Year end: AIR and RIAs raise Adobe's profile

Flash Player and other Web 2.0 technologies push Adobe into the spotlight -- and the crosshairs of Microsoft and more competitors

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.