New angle: the story of Adobe

A clue in a New York Times crossword last year mentioned Adobe as a "Web software" instead of a "publishing software" company. That says a lot about where the company is today and where it would like to be.

When his company's name appeared in a New York Times crossword last year, Adobe Systems CEO Bruce Chizen says, it was a small pleasure to see that the clue referred to a "large Web software company."

That the clue mentioned "Web software" and not "publishing software" spoke volumes — if not about where Adobe is today, then about where it would like to be.

Adobe has long been a dominant force in desktop publishing software, and over the past few years it has used that position to establish a powerful presence in Web site design with crossover products such as Photoshop, an image-editing application. Despite that success, though, some still see Adobe as firmly rooted in ink and paper: The company, observers say, hasn't fully convinced customers that it is prepared to shift its center as far away from print media as the evolution of the Internet industry may demand.


Now Chizen and his company are trying harder than ever to prove their commitment to the Net, as Adobe embarks on a companywide initiative to take publishing off the desktop and onto the network.

"We spent the last year and a half trying to help the world understand that Adobe was much more than just about print," says Chizen, who took over as CEO when Adobe co-founder John Warnock retired last year. "We did that not only through our marketing, but we modified our products."

Adobe's newest strategy centers on what it calls "network publishing." In a nutshell, Chizen says, Adobe intends to establish itself as the premier provider of tools and technology for working with multimedia content in any form — be it text, graphics, video or Web content. Publishers will author content once, and Adobe products and services will manage the data and repackage it for delivery to multiple media or platforms, whether that's a Web site, a printed page or a wireless device.

In more concrete terms, the plan means Adobe will venture beyond its strong position in PC desktop software into less familiar territory with device software, server tools and Web-based services. The company will also tune its existing products to better suit a networked environment. For example, Adobe's authoring tools will add features that help them work more closely with Web-based services and new Web technologies such as eXtensible Markup Language (XML). And in addition to developing its own products, Chizen says, Adobe will link up with a broad range of partners, such as application server vendors, content management and document management vendors, and suppliers of wireless device technology.

Such a major shift may sound risky, but Adobe may not have much choice. Customers say the company is following market trends as much as it's leading them. For example, XML could supplant print-industry standards such as Adobe's PostScript language for printed pages, says Jeffrey Eckman, system administrator at publishing company McDougal Littell, an Adobe customer.

Adobe is also under pressure from Wall Street to reduce its reliance on mature products such as Photoshop and Illustrator. Those products dominate their respective markets, but Adobe can't depend on them for continued revenue growth, says Bill Lennan, an analyst at W.R. Hambrecht & Co. "Photoshop and Illustrator are getting up there in years," Lennan says. "You reach a point where you have feature saturation."

Lennan says Adobe will have to shift its weight to newer product categories, such as corporate productivity tools, and reach out to new kinds of customers. One of the most promising products in this respect, Lennan says, is the Acrobat document sharing platform.

Acrobat began as a way to reproduce printed documents on computer screens in Adobe's Portable Document Format (PDF). In its past two revisions, however, Acrobat has metamorphosed into a platform for work flow and collaboration. Adobe's revenue from Acrobat now anchors the company's fastest-growing product group, ePaper Solutions.

In some ways, Acrobat is Adobe's showcase for the direction the company is taking with its overall network publishing strategy. Chizen says features in the newest version of Acrobat, the recently released Acrobat 5.0, offer a glimpse at the kinds of capabilities that Adobe's products will acquire as they're revamped for network publishing. The new version lets people work with data online via World Wide Web Distributed Authoring and Versioning — known as WebDAV — or Open Database Connectivity protocols.

Acrobat is also the venue for some of Adobe's latest steps away from the desktop. Adobe's recent product releases include a beta version of Acrobat Reader for the Palm operating system and Adobe Document Server, a server application that transforms PDFs into images that can be viewed in a Web browser. And Adobe is using PDF as the basis for its entry into the immature — yet closely watched — market for electronic-book software.

Furthermore, Acrobat is the product with which Adobe has made its most significant inroads into the corporate market, says Greg Vogel, an analyst at BancAmerica Securities. Elsewhere in its product line, Adobe still hasn't gone far in shedding its image as a purveyor of publishing software, Vogel says.

Chizen claims Adobe faces no single competitor, and he may be right. In individual market segments, though, Adobe faces some tough opponents. Adobe's GoLive Web design tool competes with Macromedia's market-leading Dreamweaver product. For e-books, Adobe is up against Microsoft's Reader. In the desktop publishing market, Adobe's 2-year-old InDesign product has gained ground, but still lags behind market leader Quark, which itself is looking to extend its reach into XML technology and Web publishing.

As Adobe branches into new areas, it will find itself competing with new rivals, and perhaps battling on new fronts with old competitors. For example, since Macromedia's strategy has shifted toward application development tools, Macromedia and Adobe don't compete as directly as they once did. But now, Adobe's moves into the networked world could put the two companies into head-to-head duels again.

In addition to competitors large and small, another risk could be Adobe's own failure to change, says Rita Knox, an analyst at Gartner Group. Chizen stresses that Adobe fully understands the importance of new technologies such as XML. Knox, however, says that there is still a disjunction between Adobe's "network publishing" message and its current emphasis on "e-paper," PDF and other technologies modeled on printed pages. Adobe, she says, must show that it's ready to think of paged documents as just one part of a larger media landscape that includes video, images and disembodied data that's not contained in discrete documents.

And even if Adobe's strategy is sound, it could also be some time before network publishing succeeds as the company hopes. "The network publishing concept is going to take a little while," Vogel says, simply because the necessary pieces aren't yet in place across the industry. For example, he says, most mobile phones and handheld computers aren't yet capable of displaying or playing multimedia content.

Despite some doubts, analysts see clear strengths in Adobe's network publishing strategy, and point to the company's strong relationships with its customers. "As long as you have the right technology, you can leverage those relationships to sell your stuff," Vogel says.

At A Glance

Adobe Systems

Headquarters San Jose

Business Digital publishing software

Employees 2,800

Q1 2001 earnings Revenue: $329 million; net income: $69.8 million