Friday, 8 February 2008

Forget Microsoft/Yahoo!, think Apple/Adobe

Apple has maintained a relentless pace of innovation over the past few years. Their management team are far from risk-averse, and yet they rarely seem to put a foot wrong (the Cube, Apple TV "Take One" and Sherlock are the only flops Mac Predictions can think of since Steve Jobs, return). As a consequence, their value has grown stratospherically (even allowing for the recent wobble in share price).

Compare Apple’s stellar performance with that of Adobe – a company that has plodded along, with a low innovation, risk adverse culture. They’ve been resting on their laurels for years, making a reasonable income by charging customers over and over again for essentially the same products. The only two highlights in the past decade were the launch of InDesign – a worthy competitor to QuarkXpress that has gained significant adoption – and the purchase of Macromedia, which is effectively an “if you can’t beat them, buy them” strategy.

Adobe’s performance is remarkably disappointing when you consider that they are one of the only companies that has ever been in a position to give Microsoft a run for their money. PDF is the only viable competitor to Microsoft’s Word document format. Flash could be a serious threat to Microsoft’s plans to make the web dependent on its own proprietary extensions and technologies. And Flash Video has been a surprise entrant into the media streaming sector, that has left the others standing, and today powers the mighty You Tube behemoth.

If Mac Predictions was an Adobe shareholder, we’d be asking the following questions:
  • Why hasn’t Adobe leveraged their Flash product into an end-to-end web application development platform, that becomes a true threat to Microsoft’s .Net
  • Why hasn’t Adobe leveraged their PDF platform to compete with Microsoft’s Office productivity suite?
  • Where is the next Photoshop or InDesign coming from, and when?
  • Why has Adobe failed to get into web services that extend their software expertise? Surely You Tube should have been an Adobe product. Web-based Photoshop seems too little too late, and why did Adobe Stock Photos fail?
  • Why is it that Apple can run rings around Adobe in their heartland sector of creative professionals, with products like Final Cut Studio, when this isn’t even a core business for Apple?

It’s pretty obvious where this is all pointing. Bizarrely, some analysts and pundits are predicting that Apple may make a counter bid for Yahoo!. This is inconceivable. It’s hard to think of a company that offers Apple less synergy. A purchase of Adobe, however, would be a very smart move. Apple’s management team stand a much better chance of delivering value from Adobe’s IP than the existing management team seem able to do. When you consider the potential synergies of combining Apple technologies such as Mac, iPhone, QuickTime and iTunes with Flash and PDF, you get a to-do list so long, the challenge is working out where to start.

Adobe’s market cap was quoted by Yahoo! as $18.56 billion on market close, February 8th, 2008. That’s oddly close to the $18.4 billion figure that Apple was quoted to have as cash balance in closing Q1 2008. Could Apple be saving up for something?

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