by Jay Vleeschhouwer
As a follow-up to my October 26th comments on the annual Adobe MAX conference, I will share some observations of the analyst meeting held during MAX.
Management opened with the set of growth drivers (and other aids to the business) for Adobe, including:
- Multi-screen (the increasing plethora of ways of interacting with applications and content through glass).
- A broader set of customers for the desktop business.
- Partners, such as Google.
- Creative Suite adoption.
- More services.
- Content optimization and monetization (Omniture).
- New products (the launch of Digital Publishing Suite at MAX received perhaps the most attention)
- And enterprise.
Enterprise is a broad term, but Adobe measures this as already a “$1 billion” business, a credible number when we consider just the more than $400 million in Acrobat volume licensing and the quarter-billion dollar LiveCycle server business, plus Omniture.
Adobe should be a low double-digit growth company, if not more, depending on the cumulative incremental revenues from a multiplicity of currently small or even nascent businesses, including services, such as CS Live, Flash media server, Scene7, Lightroom, to name just a few. The primary anchor products, namely Creative Suite, Photoshop, and Acrobat, are probably mid-to-high single-digit growth businesses, supplemented by stronger growth in medium-size secondary businesses, such as servers and digital video.
The identified big trends are that design makes a difference (quite so, and perhaps now even more so, and Adobe remains the most diverse and highest volume design software company), and access to customer data is vital for marketing and product development.
WPLM and CEM
Following the acquisition of Omniture a year ago, I used the phrase “web product lifecycle management” (WPLM) to capture the expanded and combined set Adobe’s software tools and services encompassed the workflow from conception through “yield enhancement” for its customers.
Otherwise, the main three-letter acronym that was used – and about which we will hear more over time – is “CEM”, or customer experience management (this will be one-third of the three-legged growth stool).
Adobe also spent time highlighting the symbiosis of Flash and HTML5, plus of course its full participation in the emergence of the latter (there were MAX sessions about that too); not only will they participate in HTML5 through multiple products (as an existing leader in HTML authoring, e.g., Dreamweaver), but as Macromedia used to point out, platform and language changes will drive growth.
Revenue Déjà Vu
I liked that management – as in the CFO’s presentation – highlighted “new subscription models” and the overall importance of recurring revenues, the low proportion of which (not counting Omniture) has been a principal concern in my comments about Adobe the past couple of years.
It will take time to build the non-Omniture recurring revenues, but eventually the contribution from such offerings as CS Live could become eight-figure businesses, if not more. The transactional model from Digital Publishing Suite could also be highly scalable, even at just pennies per download of content fulfillment, e.g., of magazines, catalogs, video, etc. Subscriptions could also be used to attract price-sensitive customers.
Thus, over time deferred revenues will likely become an increasingly important metric for tracking Adobe, just as it has with respect to Autodesk.
Creative Suite Units. The company updated the unit data for Creative Suite. If we add up the Creative Suite 3 and Creative Suite 4 units as of the end of the CS4 version, plus the CS5 units sold to date, there were as of 3QFY10 about 5.625 million Creative Suite units (consistent with what I had inferred using my own crude calculations).
There is still ample room to move the CS3/4 base up to the latest version, and, by my calculation, it is still quite possible that the cumulative revenues of CS5 could meet or beat the $1.92 billion of cumulative CS3 revenues (I infer that the combined 2Q10 and 3Q10 Creative Suite revenues were about $715-$720 million, vs. $620-$625 million in 2Q07 and 3Q07 for CS3, so the slope will of course matter a great deal from here). The company mentioned that it would roll out “mid-cycle messaging,” presumably targeted initiatives to spur migration.
Acrobat Units. The company updated the unit data for Acrobat as well, noting that 44 million units have shipped since inception. At the analyst meeting 2 ½ years ago, Adobe had cited 30 million units (up 5 million over the preceding year at the time). The latest Acrobat data would suggest an increase in the average annual unit volume, helped undoubtedly by the proportionate growth of volume-licensing and as well the number of Acrobat units sold through various Creative Suite configurations.
Digital Imaging Diversification. In digital imaging, Adobe highlighted the success of Photoshop Lightroom (an adjunct to its largest standalone design tool), which did $25 million in 3Q10 alone, or the equivalent of three-fourths of its FY09 revenues. (The product was introduced barely four years ago).
In addition, it noted that combined Photoshop Extended/Photoshop Lightroom/Photoshop Elements revenues would be about $250 million this year; with Lightroom expected to be about $50 million and Elements about $150 million, that leaves about $50 million for the high-end of the full Photoshop line, or about a fifth of that business -- showing once again how in product segmentation, professional customers often gravitate to the high end of a brand, thus helping to expand the business.