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Adobe Pivots to New Target
Focus on Sales to Marketing Professionals Follows Battle With Apple Over Flash
By Ben Worthen
Wall Street Journal
April 24, 2012
Adobe Systems Inc lost a high-profile battle with Apple Inc. co-founder Steve Jobs over a video technology last year. Now the software maker is reinventing itself as a one-stop technology shop for marketing departments.
Over the last year, Adobe folded its $1 billion-plus business unit aimed at information-technology departments, overhauled the business model for its flagship Creative Suite software and gave up its long-running effort to get its Flash video technology on mobile devices like Apple’s iPad.
“If you’re going to make a left shift, you don’t increment your way there, said Adobe Chief Executive Shanrans Narayen.
The changes follow a war of words with Apple—and in particular with the late Mr. Jobs — who wouldn’t allow Flash on the iPhone or iPad. The feud, which broke open in 2010, called into question the usefulness of Flash—one of Adobe’s key technologies, which is used to watch video on the Web.
Now, after much debate, the San Jose, Calif., maker of creative software such as Photoshop is shifting its focus to marketing departments, which it sees as a multibillion-dollar opportunity.
“Marketing automation as a category could be one of the biggest categories we’ve ever seen,” said Peter Goldmacher, an analyst at Cowen & Co.
So far this year. Adobe’s stock is up 15%, giving the company a market capitalization of more than $16 billion. Shares closed Monday at $32.62, off 1.3%.
On Monday, Adobe unveiled one result of its transformation: a revamped version of its biggest product, Creative Suite. The new software will be available for a $50 monthly subscription — the traditional software program costs as much as $2,600—as part of the company’s online Creative Cloud, which also makes use of the Internet to share and store files. Adobe will sell a traditional version, as well.
Many software companies have tried to move to a subscription model over the last decade, with some pushes like SAP AG’s effort to sell a low-cost version
of its management software bumping into cultural resistance.
The Flash battle with Apple and Mr. Jobs heated up in April 2010, when the late Apple CEO published a scathing 1,700-word essay deriding Flash on devices. He concluded “Flash is no longer necessary to watch video or consume any kind of web content.”
While Adobe didn’t make money from Flash directly, it was a major enhancer for the company and was embedded in many et its products.
In the aftermath of Mr. Job’s essay, developers moved away from Flash and towards a rival technology called HTML5, which is backed by Apple and others. An Apple spokeswoman declined to comment.
As the Flash controversy unfolded, Adobe's executives re-examined the company's structure and product line-up. Some executives were concerned that Creative Suite, which includes Photoshop, was too expensive. Adobe risked losing share to newer, cheaper programs, said Chief Technology Officer Kevin Lynch.
In 2010 Adobe began developing the new version, Creative Cloud. With its monthly subscription model, the product upends Adobe's financial model, which has been based on big upfront payments. In means the company could face slowing or declining revenue in the short term even as it sells more units.
Adobe said it expects customers to move to subscriptions gradually but has warned investors that its growth will suffer as it changes to the new model.
At the same time, Adobe struggled with what to do with its structure. The company had a major enterprise business, which makes products like Web-conferencing tools. It also had formed a new business unit mainly targeted at marketing departments. But both units sold some of the same products, which was a source of rising tension.
While the enterprise unit reported sales of $1.2 billion in 2011, or more than a quarter of revenue, Mr. Lynch said Adobe f"weren't really gaining traction" against IT powerhouses like International Business Machines Corp.
Last August, Adobe combined the enterprise and marketing groups, but the new unit didn't yet have a single focus. In November, Adobe announced it would focus on marketing, along with the elimination of 750 jobs, or about 7.5% of its workforce.
Meanwhile, Adobe gradually de-emphasized the importance of Flash. At a tech conference last June, Mr. Narayen said the feud with Apple was over and that Adobe was working with HTML5.
Last November, Adobe also said it would stop pushing Flash for mobile devices, instead positioning it as a tool for high-end video, such as console-based video games.
So far, the changes at Adobe have won a positive reception from Wall Street. But winning over marketers may take longer.
"There's going to be some corporate inertia that has to be overcome," said Wes Lindquist, creative technology manager at Hallmark Cards, Inc., whose team uses Photoshop and other Adobe products. Still, Adobe's new focus and products are "worth looking at," he said.