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Adobe Systems (ADBE)Stock (Computer Software Industry, Internet Industry)
 While the company has traditionally specialized in graphics and publishing offerings such as Photoshop, Adobe is particularly well-poised to take advantage of the growth of next-generation Internet applications. Its 2005 acquisition of Macromedia, which invented Flash, was particularly strategic in expanding into the web developer customer base. The company now bundles applications such as Illustrator, Photoshop and Flash in order to reach a broad array of creative professionals, "knowledge workers" (including programmers, researchers, systems analysts, and students), and enterprises. Internet advertising is an especially important industry, as it caters to professionals who design and create ads, as well as to websites that utilize its capabilities for "rich media" ads. The company is also well-positioned to take advantage of the rise in digital media (e.g., photos, videos) and an increase in rich content on mobile phone platforms. As today's generation becomes more ingrained with digital formats of photography, video and sound, Adobe's suite of creative software products will benefit. On the mobile front, Adobe has partnered with providers to pre-install mobile versions of its popular applications, including Flash Lite and mobile Acrobat reader, onto mobile handsets. Adobe is well-placed to take advantage of accelerating industry trends and the growth of technologies such as 3G. 
[edit] HistoryAdobe founders Chuck Geschke and John Warnock shared a vision for publishing and graphic arts that would forever change how people create and engage with information. The two men met in the late 1970s while working at the renowned Xerox Palo Alto Research Center (PARC), where they researched device-independent graphic systems and printing. Excited by the potential of their work to reshape computing, Geschke and Warnock eventually realized that the only way to take their ideas from the lab to the burgeoning technology market would be to create their own company. In 1982, they founded Adobe Systems Incorporated on a simple premise: how could text and images on a computer screen translate beautifully and accurately into print? A year later, they helped launch the desktop publishing revolution by introducing Adobe® PostScript® technology, providing a radical new approach to printing text and images on paper. For the first time, a computer file could be printed exactly as it appeared on screen, with all formatting, graphics and fonts intact. Adobe PostScript was licensed to printer manufacturers worldwide and delivered unprecedented cost savings and productivity enhancements. It continues to be a core technology on printers today. Adobe revolutionizes how the world engages with ideas and information. For 25 years, the company’s award-winning software and technologies have redefined business, entertainment, and personal communications by setting new standards for producing and delivering content that engages people virtually anywhere at anytime. From rich images in print, video, and film to dynamic digital content for a variety of media, the impact of Adobe solutions is evident across industries and felt by anyone who creates, views, and interacts with information. With a reputation for excellence and a portfolio of many of the most respected and recognizable software brands, Adobe is one of the world’s largest and most diversified software companies.
[edit] Company Background Adobe Systems is an information technology company with a focus on creative products. Though it has traditionally specialized in graphic, photo, video, and publishing tools, its 2005 acquisition of Macromedia allowed the company to expand into the web design industry. Its products are used by graphics designers, artists, web designers, and advertisers as well as by publishers and professionals in nearly every industry (Adobe produces the ubiquitous Acrobat PDF file format). [edit] Business SegmentsAdobe has evolved from a company that sold graphics, publishing and other software to one focused on building suites of tools and software used by publishing and graphics professionals as well as developers of websites. The company makes the vast majority of its revenue--96% in 2006--from selling software products and licenses. Adobe's business segments are the following:
[edit] Key Product Offerings[edit] Creative SuitesCreative Suites is a bundled product of Adobe with a focus on creativity. Specifically, Creative Suites contains software allowing users to design and edit photos, graphics, audio, video, and web pages. Adobe produces packages for Creative Suites as well as individual software titles for amateurs to use at home and professionals to use in the studio. The most well known applications within Creative Suites are Illustrator, Photoshop, and Dreamweaver.
