On China, Microsoft, Apple, open source - and China, some more
Adobe's $3.4bn purchase of Macromedia has been one of the big stories in software this year. With the deal rubber-stamped in the US and on the verge of being approved in Europe, silicon.com editor Tony Hallett recently caught up with the chief executive of the San Jose-based software company, Bruce Chizen.
With an 'intra-quarter business update' forecasting Adobe will once again beat analyst expectations and the merger with Macromedia almost put to bed, you can forgive those at the company - one of the few standalone software outfits to endure over the past 20 years - to feel like they have some momentum.
But with Microsoft looming larger, the rise of open source alternatives and China a problem as much as an opportunity, CEO Bruce Chizen - as always - has some strong views on what lies ahead.
Q: Some people say you're trying to make a break from your traditional market?
A: It's still all about helping people express information.
What is it that has made Adobe endure?
Where a Microsoft caters to a wide variety of people we really focus on the professional - whether that be an IT professional or a creative professional, a web designer, a graphics designer. They really care about the quality of the output of their information. It's where good enough is just not acceptable. And because we stay focused there I think we do what we do well.
Are you limited to that type of professional?
No, because of this information explosion we're living in.
DRM and rights management more generally with issues such as 'digital leakage' of documents is a hot area right now. Is it a big opportunity for you?
There's B2B rights management and B2C - which we tend to stay out of as it's pretty messy, with lots of patent issues - and our focus tends to be on the document security side, [working with] regulated agencies and industries. It's one of the great value propositions of PDF.
Take pharmaceuticals. On the policy server side, if new information on a drug comes to light, if I learn about something harmful, I can quickly terminate [outdated information on its] application with a doctor.
Tell us about China.
Every time I talk about China I get into trouble! I know I irritate the Chinese government - it's frustrating. We'll do - and these are approximate numbers - about the equivalent of $300m in business in Japan. We have similar market share in China - it's all Adobe - and we'll do maybe $3m to $5m. It's a problem.
Yet you persist.
Yet it's the largest IT market in the world right now in terms of growth. So we're working with the US government to educate, push and help the Chinese government in understanding the problems it's creating. I think it was in the middle of July there was a very successful meeting with representatives of US Trade - and I think the State Deptartment - with Chinese officials, which ended with the Chinese government talking about a renewed effort in terms of intellectual property.
Second thing we can do is continue to look at ways we can change our business models - looking at hosted applications, instead of pushing shrink-wrapped software, looking at server-based solutions. We can try to reduce the price of shrink software but when we just did that - even to below where it is elsewhere in the world - it wasn't successful.
Ultimately what it's going to take is for its internal, commercial software developers looking to do business in China and outside China to put pressure on their government - and we're probably years away from that.
But you continue to fight counterfeiting there.
Yes, but for every dollar I invest in China on intellectual property education and enforcement I can get a much better return if I put that investment in the UK, in Germany or in the US - or any developed market because piracy rates are still relatively high in developed markets. And the governments support it.
And the US government isn't just fighting on behalf of poor old Adobe?
If you look at the amount of lost revenue to the theft of intellectual property by Chinese from intellectual property companies in the US, it's a significant number - which results in less jobs, less tax paid to the US government, less R&D and innovation and it also means less offset to the trade balance which is already out of whack. The US government has a lot of incentives to push, not Adobe's agenda but the intellectual property agenda.
Is hosted software the way to go?
No one's really figured it out.
But how come you have this piracy problem - we thought you were the DRM experts? Will you build in more checks and balances?
We can and we will. But there is no such thing as absolutely secure. (continued on next page...)
Microsoft is looming, about to move onto your turf further.
For years now we have been anticipating a move by Microsoft - it's actually taken them a lot longer than I thought it would, especially as related to PDF. Because of that anticipation we set in place a strategy a number of years ago to deal with it. The goal was not only for PDF to become a standard but to make sure we were building applications and tools that did more with PDF than just the creation of it. So when - not if - Microsoft decided to enter, it would be that much more difficult for them. But I am not trying to trivialise that. They are a $40bn software company which the US Department of Justice has declared a monopolist.
