Adobe Seeks to Lead Software Industry Evolution With New Business Model


Archived Published: 23 November 2011 ID: G00227678

Analyst(s):

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Summary

Adobe's shift to cloud-based subscriptions is a radical disruption of its business model, strategy and offerings. If successful, it will ignite more growth and opportunities for Adobe and the industry segments it serves.

News Analysis

Event

On 9 November 2011, Adobe Systems announced its intent to shift to cloud-based subscriptions and sharply cut its dependence on perpetual software licenses. It also indicated that it will:

  • Narrow its focus from three main initiatives to two: digital media and digital marketing

  • Limit its future Flash investments to PC devices (including Macintosh machines) with a focus on gaming and premium video

  • Increase its focus on HTML5 development tools.

On 15 November 2011, the Official Flex Team blog reported that Adobe will donate its Flash-based Flex application software development kit (SDK), which is used to develop Flash-based Internet applications, to the open-source Apache Software Foundation. The Apache Foundation must vote on whether it agrees to accept the donation.

Analysis

The scope of these changes is unprecedented in the IT industry. With its Creative Cloud offerings and their subscription-based scheme, Adobe is reinventing its business model. By focusing on digital media and digital marketing, Adobe is backing away from its earlier ambitions for the LiveCycle product family and the Adobe Digital Enterprise Platform brand.

If Adobe succeeds with its new strategy, it will ignite more growth and opportunities for itself and the industry segments it serves. But there are major risks and hidden costs. By backing away from its traditional enterprise software ambitions, Adobe may be compromising the trust it has built with IT buyers of those products. That could increase the risks to its newer digital marketing business within some enterprises in which the CIO and chief marketing officer have a close working relationship.

Adobe's move is an attempt to stay ahead of major changes in the software industry. Its experiments with subscription-based licensing for Creative Suite 5.5 have convinced Adobe's senior management that the company can drive significant business growth by moving toward cloud-based services (see "Vendor Focus for Adobe: Creative Cloud Strategy" ).

Adobe management also believes that the biggest opportunities for the company lie in digital media, as represented by Adobe's Creative Cloud offerings, and in digital marketing, as well as at the synergistic intersection between these two areas. Management sees the enterprise software business represented by Adobe's LiveCycle products as a slower-growth, consolidating segment that does not rise to a high-priority level (see "Reassess Adobe's BPM and CCA Platforms as Its Strategy Has Shifted" ).

Adobe also announced it is shifting investment priorities around Flash and HTML5 (see "Adobe Flash Wounded but Death Exaggerated" ).

Recommendations

Enterprise development teams:

  • If you have embraced elements of the LiveCycle platform, beware of uncertainty, exercise due caution and request clarification from Adobe on investment plans (some elements may have been terminated while others will likely continue to receive engineering investment).

  • Reconsider investments in strategic new projects that rely heavily on Flex or Flash browser plugins; but do not consider HTML5 as the only alternative. Don’t consider HTML5 and Flash to be mutually exclusive.

Adobe business process management suite (BPMS) prospects and customers:

  • Consider using other BPMS vendors, unless you are in the public sector and financial services. If you are in the latter sectors, re-evaluate whether Adobe’s process-specific solution strategy will satisfy your business process improvement needs. If you want to support business transformation or continuous process improvement programs, switch to another vendor's BPMS before making further investments.

Adobe content management customers:

  • Before you invest further, ask Adobe for more details about its digital marketing plans to ensure that they are compatible with your strategy.

  • If you are using Adobe's document service offerings or considering the Digital Enterprise Platform for composite content applications (such as correspondence management and case management), explore alternatives as Gartner believes that is not a high-priority area for Adobe's investments.

Recommended Reading

Some documents may not be available as part of your current Gartner subscription.

  • "Vendor Rating: Adobe" — In May 2011, Gartner said that Adobe was improving its focus by concentrating on certain strategic targets, acquiring new components and improving integration across its product lines. By Tom Austin and others

  • "Adobe Gains Mobile Capabilities, Partnerships With Nitobi/PhoneGap Deal" — In October 2011, Gartner said that this acquisition would give Adobe greater credibility in mobile application development, but that it needed to preserve partnerships and demonstrate the viability of the subscription-based business model for enterprises. By William Clark, Michael King and Ray Valdes

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