For Position Only: Adobe’s Fiscal Magic Act
You creativepro.com readers are a smart group of people. Maybe you can help me figure this out: Last month, Adobe Systems reported its sixth consecutive quarter of record revenue — more than $355 million — while other high-tech companies were reporting dismal results right and left, sending Wall Street into a tailspin. That’s 26-percent year-over-year growth for Adobe, and the company expects to maintain that rate through 2001.
So you tell me: How has Adobe so far remained immune to market downturns, and how will the San Jose-based “network publishing” software company continue smooth sailing while the rest of the tech economy — if not the whole economy — is expected to tank in the next six months? Don’t get me wrong: I’m thrilled about Adobe’s success. But I’m also mystified.
The Hardware Connection
The first puzzling fact that comes to mind is that Adobe’s customer base has historically been on the Mac; indeed, more than one third of its sales are for the Mac platform. And we all know the troubles Apple faces these days. To me, it’s not terribly far-fetched to conclude that if 40 percent of your customers use a computer from a vendor that’s not selling many systems, you might see a ripple effect on your own books.
But Adobe CEO Bruce Chizen has gone on record to the contrary, saying that the company’s revenue from Mac-based software actually grew last year. Apparently, Adobe apps are selling strongly on the Mac despite Apple’s own travails. (By the way, I wish Corel the best of luck with its latest plan to focus on developing its creative applications for the Mac. Is it any surprise that six months after Microsoft infused the company with cash, Corel decided to sell of its Linux division and to stop trying to convert Microsoft Office users to WordPerfect Office? I don’t think so.)
Still, PC system vendors have been as hard hit as Apple. Michael Dell of Dell Computer fame even predicted this week that 2 of the top 10 PC vendors won’t be around this time next year. And if corporations aren’t buying hardware, one would think they’re buying less software, too.
Indeed, the Big M — Microsoft — has felt the impact. The company may have reported record revenue for the quarter that ended in December — $6.59 billion. But that’s about 5 percent lower than Microsoft originally predicted, and the company revised its expectations for 2001 downward by the same percentage. If Microsoft is braced for (albeit slightly) leaner times due to a slowdown in PC sales, corporate IT spending, and consumer online services and advertising, then why isn’t Adobe?
The Net Effect
Adobe seems convinced it will be insulated from the general industry slowdown, and that demand for Web software will remain strong in 2001. But it seems to me that if companies plan to tighten their belts on software spending, they’re more likely to protect infrastructure software and to short-circuit their budgets for Web software. I have no hard data to confirm my hypothesis, but think about it: I have to assume we’re over the hump in terms of businesses getting online. Can you name one Fortune 1000 company that doesn’t have a major Web site built and running? Haven’t we heard news reports ad nauseam about how corporate Web sites are financial sinkholes? Aren’t major online design agencies such as Organic and Razorfish facing hard times themselves?
All this leads me to believe that the big bucks have already been spent on corporate Web site design, at least for the moment, and that this is where companies are reining in spending. Factor in all the failing dot-coms, and the demand for Web software drops off even more dramatically. All the companies and design and ad agencies that bought Photoshop 5.5 and GoLive 4.0 might not be around now to purchase Photoshop 6.0 and GoLive 5.0.
Don’t get me wrong: I know that businesses need to (and do) devote ongoing resources to their Web sites. E-commerce is growing like gangbusters, for instance, and brick-and-mortar businesses are busy trying to institute clicks-and-bricks business plans. Wireless is another big trend shaping Web development. But by its own admission, Adobe makes Web design tools, not Web development tools. The best it offers in development is a bunch of nascent alliances that haven’t yet borne fruit: Blue World Communications is developing a GoLive extension to create database-driven Web sites, for example, and Nokia is developing a GoLive extension to allow designers to author, preview, and manage content created for wireless devices.
And to many observers, Adobe still takes a backseat to Macromedia in both market penetration and the quality of the Web tools it offers. Yet Macromedia sales suffered last year, and its stock has been dropping since summer — another indication that the Web is not the sales driver it’s cracked up to be.
Who’s Buying It?
Still, someone is obviously buying Adobe software: Photoshop 6.0 has received rave reviews and is selling like gangbusters. Adobe has indicated that one sales driver is the popularity of digital photography. But give me a break: Your Great Aunt Alice may indeed buy a digital camera along with her iMac to help put photos of her garden online, but Photoshop won’t be her application of choice. Point-and-shoot digital cameras come with their own software — sometimes even Adobe PhotoDeluxe — and if mainstream shooters go out and buy an application, Paint Shop Pro is a much more likely (and appropriate) choice than Photoshop. Among commercial photographers, there’s still lingering resistance to digital imagery, but slowly and surely they are climbing on the Photoshop bandwagon.
My Take
If you review Adobe’s financial documents, you’ll find that the company classifies its products into three main categories: Print Publishing (referred to as Cross-Media Publishing beginning in 2001), which includes Illustrator and the company’s assorted page-layout tools; Web Publishing, which includes Photoshop, GoLive, and LiveMotion, among other apps; and E-paper Solutions, which is basically Acrobat. The e-paper segment is growing by about 60 percent annually, and the Web segment by 30 percent; print grew only about 10 percent last year but is expected to grow about 35 percent in 2001.
But these categories are all smoke and mirrors in my opinion, because each contains products that are essential to print publishing. Photoshop is historically and integrally a print-production tool, even though Adobe classifies it as a Web tool; and Acrobat PDF documents, whether they’re circulated around an office, published on the Web, or used in prepress production, are often ultimately printed — either on a departmental copier or an offset press. And while InDesign may have gotten off to a slow start, Adobe has high hopes and goals for it, as you can see from the increased growth Adobe expects in the “cross-media” segment this year.
Adobe has worked long and hard to brand itself as an Internet software company, but as far as I can tell it is communications as a whole — especially print communications — that are keeping Adobe so financially vibrant. I just wish the company would stop pretending that print is dead and give credit where credit’s due for the publishing medium that has made Adobe — and continues to make Adobe — the incredibly successful company it is.
This article was last modified on January 18, 2023
This article was first published on January 26, 2001
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