Online Strategy - Adobe Systems Inc.

ADOBE SYSTEMS INC.

Adobe Systems Inc., one of the largest PC software companies in the U.S., used successful business strategies to emerge in the mid-1980s as a major force in desktop publishing and in the late-1990s as a leader in Web authoring tools and other Internet publishing technology. Its first move toward an online strategy came in 1994 when Adobe approached Aldus Corp., maker of PageMaker, the leading desktop publishing program for both Macintosh and Windows operating systems. Adobe was hoping to acquire a desktop publishing application for its PostScript printing language, and the $450 million merger with Aldus accomplished that goal; it also secured Adobe's position as a leading PC software manufacturer among giants like Microsoft, Novell, and Lotus. More importantly, however, the deal also positioned Adobe as a market leader in design and illustration software, image editing, and electronic document technology—areas that would prove essential to its emergence as a leader in Web publishing.

The firm began developing its online strategy in earnest in 1996 when it acquired Web tools manufacturers Ceneca Communications and converted the popular PDF into a Web format. Adobe began focusing the majority of its efforts on Internet publishing that year, developing Web versions of its most popular applications. Although sales reached nearly $1 billion in 1997, an economic downturn in Asia hurt profits in 1998, prompting Adobe to reduce management staff by ten percent and dump additional resources into creating new products, particularly those that would help strengthen the firm's foothold in the booming Web authoring tools market. Roughly one-fourth of sales, more than $207 million, was allocated to research and development. Adobe also pursued strategic acquisitions. For example, the firm bought GoLive Systems Inc., a maker of Web development and design tools, in early 1999. The purchase proved fruitful as Adobe later used GoLive technology to power LiveMotion, an award-winning graphics and animation manipulation software package for both beginning and expert Web page designers.

Believing that electronic books, particularly educational and professional publications, would become a key online market, Adobe included in its online strategy plans to develop software and hardware for displaying such books, as well as technology for protecting authors and publishers from the illegal distribution of copyrighted material, a key concern of publishers looking to transact business online. In 1999, Adobe developed PDF Merchant, allowing publishers to prevent individuals from downloading PDF files until they purchased the right to do so. Web Buy, an Acrobat "plug-in" program, could be attached to purchased files to impede unauthorized distribution to non-paying recipients. To further develop its e-books holdings, Adobe purchased display software manufacturer Glassbook Inc. in August 2000. Adobe Content Server, a program permitting book merchants to sell e-books in a secure format online, was launched the following year in tandem with the Adobe Acrobat e-Book Reader, a product based upon the Glassbook Reader. Along with granting users electronic access to books, with both text and graphics in PDF, the new application also offered searching, marking, annotating, and other interactive capabilities.

With strategic partnerships a key component of its strategy to remain abreast of the latest developments in Internet publishing technology, Adobe continually sought relationships with other top players. For example, in the second half of 2000, Adobe integrated its GoLive software with WebTrends Corp.'s web tracking technology to allow clients creating Web sites with GoLive the ability to monitor things like site traffic. The firm reached a similar technology integration agreement, at roughly the same time, with e-commerce software and services provider Allaire Corp.

Reflecting the success of Adobe's online strategy was the percentage of revenues in 2001 accounted for by Internet publishing products: more than 50 percent. In addition, Adobe's presence on the Internet had become widespread. According to Forbes columnist Elizabeth Corcoran, "Pull up the Bridgestone/Firestone Web site to learn about defective tires and it tells you to use Adobe's free Acrobat Reader to see a graphical interpretation of the hieroglyphics on your tires' sidewalls. On ESPN's extreme sports site teeth-gritting images have been tweaked with Adobe tools. At Barnes & Noble on the Web you will find e-books viewable with readers from Microsoft and Adobe." In fact, more than 90 percent of all Web sites make use of Adobe's Photoshop software, while nearly three-fourths of all Web pages are designed with Adobe Illustrator.