Dear Google: Buy Adobe

Posted on October 27, 2010 by jyarmis

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?

  1. 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.
  2. 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.
  3. 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>
  4. 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.
  5. 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.
  6. 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.
  7. 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?

  1. 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.
  2. 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.
  3. 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

Filed under: Ad-Supported Business Models, Cloud Computing, Mobility | Tagged: , , , , | 2 Comments »

Saving Newspapers? Amazon Introduces a New Kindle

Posted on May 7, 2009 by jyarmis

Let’s get this straight right away.  The new Amazon Kindle DX has nothing to do with solving the root causes of the problems of newspapers.   The top 5 reasons the Kindle is not the solution:

  1. At a price of $489, this is a niche subset of what remains a niche category.
  2. Newspaper subscriptions are only available in areas where the paper editions are not available.  Yes, this is clearly early and is likely to change but that tells you what the papers are thinking about things now.
  3. The existing Kindle (cheaper and more broadly available) already offers subscriptions to 37 newspapers at $10/month.  Form factor is not the only reason keeping these versions from being a success.
  4. Amazon keeps 70% of the revenue from newspaper subscriptions.  It takes a LOT of subscribers at $3/month to make money.
  5. Articles on the Kindle do not display ads.  This too will/must change.

Let me note that the DX may be a revolutionary product for its other market, college textbookss.  I’m not going to cover that here.

I think all the discussion on the future of newspapers has missed a critical point.  Much of the discussion has focused on the broad availability of content from multiple sources and also mention the growth of “citizen journalism,” be it blogs or Twitter.  So what does this discussion miss?  There are two related issues which combine to fundamentally attack the business model, not the product or content.

First, how do people get their news today?  While some of us go directly to newspaper sites on the web or get their electronic summaries in our inbox, news is more commonly found via web portals (e.g., MyYahoo or iGoogle) or via a Google web/news search.   When this happens, the first monetization opportunity comes not to the news source but to the aggregator.  Google and Yahoo have seized the upstream revenue opportunity and have diffused the downstream opportunity by making the “choice” of news source less relevant.  You go not to the source you favor but rather the one that appears highest in the search rankings.  You may even never make it to one of the downstream sources, instead going to your portal’s newswire feed from a source like AP or Reuters.  Ultimately, a considerable portion of the audience never makes it to the newspaper site.  Newspapers, Google is not your friend.

At the same time, the core monetization engine of newspapers — advertising, not subscriptions — is under assault from many angles.  When the obituary of newspapers as we know them is written, the first major illness should be listed as Craigslist-itis.  Category after category of listings has moved on to the web where things are cheaper, more timely and more effective.  And if you think the bad news is over, you’re mistaken.  Another staple of newspapers — legal notices — will find its way to the web sooner or later, probably sooner.  Already some heavily regulated marketplaces (e.g., drug advertising) can use web notices in lieu of print lineage.  It’s only a matter of time before governments realize that web listings, while not universal, are every bit as “available” as print notices and are more “accessible”.  In other words, the affected audiences are more likely to find this information on the web than they are in the newspaper.

Are newspapers doomed?  In their current state, yes.  Period.  How would I reinvent the industry?  Here are a few thoughts:

  • Local is not your salvation.  Niche audiences are very hard to monetize.
  • Digital paper is important.  When the price point of a newspaper-like device falls under $100, you’ve got a market.
  • Look at what’s going on in the netbook space.  Not so much from the point of view of a cheap device — that’s obvious — but rather the emerging discussions with cellular carriers where, much as is the case with today’s cell phones, the carriers will subsidize the price of the device to drive network usage.  I’m not sure what Amazon’s revenue relationship is with Sprint, the network carrier for the Kindle, but there’s clearly money there to be divvied up.
  • Two models:  Hulu and The Week.  What these both have in common is aggregation.  Curiously, the best vision in this regard, The Week, is a weekly print publication.  I find it a compelling read as it looks at the top news of the week from the perspective of multiple newspapers.  A single story might give me regional US slants, a European snippet or two and something from an Arabic perspective.  What makes these two sources compelling is their aggregated nature.  From a consumer’s perspective, it’s a single destination where I’m likely to find what I want.  From an advertiser’s perspective, it’s an aggregated audience.  The bigger the audience, clearly the better the monetization opportunity.  If a site can achieve a critical mass (which I’ll leave undefined for the purposes of this discussion), it can broaden its advertising base and achieve some independence from Google or the advertising networks.  Newspapers have largely not done that.  Aggregation may be their only salvation.
  • eBay partnership.  eBay has its own challenges.  At some level, Craigslist has delivered an important localization the eBay hasn’t.  When the shipping price of a product is greater than the price of the product, you’ve got a market inefficiency.  By making things local, Craigslist has become the first destination for many products that otherwise would have ended up on eBay.  I know I said “local is not your salvation.”  However, it’s a start to monetization.  Leverage the eBay opportunity and combine it with the aggregated opportunity I talk about into a fundamental redefinition of your revenue model.  Much as bricks-and-mortar retailers have one-upped dedicated web retailers by offering physical pick up and return, so to can newspapers combine the benefits of local with the benefits of global.

