GenuineVC David Beisel's Perspective on Digital Change

April 18, 2005

The big news of the day is that Adobe is purchasing Macromedia for $3.4B in stock. Fundamentally, this deal makes sense. The core of both of these companies’ products is an offering for the “creative professional” (that’s the Adobe-speak that I picked up while working there a few years ago). Adobe has had success in the past year increasing their top-line through the bundling of their product line; this acquisition will add another set of titles to supplement that bundle. That part of the marriage makes a lot of makes sense – these companies are in the same neighborhood.

The question that I have with the acquisition comes down to culture and strategy. While both of these companies are in the Bay Area, their physical distance mirrors their cultural and strategic differences. Macromedia up in San Francisco and Adobe down in San Jose are worlds apart sometimes. And especially for these two companies. Remember the bitter lawsuit war that these two companies had a few years ago? Let’s just say that tensions ran high and it’s going to take some time internally for the people at these two companies to warm up to each other. More importantly, Adobe CEO Bruce Chizen has publicly stated that the key component of their growth strategy moving forward is around bringing the PDF intelligent document to the enterprise. How does the Macromedia acquisition fit into that plan? I don’t see it, really.

Moreover, I think that Om Malik has it right: these are “two companies who have not kept up with the times… The deal is proof that there is little or not growth organic growth left in the old Silicon Valley. Desktop publishing, and subsequently Web 1.0 publishing are passe… They are becoming increasingly irrelevant in digital worlds where free programs like iPhoto and Picasa are setting the tone on the desktop.” Adobe has missed out on a huge opportunity in consumer digital imaging. Its offering, Photoshop Album, has been edged out by competitors. The problem comes down to culture – it’s just not a place that embraces innovation, especially in the connected online world. The internal Photoshop fiefdom is used to producing shrink-wrapped software, not online services. It “innovates” around a new tweak in the next Photoshop release, not around new product lines or business models.

At least now Adobe is waking up to the fact that it must purchase innovation, not facilitate it. Look for more acquisitions from the Adobe team in the upcoming year, so it can add a few more houses to the neighborhood it’s building.

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