In the technology industry, you can be pretty sure you've hit the big time when Microsoft develops a product specifically to compete with you.
That's the position Adobe Systems found itself in this year, when Microsoft developed a new cross-platform browser technology called Silverlight to rival Adobe's Flash, the de facto standard for developing and delivering video and multimedia content on the Web.
Adobe is exiting the year not only as the company of choice for creative professionals everywhere, but as an influential force to be reckoned with and a power player alongside Apple and Google, the companies leading the consumer-savvy, multimedia-friendly Internet wave of Web 2.0.
Over its 25 years, Adobe -- a company known less for its dazzle than its dependability -- has quietly turned itself into a multibillion-dollar software vendor on the strength of technologies that have become essential to computer users. Creative professionals would be lost without the graphic-design tools Photoshop and Illustrator, and Adobe Acrobat and PDF have made it easy for everyone to share documents cross-platform.
But with its acquisition of Macromedia two years ago, Adobe also took on another role -- as pioneer of providing a next-generation platform for developing rich Internet applications. RIAs, as they're called, provide more intuitive and multimedia-rich user experiences on the Web than typical client/server or desktop applications, and are now in high demand as users expect more from their multimedia Web experiences with the rise in popularity of sites like YouTube and Facebook.
Still, though the proud owner of PDF and Flash, two of the most ubiquitous technologies in the history of desktop computers, Adobe has never enjoyed the same powerful brand recognition as contemporaries that have also built widely used technology. While Google's search engine inspired the addition of the word "google" in the Merriam-Webster dictionary, Adobe's technologies have always spoken louder than the company's name itself.
"Adobe is not a real sexy brand," acknowledged Keith Cutcliffe, a professional Web designer and developer who uses the company's software.
Indeed, Anthony Franco, president of Denver-based application design and development firm EffectiveUI, said his company leads customer engagements by talking about the Flash Player, not necessarily Adobe itself, because the technology is so well known. "It's the brand recognition of the Flash Player first, then we connect the dots," he said.
But that has begun to change. Adobe took charge of the Macromedia acquisition this year, eliminating that company's brand and merging its own long-popular graphics tools with Web-design tools acquired from Macromedia, such as Dreamweaver and the aforementioned Flash, into Creative Suite 3.
To Melissa Webster, program vice president at IDC, Adobe's purchase of Macromedia was "more like a merger than an acquisition" due to how gracefully Adobe integrated the technology and former Macromedia executives like Adobe chief software architect Kevin Lynch into the fold. She said the company's skillful execution of the deal also proved it is capable of making significant acquisitions work, which paves the way for more purchases in the future.
Ron Schmelzer, senior analyst and founder of research firm ZapThink, said Adobe handled the Macromedia deal so smoothly and the acquisition merged such complementary technologies, "it's almost hard to believe that Flash and the other [Macromedia products] were ever separate from Adobe products."
This year Adobe also built a connection between the Web and the desktop by introducing the Adobe Integrated Runtime (AIR), a technology that leverages the Flash player to bring Web applications to the desktop using the same developer code. AIR, which is now in beta and will be available in full release early next year, will drive the company's strategy to move RIAs from the Web and bring the same user experience to the desktop.
Microsoft with Silverlight aims, in a sense, to do the opposite. With technology built on the Windows Presentation Foundation graphics layer of the Vista OS, Microsoft hopes to enable its formidable .Net and Windows developer base to build RIAs. While Adobe has a solid lock on the RIA tools market for now, moving to the desktop and into the domain of Microsoft is a strategy that will pose challenges, said Toby Bell, research vice president at Gartner.
"It hasn't yet been proven that Adobe has the enterprise relationships and eco-system of partnerships [that Microsoft does]," Bell said. "All the things Microsoft brings to the table, Adobe is still developing."
Adobe also marked a leadership transition in 2007, with longtime chairman and CEO Bruce Chizen stepping aside in a planned changing of the guard to let technologist Shantanu Narayen take over the company. Analysts said the transition should go smoothly because the two executives had been working so closely together before it happened on Adobe's long-term strategy.
Narayen also brings to the company a "developer/inventor enterprise-focused guy when Adobe is going to need that," Bell said. He added that while Adobe's top executives have never had that star factor of a Larry Ellison or Bill Gates, "we have to expect [Narayen's] going to have enough personality to improve investor confidence and inspire Adobe to continue to innovate."
Through all of these twists and turns, the company continues to thrive financially. Adobe closed out the year with yearly revenue up 23 percent for the year, beating Wall Street estimates and reaching nearly $1 billion in sales for its fiscal fourth quarter. Its yearly revenue of $3.16 billion and quarterly revenue of $911.2 million were both records for Adobe, which expects another year of double-digit percentage revenue growth in 2008.
While there's no question Adobe made its own smart strategic moves in 2007, the company also benefited during the year from good timing, as RIAs came into their own and opened up a whole new market for any company that can help developers build them.
EffectiveUI's Franco said that RIAs are no longer the realm of early adopters, which tend to be smaller companies that want to be seen as having cutting-edge design for their Web applications. "Where we're seeing our biggest growth is ... large industry players leverage the Flash Player to build RIAs," he said. And with Adobe AIR, EffectiveUI is also able to bring those same Web applications to corporate desktops.
Among EffectiveUI's customers are eBay, Dow Jones, and Viacom. The company also built a package-shipment and tracking system for United Airlines. Using Flash, the application replaced an old "green screen" terminal user-interface without replacing the back-end mainframe technology powering it, Franco said.
This cross-platform power is another boon for Adobe as it does battle with Microsoft to control the content being delivered on the Web, which Cutcliffe said is key to being a market leader and influencer in the current, Web-driven technology market. Though Microsoft has built Silverlight to be cross-platform and work in all of the common Web browsers, Adobe has been working with Apple for years to optimize its products for the Mac, which is becoming a more popular platform in its own right.
"I still believe the ultimate goal is content control," he said. "If your tool becomes the favorite tool of developers, you're going to control the content in the long run. ...I think Adobe has the advantage if somebody wants to get into developing applications that can be deployed both on Windows and on a Mac, or whatever type of an environment they're running."
As RIAs themselves have more market value, Adobe also is positioning itself to compete in the enterprise with products like Adobe LiveCycle, which allows business customers to automate the business processes and workflow of PDF-based Web transactions, IDC's Webster said.
LiveCycle provides support for asynchronous Web transactions, which is helpful for users who are providing information -- for example, to an insurance company -- online but don't have all the necessary information on hand to fill out the forms. LiveCycle allows users to go offline in the middle of filling out Web-based forms and return at a later time online back to where they left off, she said.
"With [LiveCycle] it's easy to move that form back online and connect that document back up to the point in the transaction where it went asynchronous," Webster said. "It's a win for both sides."
This is another area where Adobe runs into Microsoft, which aims to offer similar workflow automation through products in its 2007 Microsoft Office System, particularly through functionality in its SharePoint Server and InfoPath software. Now that its RIA strategy is sound, proving it's a worthy enterprise player through products like LiveCycle will be a critical area of focus for Adobe in 2008 as it competes in the technology market on a whole new level.
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