Adobe cloud gambit pays off, reduces piracy

SUMMARY:

Adobe’s move to a subscription-only model raised some eyebrows at the time it was announced, but appears to be paying off.

Shantanu Narayen
Shantanu Narayen

Adobe’s transition to the cloud continues apace, with the firm turning in positive growth numbers late last week.

In bottom line terms, third-quarter profits were $174.5 million, compared with $44.7 million in the year ago period, on revenues up 21 percent to $1.2 billion.

New creative cloud subscriptions grew by 684,000, ahead of estimates and bringing the total number to 5.3 million.

Meanwhile the firm’s Document Cloud turned in revenues of $194 million, while the Marketing Cloud saw 27 percent year-on-year growth to contribute $368 million in revenues.

It’s validation of the decision to move to a subscription-only operating model, insists CEO Shantung Narayen:

The industry shift to the subscription business model which clearly is helping drive both customer intimacy as well as predictability in the business . We clearly see that accelerating. We were the pioneer in moving desktop software to the cloud and now we see actually all major software vendors on the desktop adopt similar strategies.

From a color point of view while the Creative business has mostly transitioned, what we are seeing is the same trends and increased adoption of subscription in both our imaging hobbyists business, where Photoshop Elements customers are now subscribing instead to the Creative Cloud photography program, and Acrobat users, especially on adobe.com, are moving increasingly to the subscription offering, much like what I think Microsoft is also seeing with Office 365. So that’s just a big trend that we are seeing across.

In terms of new seat adoption, there’a a happy knock-on impact on piracy Narayan explains:

New seat adoption is definitely being driven both by creators who are entering the market, as well as casual pirates who existed, for whom the lower price of entry is far more attractive way to have legal software than not. There’s no question about that. We hear anecdotally all the time that people are pleased with the fact that they can have legitimate software.

As we’re delivering more Cloud based services, as you know the only way to use the mobile apps and share content between the mobile apps as well as our Creative Cloud, is by having a subscription. So I think that’s also as we see more creative sync and creative profile being used, that’s certainly, driving that.

Marketing moves

In digital marketing, there are some changes under way:

When we first started the business and we had these different solutions, we would be selling primarily to practitioners, who continue to be important buyer within the companies. When we were selling into the practitioners, the practitioners would implement the product virtually instantly.

As more and more customers are adopting the entire Creative Cloud and multiple solutions, what they’re doing is they’re standardizing on the Adobe Solution, but the sequence with which they implement each of the solutions is that they implement one, then they may implement others.

From our point of view that’s all great, because they’re standardizing on our platform, the value proposition of the entire marketing cloud is working with them.

The drive towards digital enablement is providing incentives to subscribers signing up to larger deals, he adds:

This notion of digital transformation and digital disruption at the C-suite is front and center across every single industry. Without a doubt that is leading to people looking at larger systems and saying, ‘how do we transform our business to drive more direct relationship with customers and build a customer centric company?’. Every C-suite that I’m talking to, whether you’re in retail, whether you’re in financial services, that’s a thing that’s leading to understanding which vendors have a larger offering in that particular space.

As they think through that, they’re also having to re-organize the marketing function, because search-versus-commerce-versus revenue has traditionally been in different places. You are seeing more [customers] recognize that having a unified platform is the way to go. I would say increasingly our deals, especially the new customer acquisition, is a larger deal that’s being sold higher in the chain.

Adobe is making a big push into the programmatic advertising space, says Narayen:

Adobe announced a major advancement in our programmatic ad platform for advertisers and media publishers leveraging fully integrated solutions in Adobe Marketing Cloud. Powered by Adobe media optimizer, the new self-service technology allows advertisers to take direct control of automated ad buying for search, display, and social media across ad exchanges and media networks like Google, Facebook, and Yahoo!.

Tight integration with Adobe Analytics and Adobe Audience Manager, ensures that advertisers can tap into data to refine and target granular audience segments. Dynamic creative capabilities enable advertisers to use images, videos, and other assets from Creative Cloud to deliver the right content to the right user at the right time.

This programmatic initiative for advertisers is complemented by a similar offering aimed at media publishers:

Adobe Primetime, Adobe’s TV platform, now supports over the top and direct to consumer offerings with audience acquisition, engagement, monetization, and measurement capabilities. Recently launched services benefiting from Adobe Primetime include HBO Now, Showtime, MLB and Sony Pictures Entertainment.

The Adobe CEO concludes:

The underlying trends in our business in both Digital Media and Digital Marketing continue to be strong. And I look at it and say, whether it’s a student retouching a photo on their tablet, a director making a latest block buster film or what you see as consumer brand publishing their marketing content across the web and mobile. It’s clear that Adobe technology is at the heart of the world’s best experiences.

My take

Still heading in the right direction – Adobe’s cloud gambit appears to be paying off.