The company from San Jose, CA, develops and sells software and services for the design, development, editing, and management of images (photos and drawings), videos, printed materials, websites, and rich internet applications for PCs and mobile devices.
Adobe Systems Inc. (ADBE) is organized into three business segments:
- Digital Media which includes the products Creative Cloud, Creative Suite, Dreamweaver and Photoshop;
- Digital Marketing which includes Adobe Analytics and Media Optimizer;
- Print & Publishing which includes PageMaker and Shockwave Player.
Its flagship products are Creative Suite, Photoshop, Flash, and Acrobat/PDF. In addition, the LiveCycle product family enables enterprises to automate processes and forms, and Omniture is a leading web analytics platform.
In recent years, Adobe Systems has reviewed its business plan and how to reach customers. They concluded that a cloud-based subscription model would reinvigorate growth. Through this move, ADBE has reaffirmed its reputation as an early industry mover. The advantage of the cloud-distribution model is that ADBE can release new products in smaller numbers more frequently while reinforcing its service. The cloud-distribution model also has positive impacts on long-term revenue streams as releases are no longer major one-off events but recur over a given period. Subsequently revenues have increased by about 33% to over 25% in 2012. The cloud-based solution offers a valuable low-cost opportunity for private users as well as small enterprises.
The critical point for ADBE to surmount, however, is the reticence of large accounts to switch to cloud-based solutions for mission-critical software. Furthermore, the commercial success of the cloud-based solution relies heavily on the conversion ratio of the 1 million-plus free trial users. If successful, this would really reinvigorate Adobe’s growth.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- New subscriptions for the Creative Suite product are progressing rapidly,
- Out of the 12.8 million clients using the CS3-6 installed version, so far less than 10% have switched, providing the company with huge upside sales potential,
- ADBE is well-known as an industry early mover and product leader.
Weaknesses:
- ADBE faces technical and psychological issues in moving larger key accounts to cloud-based solutions,
- ADBE is inexperienced in digital marketing,
- ADBE’s Flash technology is outdated and will be replaced by HTML5,
- The cloud-based solution offers less flexibility for customers.