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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

Adobe’s (Quote, Chart) $3.4 billion plan to acquire its closest rival Macromedia is expected to create a major shift in the multimedia publishing and online graphics software market.

Adobe CEO Bruce Chizen and executives declined to give future details but he called the combination of the No. 1 and No. 2 Web development software vendors a strategic growth opportunity and not just a consolidation. Each company supports nearly 40 different software applications and touts millions of developers.

Once the ink is dry on the paperwork, the two sides are pledged to combine in a number of verticals, including the mobile and enterprise sectors. Adobe said it would also find ways of making its PDF standard more compelling by enhancing it with Macromedia’s Flash technology.

“If I look at it from a developer or a content developer standpoint, this is a good thing,” Manuel Morales, a spokesman from Japan-based Access, told internetnews.com. The company uses Adobe and Flash standards to create digital content from TV to automobile telematics.

“It is good to have a broad range of platforms that you can work with. I’m hoping to see what they do with scalable vector graphics and the Flash standard.”

Microsoft (Quote, Chart) is the most obvious player for Adobe and Macromedia to compete with because they overlap with Redmond’s digital media creation, distribution and management tools.

“Microsoft has incredible developer tools, but Adobe has PDF and Flash is very compelling,” Paul Colton, CEO of Xamlon, told internetnews.com. “Flash is underutilized and Macromedia and Adobe both realize it. Now there are new opportunities to use Flash in more places with the help of 10s of millions of developers instead of the one million Macromedia supports now.”

Xamlon software lets developers use any .NET-based programming platform, including C# and Visual Basic instead of using Macromedia’s Flash MX tool, for example.

But Kevin Lynch, chief software architect at Macromedia, told internetnews.com that Adobe and Macromedia will be more about PDF and Flash, and that the combo will certainly broaden its scope past Microsoft.

The companies said they would continue to develop further projects, including the Flash 8 player, code-named Maelstrom, and authoring tool, code-named 8Ball. Lynch also said Macromedia would continue its plans for FlashCast. The system lets mobile phone carriers use different Flash-based applications.

“I think it is very exciting and the products will be powerful together and individually,” Lynch said. “This is a very active space, and we got to a point where the companies were complimentary enough to where it feels like the frenetic Internet bubble time except that we were competing heavily in the marketplace.”

Indeed, in terms of platforms, Lynch identifies Dynamic HTML, Java and Ajax (Asynchronous JavaScript + XML) as opportunities for Flash to become the dominant player. Why not? The company boasts that 98.2 percent of the desktops in the world have Flash technology embedded in them. Macromedia has taken that advantage and targeted Flash beyond the browser.

While Chizen declined to talk about consolidation, Macromedia and Adobe have some overlapping products such as Adobe’s GoLive and Macromedia Dreamweaver; FreeHand and Illustrator; and Fireworks with either Photoshop or Illustrator.

The combination of Adobe and Macromedia is also expected to contend with Apple, (Quote, Chart) Real Networks, (Quote, Chart) and Microsoft for real media and video playback. The combined company already would have dominance over Quark and Corel in the publishing sector. Enterprise customers will also be able to take advantage of the Macromedia purchase as Adobe looks to connect and communicate with Interactive forms and intelligent documents, Lynch said.

“If you look at Acrobat as an asynchronous collaboration tool and Breeze as a real-time collaboration tool, for example, you begin to see we can provide the channel with a more complete solution,” Lynch said.

One area that may give Adobe and Macromedia pause is Microsoft’s graphics subsystem, code-named Avalon, in its next version of Windows. The subsystem is key to the upcoming Windows Longhorn operating system. Xamlon’s Colton points out that Avalon is specifically for the desktop and only on Windows XP, while Flash can run on multiple operating systems and different form factors.

But perhaps most important, Access’s Morales said Adobe and Macromedia are expected to shift their approach to collecting royalties.

“Flash is free on the desktop so Macromedia has made their money selling new versions and upgrades to its application development tools,” Morales said. “In the mobile space, the common method is to charge royalties by the number of handsets deploying the technology.”

Morales said both companies could turn the opportunity into a profit maker but need to be wary of work itself into a corner.

“What it does is drive up the price of handsets, which should come down if the market matures. We are seeing large pick up in Korea and Japan, as well as in the United States with Verizon’s high-speed network in the mobile market coming online.”


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