Why Apple should buy Adobe

Quick - which Silicon Valley icon creates computers that creative professionals love? And what SV company creates software that creative pros crave? Right: Apple and Adobe. So why are they 2 separate companies?

Quick - which Silicon Valley icon creates the computers that creative professionals love? And what SV company creates the software that creative professionals crave?

Right: Apple and Adobe. So why are they 2 separate companies? There’s no good reason, especially now that Adobe's management can't figure out how to grow the company.

The numbers Apple, with over $30 billion in cash, could buy Adobe outright, whose market cap is about $18 billion. A cash and stock offer would also make Adobe shareholders happy.

Apple prefers small, bite size acquisitions. But Apple is a big company: their market cap is 10x Adobe’s.

Integration wouldn't be hard: the 2 company’s headquarters are a 15 minute drive down I-280. Steve could oversee both. A quicker drive than to Pixar up in E-ville.

What's the play? Adobe is a mature company in mature markets. Their Photoshop, Illustrator and InDesign products dominate their markets - not much growth there.

Some of their video editing products - After Effects - are leaders too, but the rest of that portfolio is getting squeezed between Apple's Final Cut and Avid's high-end products.

Their Flash products are headed to the scrapheap of history - negative growth there. I, for one, will be glad to see them go.

Their various Creative Suites have the same problem that Microsoft Office does: the products already do what 99.9% of customers need, so why upgrade? I know happy pros using 6 year old versions.

What’s in it for Apple? Several things.

  • Several gross margin points. Adobe’s gross margins are 97% - enough to add several more GM points to Apple’s results.
  • A broad portfolio of creative pro apps. These are the people who buy $2500 notebooks and $5000 towers. Scoop up the 30% who aren't on Macs with features like tighter integration between Photoshop, video and HTML5
  • Reinvent Adobe. Adobe products need major updates: interfaces are fugly; bloated - 21 MB for a PDF reader? - and buggy; consumer apps are de-featured pro apps with interfaces to match. Adobe needs disciplined oversight and investment and Steve is the guy to give it to them.
  • Tight hardware integration, especially in video. Touch image editing is a natural on the iPad. Video is the killer consumer creative app of 21st century. Oh, and sell a lot of stuff along with it.
  • Technology. Despite their problems Adobe does have good technology under the hood. For video geeks their Nvidia-based Mercury playback engine is mind-blowing. Let's give those engineers some new problems to solve!

Adobe's management is out of ideas Adobe's management sent up a distress signal when they bought Omniture, a web analytics, measurement and optimization technologies firm. The rationale, from Adobe's press release:

For designers, developers and online marketers, an integrated workflow — with optimization capabilities embedded in the creation tools — will streamline the creation and delivery of relevant content and applications. This optimization will enable advertisers, advertising agencies, publishers and e-tailers to achieve greater ROI from their digital media investments and improve their end users’ experiences.

Translation: we think we can get ad agency and publisher suits to buy more stuff if we throw them a business-flavored bone. Just because content creation and marketing metrics have never been integrated before - and have done just fine - we're gonna make Adobe a Business Solutions Provider!

Who cares if Google offers metrics for free?

The Storage Bits take Steve Jobs is saving his pennies for something. Why not Adobe?

Steve is more enthusiastic about consumer apps, but it is the pro apps and the people who use them that get Apple all that free product placement in ads and movies. The 2 work together to build "cool" into the brand.

DreamWeaver and Omniture could be sold. Someone might want to buy the Premier video editor. Flash could be put on the fast track to a well-earned oblivion.

As iTunes and Apple's other consumer apps demonstrate, tight platform and app integration create a better user experience. Buying Adobe would enable Apple to extend Adobe's leading technologies to new platforms like the iPad while cementing Apple's market share leadership in creative applications.

And add a few more margin points to Apple's impressive 40% GM.

Comments welcome, of course.

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