 The newspaper is dead.  Long live the newspaper.  Digital paper, aggregation and savvy partnerships.  These three can redefine the newspaper.

Filed under: Ad-Supported Business Models, Consumer Electronics | Tagged: | 1 Comment »

Apres Idol, La Deluge: Text Spam Goes Mainstream

Posted on January 14, 2009 by jyarmis

The New York Times today reports of a mini-uproar over AT&T’s decision to send a (free) text message to a large number of its subscribers, promoting American Idol (of which it’s a prominent sponsor).  Welcome to the next advertising battleground:  mobile devices.

This is a hugely attractive field for advertisers, offering key advantages over desktop-centric ad models (and I include laptops in that desktop-centric universe for the most part).  First of all, AT&T targeted the large number of people who had previously texted an Idol vote (along with “heavy texters”), thus obviously reaching a highly qualified group of people based on previous behaviors.  While it wasn’t the case here, mobile advertising increasingly offers the potential to exploit awareness of the user’s location and, particularly on SmartPhones, context (e.g., knowledge of calendar and contacts).

This is going to be an intricate dance.  Users treat their mobile devices differently than other computing platforms, considering it more “intimate.”  Thus, intrusions via spam-like communications, even if they incur no cost (as was the case with the AT&T case), are viewed more seriously than spam populating your email inbox.  Thus, the burden to deliver value is much higher on the mobile platform lest you risk offending users, not benefitting them.  On the other hand, users are increasingly going to have to understand that their value to a large portion of their personal “value chain” is predicated on someone’s ability to monetize the relationship.  In AT&T’s case, if they can’t increase your propensity to text message, you’re less valuable to them than someone who they can reach, and that ultimately will reflect how much you’ll pay for services (and products) and even what range of offers will be presented to you.

Welcome to the “ubiquitous eBay” world, one where we will be buying and selling privacy and information explicitly and implicity.  This AT&T dust-up is little more than a harbinger of things to come.  No one likes intrusions.  The challenge going forward will be how advertisers and merchants figure out how to turn these new customer outreaches into true value propositions for the user.  All it requires is a whole new approach to advertising, one with benefits to all parties.

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What is a “Media Company” Anyhow?

Posted on January 13, 2009 by jyarmis

With all the discussion of Yahoo’s next CEO, the question has arisen:  is Yahoo a technology company?  A media company?  Both?  Is there a distinction?

I’m still not sure I buy into this distinction.  The modern media powerhouse has to have its fingers deep into technology.  Perhaps there’s an argument to be made about the need to own technology vs. being an aggressive exploiter of the technology but I think this artificial distinction has gotten many companies, Yahoo included, into trouble.  Terry Semel tried turning Yahoo into a media company and by turning his back on a lot of the technology Yahoo had in development or practice, started Yahoo’s diastrous path to this point.

I think media companies can survive without owning technology but they’d better have a deep understanding of its capabilities and how that technology is changing the relationship between advertiser, media outlet and consumer.  I’m wrestling with taking this argument a step further and making the argument that the leading media powerhouses of this next era must own key technologies, that they are sources of key differentiation and enable greater control of the monetization process.  I’m not prepared to make the assertion now but I do believe that’s where we’re headed.  Note that I am not positing that all major media companies must also be technology companies but I think the long-term biggest winners combine the two (or more).

I know this sounds like AOL TW, and that gives me pause…but we’ve seen lots of combinations over the years that were wrong at the time not because the idea was fundamentally flawed but that the timing was disastrously off.

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New Yahoo CEO?

Posted on January 13, 2009 by jyarmis

UPDATE:  The story has been confirmed, and I got mention in the USAToday story.

Strong indications are that ex-Autodesk CEO Carol Bartz is going to be named Yahoo’s next CEO.  I find this an interesting choice, along these lines.  To get someone of this stature (appropriate or not; more below) probably required a commitment to let her come in and make a (quick) determination about whether to double down on search or finallly sell to Microsoft.  She’s a good candidate in either scenario, which is not true of many of the other names that have surfaced.  If they decide that search remains an opportunity for them, she’s got great technical chops.  If on the other hand a deal is to be made with Microsoft, she has a long history of “co-opetition” with Microsoft, and is a well-respected commodity there, particularly with Ballmer.
 
Whoever ends up in charge, if they don’t come out punching with a cohesive story about how not only Yahoo doesn’t get enough credit for what it has done, what it’s still doing and, critically, what it’s going to do, they’ll be trying to roll the boulder uphill, and that’s not a sustainable communications position.  That said, the challenge here has always been “what are they going to do.”  Lots of interesting things at a micro level which have never come together as a coherent, integrated strategy when viewed from the top.  Is Bartz the person to pull that together?  I’m hard pressed to find another candidate who has her combination of Yahoo familiarity (at least with executives), Microsoft relationships and technical chops.  Yeah, the lack of media/advertising background is glaring, but that was the case with Schmidt too.
 
I’m frankly surprised they were able to come up with such a strong candidate.  I thought to get someone this strong, they were going to have to resolve the Microsoft search deal.

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