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In Midst of Transition- Adobe Systems (Part II)

Continued from Part I

If the early results are any indication, Adobe, has become a model for companies coping with tech’s changing landscape. But the Business transition is easier said – Adobe will have to navigate the rise of cloud, Mobility, social media and highly targeted online advertising. It also pits Adobe against some very well entrenched competition – Microsoft and Apple in productivity programs, IBM and Google in digital marketing.

adobe_cloud
Image Courtesy Fortune

Adobe’s move into digital marketing- which has its roots in the acquisition of Omniture, a web analytics company in 2009 is an equally adroit move. The second leg of Adobe’s strategy re-orientation includes data driven marketing – real-time bidding on Google search ads, targeting display ads using Facebook profiles, analyzing which Tweets or blog posts drive traffic, testing different site designs to see which generate sales. To make those features possible, Adobe has spent $800 million in the last 3 years on acquisitions since Omniture: Day Software for website-content management, Demdex for ad targeting, Efficient Frontier for search and social media ad exchanges, and Auditude for inserting ads inside streaming videos. According to Gartner, marketing budgets will grow 9% this year, compared with 4.7% for IT. Adobe wants to benefit from that growth by selling marketing services and software simultaneously. Thus, Adobe tools once relied on just for creating a website, have become much more useful as a digital marketing suite.

Death of Adobe Flash

Still, Adobe’s marketing push means going up against deep-pocketed companies like IBM, Microsoft, Oracle, and Google — all of which are more experienced in the enterprise software market. The next year or so will be critical for Adobe as it changes tracks and dons a new gear. It is a risk but then its vastly better than waiting for the emminent death of Adobe Flash.Adobe’s post-Flash strategy was announced in November 2011, alongside the restructuring that made digital marketing and Creative Cloud the company’s top priorities Adobe saw the writing on the wall and conciously anchored itself on the Creative Cloud and Digital Marketing as the next streams of business. Now we await the new Adobe!

In Midst of Transition- Adobe Systems (Part I)

In the age of Cloud,Mobility,Social Media and altering business models,Companies that simply try to preserve the status quo will fail – Inspired

Adobe is the midst of transition would inspire many a case studies. A company that epitomized Shrink Wrapped High Quality Software is working on complete re-doing of its business and revenue models with an eye on the future. Historically, Adobe has been a productivity suite company with its software being centred around enterprises, film-makers, webmasters and content creators and it has done well till recent times. Not wishing to be caught on the wrong foot holding on to status quo, Adobe has readied and implemented a radical change in its business model- It has embraced the cloud based distribution and digital marketing and is phasing out the CD based version of “pay beforehand $1400-$2400” software distribution to Software in the cloud, monthly subscription service. This sachet service works three ways – It steadies revenue per month, it reduces piracy (Adobe was losing a reported $1bn to piracy of its software) and it also increases penetration (The move to subscriptions is a clever and thoughtful way to lower the price point). This model works on a $20-$50 subscription model – and this would bring 325K subs by end of 2012 as per Adobe. Lready Adobe has a million free memberships on its Cloud.The current onboarding rate is 11K per week. Overall average revenue per user is 20% higher compared with the old product. That number will rise even further, the company says, because it is much more likely to sell support services, website hosting, or server management to cloud customers. Already Adobe is augmenting its cloud product by addition of features and functionalities such as Creative Cloud for teams, making it easy (collaborate effort); Adobe Muse (For creation of Mobile websites); Creative Cloud Connection for desktop synching and collaborative sharing;Creative Cloud Training; and demonstrating the unlimited access to the Digital Publishing technology used by major publishers to create interactive content for the smartphones and tablets.

Adobe

Sure this audacious moved spooked the stock which lost steam in 2011 but it is back in action and has traced a healthy recovery. The stock is way behind its historic highs of $47.9- however at $35.5 it is trading 47% above its 2011 trough of $24.17. Even while the stock is underperforming as per analyst’s expectations- the 3Q, 2012 profits have reversed a trend of 3 quarters of dipping profits. In the most recent quarter, profit increased by 3.2% year-over-year. Looking back further, profit dropped 2.4% in the second quarter, 21.1% in the first quarter and 35.4% in the fourth quarter of the last fiscal year. The turnaround seems to be working for Adobe and we would get to know more about this in time. As for the shift from boxed software to subscriptions: It is far from over. In fact, it is the company’s greatest source of uncertainty.

This Post is continued in Part II

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