processing giant Adobe as an example of the web capabilities he plans to develop is no coincidence. The veteran company securely controls several submarkets of image and video design and processing software. Among other things, Adobe developed the iconic software Photoshop, and video editing software Premiere. Over the years, Adobe has also tried to enter the field of mobile image editing with an app called Photoshop Fix, but with very limited success.
Lightricks entry into image and video processing and editing on the web will give it a foothold in the field of Adobe, which is mainly aimed at the professional market. Adobe reported profits of over $17 billion in 2022, with its flagship software – Photoshop Illustrator and Premiere – leaders in their field.
“I really feel it’s happening,” Farbman says referring to the tension created between Adobe and the Jerusalem-based company. “Adobe has been trying to simplify things, for quite some time, and also to be more relevant in worlds that are not necessarily purely professional, on the other hand, we do try to take and try out things that used to be more professional. The interesting thing is that AI completely reshuffles the deck. A large part of Photoshop’s tools are going to become irrelevant.”
Over the years, Adobe has been harshly criticized, mainly due to the fact that in several instances, the US giant acquired its rivals, the best known of which -was Macromedia in the early 2000s. In some situations, the US regulator was even forced to intervene and block acquisitions. Adobe recently announced its acquisition of Figma for $20 billion. Figma is an online platform that allows product and user experience designers in tech companies to develop interfaces and share them with the other staff in the company, such as software developers, product managers and marketing people. In recent years it has become an important project management tool in organizations.
The deal price reflected a 50 times multiple on Figma’s annual recurring revenue (ARR), which is expected to reach $400 million in 2022. This is one of the highest multiples received by a software company in an acquisition. Farbman admits that when they decided to embark on their strategic change about two years ago, an acquisition offer from Adobe was one of the results they thought they might achieve.
The acquisitions – close to the date of the layoffs
Lightricks completed the acquisitions of the companies in Chicago and Beersheva several months ago – shortly before they announced the layoff of 80 employees, which took place in July. The decision on the layoffs was made about 8 months after a major secondary round. “Already at the beginning of the year – even before all the layoffs – the penny started to fall for us (about the economic situation),” Farber recalls “We didn’t want to start with layoffs, so we started with extensive cuts in marketing. We realized that we needed to think not only about growth but also about profitability. We were hoping that the cut in marketing would be enough, but at some point we realized that it wasn’t.”
Farbman says that the process that culminated in the acquisitions began a long time ago and that only by chance did it reach maturation at the same time as the need to say goodbye to some employees.
“In the end, when you have to cut back, you do a very brutal prioritization of what’s important, and when we sat down to do it, we realized that web and backend simply cannot be given up,” he explains. “I understand how it can be interpreted. But ultimately I do think it was a decision, which at least for now seems reasonable to us. At the same time, we also continued to hire for the web and backend worlds. We tried to retrain some of the employees, but it is impossible to retrain the entire company to new things.”
Published by Globes, Israel business news – en.globes.co.il – on December 22, 2022.
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