A New Competitive Landscape

Now we've reached the end of the road. Adobe's competitors are no longer Quark or Viewpoint - formerly MetaCreations, and other names before that - but rather Apple and Microsoft. While striving to release software that works on both Windows and the Mac OS, they're being battered at the top by Apple's professional video tools, and at the bottom by Microsoft's and Apple's home layout and photo tools.

Both operating-system vendors clearly have more software heading to market in future releases that will challenge Adobe. For instance, Apple added Core Image in its Tiger release in April 2005, which brings third-party software developers high-powered imaging tools, as well as updating its built-in Preview image viewer and converter. Microsoft has big plans for Longhorn and related programs that will allow digital media management and creation; those plans will fully break in 2006 if Longhorn ships then as is now expected.

Adobe's purchase of Macromedia makes perfect sense, to allow it to achieve the scale needed to compete against operating system vendors; for that reason, it probably won't raise anti-trust flags. The two companies have almost as small an overlap as when Aldus and Adobe merged, which resulted in Adobe unloading FreeHand to Macromedia. If the FTC cares at all, it may force Adobe to spin off GoLive, FreeHand, and Fireworks in favor of market leaders Dreamweaver, Illustrator, and Photoshop.

Graphics professionals have some fear about this consolidation, because they already pay large fees for each new release of software from either vendor. But I believe that the trend for professional software has been progressively lower over the years, and that what is driving up software costs of late is in fact having to purchase separate suites or applications from both Adobe and Macromedia.

Ten years ago, graphics software was much more expensive in both absolute and inflation-adjusted terms. Product cycles were often ridiculously small, and involved paying upgrade fees for new versions of software containing few changes. Today, Adobe and Macromedia have both slowed way down and emphasized bundles. An owner of just Photoshop CS, for instance, pays a total of $749 for Acrobat Pro 7, InDesign CS2, Illustrator CS2, GoLive CS2, Version Cue CS2, and Photoshop CS2.

Since many designers use Macromedia's tools to author Flash and Shockwave presentations and manage Web sites, while they turn to Photoshop for image editing, vector art, and layout, a suite that combines all of that will certainly be cheaper than the current separate purchases.

But it's not about dollars and sense - it's about survival. Adobe's future isn't in continuing to churn out the same software that it and all of its acquired companies produce today. Rather, the future is in cell phones and Internet appliances - devices that people carry and use everywhere, or that are ubiquitous.

The one area of stupendous growth that Apple and Microsoft don't own yet is this market. Microsoft has its fingers all over it, but has no winning position yet. Apple and Motorola may eventually ship a phone that can play iTunes Music Store songs, but that's about the extent of it.

Adobe hopes through its acquisition of Macromedia to be positioned to continue to grow the indolent professional segment, while really leaping into tools that let professionals build interactive content for portable devices. Remember that the latest huge creative market materialized last year in, of all things, ring tones, with billions of dollars worth sold in 2004. Adobe wants to be in on the next spin of the billion-dollar merry-go-round, and now feels positioned to grab the brass ring.