But they are fighting on many fronts...
I worry about them, with all the power they have and how much they invest in R&D. I worry about that a lot but they are also big and have a lot of issues: government regulators around the world continue to look at what they're doing closely; the Linux community is providing an operating system that could replace Windows; OpenOffice.org is providing a replacement, potentially, for Microsoft Office; Sun continues to be aggressive with their own servers against Windows servers; they're competing with the likes of a Sony in the video game business and Sony isn't just going to roll over and play dead; Apple will continue to compete with a wave of computing against Microsoft; they have an employee base that is going through change - one time it was an employee base that was built upon hiring the best and the brightest from universities around the world and then rewarding them through stock option appreciation but their stock hasn't appreciated in over five years; their ability to hire the best and the brightest has been reduced significantly because you have companies like Google and to a lesser degree Adobe who end up being more attractive. And then running a $40bn business has its own complexities, especially a company that was very top-down from a Bill Gates/Steve Ballmer perspective.
So those nights where I get up in the middle of the night and think 'OK, they're doing PDF creation' and so on... as I toss and turn and think about those things, then I think about the list I just gave you and go back to sleep. I don't want to give them more credit than they deserve.
How do you feel about Apple's computing business?
They have a very stable, loyal customer base.
Has your relationship with Apple changed, say going back five years?
Going back five years - they've made it much easier because you no longer have to worry about 'Will their customers move over to the Windows platform?' - which would have made Microsoft that much more dominant in our business. Loyal customers, loyal to the Macintosh, is good news for Adobe. The challenge will always be that Apple will look at developing its own software that in some areas will compete with Adobe, as they did in the video area. There will always be that tension. But I look at Apple much more as a friend.
So a strong Apple...
... is a good thing.
How do you feel about Apple on Intel [processors]?
In the long term it's great because it allows production of faster, more powerful computers that can be more affordable than today. Plus, in theory, because we work closely with Intel we should be able to take advantage of the optimisation that we do around Intel at the native level, especially for graphics and video applications. The challenging part will be the switch. It will take coding and compiling time - and that's work.
How much did you know about Apple's move to Intel?
[Apple CEO] Steve Jobs and I have an appropriately close relationship. He shared his plans. A variety of times he broached the subject and right before he announced it he made it clear to me.
What effects does open source have on Adobe?
We've had competitors for a number of years eg KIllustrator for Illustrator, Gimp for Photoshop. We find that as long as we innovate and maintain our quality levels our customers will pay for the commercial product. They want the best. The one risk is that governments end up dictating, saying you can only use open source products, not giving users choice. We like choice. Open source is a problem if we are forced to do open source.
Are you thinking about instances in Korea, Munich...
... in China!
In China, if they say you can only buy from domestic suppliers that would mean we are out of business there forever.
So is your China set-up part of a charm offensive?
Yeah. We are developing R&D centres there. We sent one of our lead engineers from San Jose, trying to make PDF much more of a standard there. We're looking at doing Chinese localisation there - putting money back into the local economy, working with the government and universities. It's important that we show our job isn't just to extract money from China, that we want to be part of their economy. We have R&D in Hamburg, in Norwich, in India - our job is not to be [just] in the US and [sell] elsewhere.
What does the UK mean to you? Can you learn anything from here?
It's similar to the US in a number of ways e.g. the government sector, where we have [tax authorities] sharing across the US, UK and Australia. Also your financial services organisations are very powerful. There aren't many but they are very large and tend to be global.
Of course the other big industry for us is publishing and media. It's unique in the UK in that there are so many different newspapers, magazines and media organisations. You move quicker than just about any place else in the world. For us that's great because we can experiment with you - you are willing to adopt new technologies more quickly. A great example is Glamour magazine - we used that as first test bed for Adobe InDesign. It won a design award and I was able to take that back to Condé Nast in the US - and Hearst and Time Inc - and say 'Look at what these guys have done!'