Recent news reports have linked Apple and Microsoft as potential suitors for Adobe. While Adobe CEO Shantanu Narayan has thrown cold water on the Microsoft discussions and the rancorous relationship between Apple and Adobe renders an amicable partnership unlikely, one name has been absent from these discussions, and they’re the ones who should most likely want to buy Adobe, has the resources to do so and can build an extremely synergistic business case for the combination, and that’s Google.
A brief look at the financials. Adobe at this writing has a market capitalization of a little over $14 billion. Google has $33.4 billion cash on hand and generated over $10 billion in operating cash flow in the last 12 months. Not only does Google therefore have the financial wherewithal to make an acquisition of this size, it’s probably one of the few acquisitions of this scale (along with Salesforce.com; market cap almost $15 billion) that it could make without significant antitrust scrutiny. While continuing to trash Adobe, it’s not like Apple could argue compellingly that Google shouldn’t be allowed to buy it. (While we’re at it, Google should also buy Salesforce, but we’ll talk about that later.)
So, why should Google buy Adobe?
- In a battle for the hearts and minds of developers, Google is missing key elements. Yes, Android is a successful and growing platform but Google’s developer relations are no better than Apple’s, with both of them being substandard. As Google grows out its platform ambitions, with Chrome OS on the horizon, having a well-developed developer relations program will be important in its battles with Apple and also increasingly Microsoft. Do developer relations matter? One could argue that one of the compelling reasons why early Windows beat IBM’s OS/2 in the marketplace after the Microsoft/IBM split in the late 80’s and early 90’s was because Microsoft had strong developer relations and after the split, IBM had to effectively start from scratch and was way behind even while having the technologically superior platform. Developers matter, differentiated applications matter and so developer relations matter. Adobe has a long history with them; Google has none.
- Google, despite its myriad product offerings, is effectively a one-trick pony: advertising. Of course, if you’re going to rely on one trick, this is a pretty good one to rely on, and Google is an ongoing financial juggernaut. However, to realize their full software and platform ambitions, Google is going to need to broaden beyond advertising as the sole source of their revenue. Adobe presents Google with great opportunities to grow into traditional software licensing models.
- And while offering traditional software licensing models, Adobe also presents some familiar-to-Google bottoms up enterprise opportunities. Adobe has, shall we say, an interesting portfolio of enterprise software. Traditional industry analysts (read: Gartner) have always had a hard time characterizing Adobe since they don’t always neatly fit into Gartner Magic Quadrants or at least their products are missing certain features that Gartner considers key in its category definitions. Adobe’s response has always been “we just meet actual customer needs.” While they haven’t therefore neatly fit into architectural diagrams, Adobe has successfully penetrated enterprises with a bottoms-up, or more accurately middle-out, approach. This fits well with Google, who <sarcasm alert> hasn’t exactly penetrated the enterprise through the front door. <end alert>
- While Google advertising opportunities have enabled “freemium” models to flourish on the web, paradoxically Google itself has not benefited from such models. Over 98% of Google’s revenue derives from advertising and there are scant opportunities to upgrade from free Google products into revenue-producing ones. Adobe offers several such opportunities, from consumer-oriented ones like moving from Picasa to Photoshop to enterprise-oriented ones like Acrobat.
- While Google has major cloud computing infrastructure initiatives in place, the early market has been dominated by key emerging competitors Amazon, Microsoft and Salesforce. Adobe has interesting infrastructure elements that expand Google’s presence in the cloud architecture space.
- As noted earlier, Google’s enterprise approach is largely lacking. One could have said the same of Apple, who has pursued a consumer-driven strategy for virtually all of its corporate life. It was interesting to see, therefore, Apple’s announcement earlier this week of a partnership with Unisys to better help integrate Apple technologies (notably the iPhone and iPad) into enterprise architectures. Google, too, must pursue external relationships to meet real customer requirements but an Adobe acquisition would give Google some much-needed internal support capabilities as well. As mentioned earlier, I still believe Google should acquire Salesforce.com to expand its software and platform capabilities and to dramatically expand its enterprise support capabilities. Google is going to have to either acquire Salesforce or get serious about competing with them. Either way, an Adobe acquisition would be a step in the right direction.
- Lastly, this makes sense as a defensive move. To the extent Apple and/or Microsoft are seriously looking at Adobe, it would hurt Google were they to acquire Adobe, necessitating Google to adopt a piecemeal solution to the elements addressed above.
So why should Adobe be interested in a Google acquisition?
- While I hardly embrace Steve Jobs’s bombast about Flash, it’s clear that HTML5 presents a significant challenge to one of Adobe’s major and enduring platforms and thus from a purely financial perspective, this may be the best time to sell.
- Adobe’s cross-platform arguments diminish in a world where there are fewer platforms and different requirements. If, as I have argued, the mobile world is coalescing around Apple IOS and Google Android, and Adobe’s presence on one of those platforms is insecure at best, the rationale for an Adobe solution is dramatically diminished. Further, with the different requirements of a mobile platform, with its lesser hardware power, the ability to support interim software layers is not as clear-cut as on the desktop, or in the cloud. Mobile devices are heavily about the integrated experience and Adobe doesn’t play well against that requirement.
- Adobe is a better fit with Google. With Microsoft and Apple both, there are significant overlaps in the product portfolio and/or minimal interest in some of the pieces with the the likely result being that core Adobe products and platforms are discontinued or sold off. There is little to no overlap with Google and yet strong synergies; thus the ability to preserve the product portfolio, and the driving vision behind it, remains largely intact.
Google and Adobe…better together