Software giant Adobe (ADBE) has been struggling for quite some time now and it appears that its management does not know how to fix what hinders the company's progression beyond what it is known for. But that is not because they haven't put forth the effort as witnessed by the acquisition of Efficient Frontier a couple of months ago. This purchase arrived only a couple of weeks after it then scooped up Auditude, a firm with the technology to embed advertising within videos. But the questions that remain unanswered are how will these recent purchases bolster sales? And what will the company use to cure its many challenges and make this once dominant software player relevant again?
Adobe's once popular Creative Suite, which includes such popular titles as Pagemaker, Dreamweaver and the ever once dominant Photoshop, has seen steady declines in sales. When coupled with the slow demise of its flagship Flash Player, it forces investors to rethink the company's future - particularly one that suggests the continued dominance of Apple (AAPL) and Google (GOOG) - two of its biggest rivals.
In its most recent quarter Adobe reported sales that improved 11% to $4.2 billion, exceeding the company's goal of 10% growth. Management cited "strong performance in our digital media and digital marketing businesses." In a recent investor presentation, Adobe estimated that the digital media opportunity, where it helps graphic and web designers develop digital content for games, publishing and mobile applications, is a $6 billion market opportunity. It also estimated that online video traffic will grow 51% annually between leading into 2014.
Revenues increased slightly above goals. However, it was offset by declining product revenue. It is making headway in the subscription and services area where it showed some strength as both businesses grew modestly. During the announcement, the company revealed that one third of its new subscriber base was completely new to the Adobe brand and had no previous experience with the suite. This suggested that there are cloud opportunities that remain untapped in terms of its software distribution.
By and large, it was a decent quarter, but nothing to write home about. The company's other challenge is in its shift from selling the conventional boxed software applications to a subscription model, where customer pay an annual or monthly fee for the software and related product support. But the company's main problem is the stiff competition from one of its top rivals, Apple. While we're at it, we can throw in Google as well as (to a lesser extent) Oracle (ORCL).
Microsoft - Aligning to Conquer Techs
It has been a little over a year now since rumors surfaced surrounding an acquisition of Adobe by Microsoft (MSFT), ever since investors witnessed Microsoft CEO Steve Ballmer enter Adobe headquarters to meet with Adobe CEO Shantanu Narayen. It was a deal that (obviously) never transpired. However, I have often wondered where either company would be today if a transaction had actually taken place. I am certain that not only would the current status of both companies surely would have changed, but a deal would have likely altered the technological landscape of both Google and Apple.
I think an Adobe and Microsoft union might actually be just enough to conquer the landscape of techs. If nothing else, it should work because they both have common enemies in Apple and Google. Of course a synergistic merger requires more than having similar adversaries, but marriages typically work better when both parties have at least one thing in common. But for Adobe and Microsoft, the great thing is that their similarities reach far beyond just their shared hatred for Apple and Google.
First and foremost, they are both technology giants with a concentration in software applications that offer a wide array of desktop publishing and web-based applications. Secondly they are both now grossly irrelevant. Their irrelevance has had to do (in part) with the fact the that Google offers (for free) what both Microsoft and Adobe rely upon at the core of their sales - namely Google Docs.
It offers users features that are similar to the experience of MS Office and it then allows the document to seamlessly convert into a PDF file. As Google increases its portfolio of free applications, there will be a point when users have to wonder why they are spending money on Microsoft and Adobe products. It will no longer make sense - that's assuming it ever did.
As far as the hatred toward Apple is concerned, for Microsoft it goes without saying. It's the "Mac vs. PC" debate that has been around for years. There are some things that keep the earth on its axis and the dislike between the two companies serves that important purpose. If you value the sun coming up in the morning, then you should also hope that this hatred continues. But for Adobe, its dislike for Apple started upon the immediate success of the iPhone and subsequently the iPad due to their restriction on the use of Adobe's Flash player.
These are just a few examples in a long list of what has caused some of the battles between these companies over the years. While Google and Apple are doing exceptionally well in all areas of their businesses, I continue to wonder what an Adobe/Microsoft union would mean to the current technology landscape as well as its future as the cloud becomes more of a reality. Microsoft appears to be already embracing this future with its MS Office 365 strategy and as does Adobe to a lesser extent. But considering both Apple's and Google's early entry into the cloud space, it appears not much will change in terms of their dominant status except the year that it is.