Wednesday, March 7, 2007

Adobe (ADBE): Past, Present, and Future

Adobe is a well-known software company that is included in the NASDAQ 100. I don't own, and have never owned, its stock. I have been tempted to buy it, but it has never seemed to be the kind of bargain I look for. Which means that other investors appreciate its future potential to keep the price . Despite not owning it or having a client willing to pay to have it researched, I follow Adobe and produce summaries of Abobe analyst conferences. Adobe is a big enough company that you can learn a lot about software and IT trends by watching it. Like most people I use some Adobe software. I still use PageMill, though I am transitioning to Dreamweaver. I use Acrobat Reader. I used to use Acrobat (which produces the files that Acrobat Reader reads) but have found that the ability to generate Acrobat files from other programs is adequate for my needs.

In the old days (the 1990's) when I ran a small book publishing company (III Publishing) I used CorelDraw and related products rather than the Adobe products because the Corel products were up to the job (at my level of production needs) and cost a lot less. I also learned to use competing products from Macromedia when I ghost-wrote a book on Macromedia products. The Adobe products I will be using the most this year, DreamWeaver and Fireworks, were both developed by Macromedia.

Adobe has the same problems, and opportunities, that you see at most big software companies these days. The markets of developed nations are largely saturated with products, so income comes from product upgrades and penetration into developing nations. Adobe has a vast amount of expertise in house, but the general level of expertise in the world reduces their in-house advantage. Other companies want some of Adobe's market share, revenue, and profit; many are small, but Microsoft clearly wants to get into the graphic design market. Then there are the software-as-a-service companies, including Google. While so far these companies have little market penetration and are going after low-end users (their products seem light-years away from appealing to graphics professional), they are a long-term threat to Adobe. If not to its dominance, then at least to its pricing ability.

Adobe products are expensive. For that reason they are pirated quite a bit. Today Acrobat 8.0 Professional costs $379.99 at Amazon; as much as a serviceable 64 bit computer. The upgrade is only $149.99, for those on that treadmill. The standard Creative Suite is $849.99, which gets you Photoshop, Illustrator, InDesign and some other stuff. Since the main competition was Macromedia, pricing is intact for now.

I thing Adobe will continue to do well. They are on the same innovate-or-die treadmill that Microsoft and other tech companies tread. They have enough money to buy up the best of their smaller competitors. Their main danger of the moment is Google, but that company is very scattered and likely to put its main efforts into clashing with Microsoft and Oracle, not with Adobe. They have potential to branch out of their graphics niche and to benefit from the video-on-Internet boom.

The next Adobe analyst conference is March 20th.

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