Analysis: Takeover attempt is but one of many Adobe woes

Analysts interviewed for this story agreed that San Jose, Calif.-based (Nasdaq:ADBE) has an excellent record in the print and imaging side of the industry. But its attempts to gain an equal position on the Web have been a flop, they said. "Adobe just doesn't get the Web," said an industry insider, pointing to the lack of high-end production tools in the company's product lineup as well as its lackluster Web integration within applications. In addition, he said that with Adobe's installed base, the company should have a much larger Web presence. "It doesn't understand the interactive relationship with its customers," he said.

Joan-Carol Brigham, an analyst at Framingham, Mass.-based International Data Corp., said, "Their Internet vision is shortsighted; you see print in every single one of their strategies." She added that Adobe is trying to re-create PostScript's market model with PDF on the Web. "That's just not working," she said.

Bruce Chizen, Adobe executive vice president of worldwide products and marketing, said, "We had an opportunity with PageMill in the beginning, and we didn't leverage that opportunity." Chizen, previously senior vice president and general manager of the Graphics Products division, said the market for professional Web tools is small and noted that Adobe's graphics applications are popular among Web designers.

Mixed marks
While allowing for the effect of this year's recession in Asia, analysts and industry insiders give Adobe mixed marks for execution and cite its inadequate focus on key markets for some technologies, such as PDF.

"Adobe has great products and an unparalleled customer base. The problem is [lack of] sales and execution," said Chris Galvin, an analyst at Hambrecht & Quist Inc. of San Francisco. "The bottom line is less vision and more delivery," he said.

An Adobe product manager agreed. "We have the products, we just haven't delivered them," he said. "What can you say when our first new product in a very long time is ImageReady?"

Meanwhile, Chris LeTocq, software analyst at Gartner Group Inc.'s Dataquest of San Jose, Calif., said corporate politics contributed to Adobe's recent problems. He said the managers of successful products had too much sway over features for upcoming products or over software destined for other markets. Instead of groups working under one vision, each team guarded its market and territory.

Response: Reorganization
Chizen said the company this month addressed this problem by reorganizing divisions into four segments. That move followed the announcement of an expected loss (or flat results) for its third fiscal quarter -- despite the fact that Photoshop 5.0 and ImageReady shipped in the quarter -- contrasted with the $53.4 million net income posted for the same quarter last year. The shuffle resulted in layoffs of about 300 managers and rank-and-file employees.

"The [old] structure didn't take advantage of key technologies, and moving technologies from division to division was becoming increasingly difficult," Chizen said. Analysts credited Chizen with breaking through the former trend with his leadership of PhotoDeluxe, a consumer-level image editing package.

Chizen presented his quick plan to bring the company back:

"In the professional space we have to win back the customers in the layout area for print and offer more Web solutions. In business publishing we have to provide more solutions and tailor the successful solutions toward their requirements. And in the document-intensive area all we've done historically was put Acrobat out in the marketplace. You will see us offer Web-based server solutions to address enterprises."

Culture change needed
Dataquest's LeTocq cautioned that the new management structure's success will require mending Adobe's corporate culture. "It's one thing to make changes and another thing to execute and make them stick," he said.

Chizen said Adobe's new organization will return the company to a stronger market focus: "Professional publishing is our core business today. We will do whatever it takes to serve that customer appropriately."

This week's news that Quark Inc. was attempting a coup of sorts was one more problem for the embattled Adobe Systems Inc. While the jury is still out on Quark's ability to actually take over Adobe, one thing is clear: The leading vendor in the publishing and graphic arts market is in trouble.

Analysts interviewed for this story agreed that San Jose, Calif.-based (Nasdaq:ADBE) has an excellent record in the print and imaging side of the industry. But its attempts to gain an equal position on the Web have been a flop, they said. "Adobe just doesn't get the Web," said an industry insider, pointing to the lack of high-end production tools in the company's product lineup as well as its lackluster Web integration within applications. In addition, he said that with Adobe's installed base, the company should have a much larger Web presence. "It doesn't understand the interactive relationship with its customers," he said.

Joan-Carol Brigham, an analyst at Framingham, Mass.-based International Data Corp., said, "Their Internet vision is shortsighted; you see print in every single one of their strategies." She added that Adobe is trying to re-create PostScript's market model with PDF on the Web. "That's just not working," she said.

Bruce Chizen, Adobe executive vice president of worldwide products and marketing, said, "We had an opportunity with PageMill in the beginning, and we didn't leverage that opportunity." Chizen, previously senior vice president and general manager of the Graphics Products division, said the market for professional Web tools is small and noted that Adobe's graphics applications are popular among Web designers.

Mixed marks
While allowing for the effect of this year's recession in Asia, analysts and industry insiders give Adobe mixed marks for execution and cite its inadequate focus on key markets for some technologies, such as PDF.

"Adobe has great products and an unparalleled customer base. The problem is [lack of] sales and execution," said Chris Galvin, an analyst at Hambrecht & Quist Inc. of San Francisco. "The bottom line is less vision and more delivery," he said.

An Adobe product manager agreed. "We have the products, we just haven't delivered them," he said. "What can you say when our first new product in a very long time is ImageReady?"

Meanwhile, Chris LeTocq, software analyst at Gartner Group Inc.'s Dataquest of San Jose, Calif., said corporate politics contributed to Adobe's recent problems. He said the managers of successful products had too much sway over features for upcoming products or over software destined for other markets. Instead of groups working under one vision, each team guarded its market and territory.

Response: Reorganization
Chizen said the company this month addressed this problem by reorganizing divisions into four segments. That move followed the announcement of an expected loss (or flat results) for its third fiscal quarter -- despite the fact that Photoshop 5.0 and ImageReady shipped in the quarter -- contrasted with the $53.4 million net income posted for the same quarter last year. The shuffle resulted in layoffs of about 300 managers and rank-and-file employees.

"The [old] structure didn't take advantage of key technologies, and moving technologies from division to division was becoming increasingly difficult," Chizen said. Analysts credited Chizen with breaking through the former trend with his leadership of PhotoDeluxe, a consumer-level image editing package.

Chizen presented his quick plan to bring the company back:

"In the professional space we have to win back the customers in the layout area for print and offer more Web solutions. In business publishing we have to provide more solutions and tailor the successful solutions toward their requirements. And in the document-intensive area all we've done historically was put Acrobat out in the marketplace. You will see us offer Web-based server solutions to address enterprises."

Culture change needed
Dataquest's LeTocq cautioned that the new management structure's success will require mending Adobe's corporate culture. "It's one thing to make changes and another thing to execute and make them stick," he said.

Chizen said Adobe's new organization will return the company to a stronger market focus: "Professional publishing is our core business today. We will do whatever it takes to serve that customer appropriately."