The intense popularity of Adobe's Creative Suite is a boon, but also a risk factor--new versions of CS may not always be adopted with the hoped-for enthusiasm. Even if new CS software continues to be so highly welcomed, the cyclicality of demand for Adobe products will still put strain on the company, forcing it to depend heavily on new product launches spaced over long intervals of time. Adobe has tried to compensate for this risk by releasing products on a more regular basis over the past year (it has introduced at least one new product or product version in each quarter since September 2006), but the battle is an uphill one. [edit] AcrobatAcrobat is the industry standard publishing tool launched in 1993. It is used to create documents by many businesses, as well as by average consumers. Acrobat uses the Adobe-designed file format "PDF" for all its applications; the format is widely used throughout businesses, schools, and government offices. Adobe's Acrobat PDF Reader is a free application that can be downloaded off their website and allows users to read and search through PDF files, but not to edit or create them. Acrobat has a host of different programs for sale that are for creating PDF word and 3D image files, as well as for converting large documents into searchable, published PDFs. Acrobat also has a line of communications software for corporate digital networking and web conferencing. Although Adobe faces similar dependence problems with Acrobat as with the Creative Suite (see above), these are on a slightly lesser scale. In 2003 Adobe launched Adobe Acrobat® Connect™. It is a high-impact online conferencing and collaborative web communications solution that everyone can access instantly. [edit] MacromediaAdobe made a sizeable splash into the web design industry with its acquisition of Macromedia in 2005. Macromedia has a number of powerful web-design and media-design tools that are found on many major website these days, and its products could become key to the future of next generation website design In particular, Flash is a programming language and tool kit created by Macromedia that allows vector graphics and other graphic languages to be streamed together very quickly, creating simple animations and allowing for interactivity with those animations. Programmers must buy Flash tools from Adobe, but users can download flash players for free. The main competitor to Flash is Ajax, an industry-standard design technique that uses tools already available within most web browsers, thus allowing programmers to create moving graphics without purchasing Adobe tools. [edit] MobileRecently, Adobe has entered the mobile software market, producing Flash Lite players for pocket PCs, PDAs, and cellular phones. Adobe has also produced an Acrobat reader that is mobile compatible. It appears that the company is betting on the growth of the mobile platform by expanding its product line to take advantage of the predicted growth. Telecom industry continues to upgrade cellular networks and more users have internet access on their phone. [edit] Adobe LiveCycle®A family of server products, launched in 2004, for the enterprise that automates and simplifies the flow of information and securely extends business processes beyond the firewall. [edit] Adobe Flex™Familiar, standards-based programming framework and powerful set of building blocks for creating a richer, more responsive presentation tier for enterprise applications. [edit] Increasing demand for Creative products[edit] Publishing IndustryAdobe's products are very popular among professionals in the advertising and publishing industries, both online and print. Creative professionals use Adobe's software to lay out printed magazines and newspapers, as well as create the advertisements for these media channels. Revenues of the printing and publishing industries are typically correlated with Adobe's revenues for its creative products. One competitive advantage for Adobe is the learning curve needed for its creative products. Adobe's professional editing products require significant training for its professional users, making the proposition of switching products expensive. [edit] Demand for interactive mediaRich Internet applications are driving the next generation of the Web (including the so-called Web 2.0), which focuses on interactive media. Google's YouTube is an example of a popular site that utilizes Adobe's Flash technology for its videos; the stock chart on the Wikinvest home page also uses Flash. The company is very well poised to take advantage of the increased growth in the next generation Internet with products such as the aforementioned Flash as well as its Flex technology and ubiquitous Acrobat publishing format. Interestingly, Adobe is also leveraging its dominant position in rich Internet applications with Flash to gain penetration onto various computing platforms. The company has introduced its Apollo product so developers can build "light" software applications for the desktop, mobile, etc. [edit] Digital advertising drives demandInternet advertising is growing at the fastest rate of all major channels--often at the expense of traditional media such as print. Continued strong growth in Internet advertising will benefit Adobe, especially as rich media functionality has evolved online advertising. Many advertisers seeking greater interactivity with consumers are flocking to rich web media, especially compared to print or television media, because of advertising that allows users to interact with the ads. For example, users change the color of a car in a side-bar advertisement powered by Adobe's Flash technology. [edit] Growth of Technology Demand[edit] The Digital NativeThe digital native segment is defined by the younger generation, children and teenagers who have grown up in a constantly