Adobe Swallows Macromedia: Implications for the Future of the Graphics Software Industry

Adobe announced its plan to acquire Macromedia last month, in an all-stock transaction valued at the time at $3.4 billion. This means that after 20 years, the graphics application industry has whittled itself down to just three companies from the many that existed in the early days - and just one of them is really like what it was at the dawn of desktop publishing.

The deal, if approved by both boards and the U.S. Federal Trade Commission, would give Macromedia stockholders about 18 percent of Adobe. Adobe's stock took a plunge following the news, and remains about 10 percent below its pre-announcement price; Macromedia is coasting over 10 percent higher.

This merger closes the final pages of the third chapter of the history of professional graphics tools on the desktop, were such a book to be written. Chapter 1 would document the emergence of the Macintosh, and associated small independent companies that earned all of their income in a competitive marketplace. Chapter 2 would mark the rise of Windows, with tools being ported to that platform and the majority of dollar sales of graphics software crossing to Windows users. This in turn caused consolidation in the industry, and the failure or transfer of products that couldn't adapt. Chapter 3 would describe the rise and collapse of the Internet and related authoring tools, and the drop in importance of graphics software developers as digital media goes mass-market.

So what does Chapter 4 have in store for us? Most likely, Adobe, Microsoft, and Apple contending for consumer and professional creation tool market share - in other words, "it's all about the operating system." Quark and Corel, the other two early companies still standing, are hardly a footnote in this chapter.

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