Keep On Keepin’ On
A
dobe Systems is king of its hill in content-creation
sotware. No one comes close to ofering all that it
has: Photoshop, Acrobat and Illustrator. Its net proit
margin this year will be 28.7%, predicts Value Line,
better than the margin at Microsot. Its shares are up
1 ,000% over the past seven years.
Why, then, is Adobe running scared? It veered of into We b
analytics in 2009, paying about $ 1 .8 billion for a irm (Omniture)
that had only $296 million in revenue. hen it wanted to get into e-
commerce, and ater being outbid two years ago by Salesforce in the
auction for cloud-based Demandware, it had to settle this year for
second-choice Magento, at a cost of $ 1 .7 billion. (And in September
Adobe agreed to acquire Marketo for $4.7 5 billion. he San Jose
irm makes business-to-business marketing sotware that helps
brands track their customers online.)
he explanation for the expensive expansionism: In the rapidly
changing world of sotware, small pieces of turf are hard to defend.
here is always the risk that some bigger company will either wrap
a competing product into a larger suite you don’t ofer or, worse,
give away for free what you’re selling. hat’s what doomed Lotus in
spreadsheets and Netscape in browsers.
In the early years ater Adobe’s founding in 1982 by two
Xerox PARC refugees, John Wa r n o c k and Chuck Geshke, its
concentration on the single category of document creation
served it well. Now, with companies like Oracle, Salesforce and
SAP ofering ever more comprehensive sotware to corporate
customers, a narrow focus is dangerous.
So is resting on laurels. At this February’s Silicon
Slope Summit in Salt Lake City, Adobe chief executive
Shantanu Narayen remembered: “In 2009 we saw that
while people were clearly using our products, we weren’t
innovating at a fast enough pace.” Most analysts who
cover Adobe estimate the company’s R&D spending this
year will be about $ 1 .2 billion, or 1 4% of revenues.
Narayen, a 56 - year-old engineer with an M.B.A.
from UC Berkeley, had a rough start. He walked into
his present job in November 2007, the very month
that marked beginning of the 2007 – 09 recession.
Adobe was stuck in a glacial, 18 - to 24 - month prod-
uct cycle in which it developed new versions of sot-
ware like Acrobat and Photoshop, printed them onto
CDs and then packed them into boxes. Sometimes
customers would pay up for the new version; when
times were tight they might stick with the old one.In 2012 Adobe began migrating corporate customers to the
cloud and to subscription payments. Now its popular Creative
Cloud suite of products generates about $ 5 .4 billion in annual
recurring revenue. Alex Zukin, a Piper Jafray analyst, estimates
that subscription payments accounted for 80% of Adobe’s $2.2
billion of revenue in the May 2018 quarter.
he next step in the reformation of the business model
was to ofer those customers a lot more than a way to design
a sales brochure. With Omniture, it can help them track and
analyze how customers behave online. Brad Rencher, who was
Omniture’s head of business operations when his company was
bought, is now Adobe’s general manager for digital marketing.
Adobe’s goal, he says, is to move away from “just making con-
tent to making a business of iguring out how it was being used.”
Magento, based in Campbell, California, is the third leg on
the stool. he irm, which was spun of from eBay in 2015 and
was owned by private equity investors at the time of the Adobe
deal, helps companies sell on the internet with programs to
build and manage online storefronts. Magento chief executive
Mark Lavelle, who will stay with Adobe, says $ 155 billion in
goods and services changed hands via Magneto globally
last year.
“Commerce has become an integral part of the end-to-
end experience customers now expect,” Narayen says in an
email. Aseem Chandra, Adobe Experience Cloud senior vice
president for strategic marketing, puts it a little more succinctly
when he says, “Every experience should be shoppable.”FORBES ASIA
ADOBE ADAPTSAdobe Systems continues to reinvent itself
as it keeps pace in the crowded software ield.
BY PETER CARBONARA24 | FORBES ASIA OCTOBER 2018“We weren’t innovating at a fast enough pace”: Adobe CEO Shantanu Narayen. ABHIJIT BHATLEKAR/MINT VIA GETTY IMAGESF