evolving environment of new technologies. While Adobe's core audience has been publishing and graphics professionals, increased demand for their products may come from the generation of digital natives as older technologies like such as photography, video, and sound become increasingly digital. Amateurs looking to manipulate digital media may increasingly demand Adobe's editing applications such as Photoshop and Illustrator. [edit] Software UpgradesAs with most technological products--hardware or software--Adobe's offerings face a constant threat of obsolescence. The company must keep pace with the increase of cheaper and more powerful computers and faster Internet bandwidth in order to stay relevant with customers' needs. As a result, development of software upgrades to include new functions and features remains crucial to their growth and market share. Adobe has faced cyclicality for its products in the past when sales slow dramatically as customers await the release of new upgrades. Adobe's diversification of offerings beyond creative products for publishing and graphics will also smooth product cycle volatility that occurs with software cyclicality. Adobe relied on its creative products to generate just over half of revenues in 2006, a ratio that has declined over time. [edit] Mobile Platform GrowthAdobe has made a significant bet on the growth of the mobile platform by releasing mobile versions of its popular applications, including Flash Lite, Flash Cast and mobile Acrobat reader. Adobe partners with handset manufacturers to pre-install Flash and Acrobat software into a phone. If the mobile industry continues to expand and the growth of technologies such as 3G continue to accelerate, Adobe could be well-placed to take advantage of said industry trends. [edit] iPhone ripple effectApple is scheduled to launch its much-hyped, Internet-capable iPhone in June 2007. Adobe could benefit from the device's popularity as other mobile manufacturers move to beef up their own mobile internet offerings. Adobe offers software such as Flash Lite, Flash Cast and Acrobat reader for mobile, both of which have significant installed bases for their non-mobile versions. The iPhone itself could be a boon to Adobe as developers scramble to create new applications for the mobile phone. Adobe currently generates about 20% of its creative and developer software revenues from the Apple's Mac operating system, a version of which will be utilized for the iPhone. [edit] CompetitionAdobe's primary competition comes from Microsoft (MSFT) and Apple (AAPL). Both companies produce mainstream operating systems, and as a result, both have designed digital media software specifically for their operating systems that compete directly with Adobe's digital media software. [edit] Open Screen ProjectTrying to deliver rich content effectively to the stubbornly heterogeneous end-user device tiers has produced more tears than triumphs. Adobe (ADBE) is aiming to fix that with the ambitious and inclusive Open Screen Project, which now throws adobe's considerable installed base weight behind an industry-collaboration movement to standardize interface delivery. By leveraging on Adobe's ubiquitous Flash Player and soon Adobe AIR, the project's ambition is to allow ease in creating content -- including video -- and delivering it consistently to televisions, personal computers, mobile devices, and consumer electronics. The means is a consistent runtime environment for content, applications and services to present well across a variety of "screens," from cell phones to mobile Internet devices (MIDs) and home entertainment set top boxes. the Open Screen Project includes:
Adobe's efforts will provide a significant counter-punch to the Microsoft Silverlight/Live Mesh move to accomplish similar values using the market presence muscle and developer allegiance to the Windows, .NET and Visual Studio world.
 Adobe Systems2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] Apple
[edit] MicrosoftMicrosoft has made a direct challenge to Adobe in its release of Windows Vista and Office 2007 by releasing XPS, a competing format to Adobe's PDF. Because PDF is portable across a number of operating systems--mobile included--the success of XPS will depend on whether or not it becomes a mainstream format for non-Windows users. Additionally, Microsoft ships Expression Studio, a graphical suite of design tools that competes directly with Adobe's Photoshop and Illustrator tools. [edit] AjaxMacromedia Flash also faces competition from Ajax and other rich internet application technologies that are publicly available for any web development applications. Ajax continues to be refined by independent programmers worldwide and pose a threat to the already refined Flash platform. Ajax is used in several major applications, including Google Maps, and continued growth is likely given that it is free and no software player needs to be downloaded to view Ajax applications. Currently, Ajax is based on technology built into browsers (i.e., JavaScript), and as a result, its features and capabilities are somewhat limited. Release cycles for browsers can be slow (for instance, it took 5 years between releases for Microsoft's Internet Explorer 6 and 7), and any updates to technologies which directly dictate Ajax features--including JavaScript or CSS--need to be published as a standard by the WWW Consortium, which can take years. Adobe, on the other hand, can and does release new Flash versions much faster. These figures below illustrate Adobe's significant installed base for PC users, which may drive web developers to continue using Flash development tools. Ajax, on the other hand, runs in an Internet browser and does not come with tools, requiring more technical know-how to program.
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