Adobe has taken its seat at the House of Representatives Standing Committee on Infrastructure and Communications inquiry into IT pricing.
In many ways, Adobe has been the poster child for the IT pricing inquiry — or perhaps, more correctly, the poster enfant terrible.
Far more than either Apple or Microsoft, Adobe's pricing has captured the public attention, mostly because of its large regional disparity, even when products are being distributed digitally.
Mid-last year, Adobe's prices in Australia were roughly 50 to 60 per cent higher than in the US, prompting MP Ed Husic to say:
"The view I constantly get with consumers is there's a huge degree of frustration and anger, and when they try to engage with Adobe, they constantly get a company line that never offers a better understanding as to why the prices are different."
We'll be following the company's statements and question sessions, with updates to this story as the session develops.
11.05am AEDST: Adobe MD Paul Robson takes his seat and is welcomed. His opening statement is a clarification of the Adobe's business model in Australia — that of product sales and digital marketing. Almost 200 people work for Adobe in Australia.
11.08am AEDST: Adobe says that the production of software is very different to that of traditional manufacturing. Development costs are unrecoverable if the software doesn't sell, especially given the risky market. The pricing of software, therefore, must cover the cost of the development.
11.12am AEDST: Adobe says it attempts to set pricing that reflects the cost of doing business in Australia. Adobe also notes that discounts based on socio-economic status, such as for students, in common in this market.
11.14am AEDST: Adobe says the new pricing of Creative Cloud is now in line with the US, and that the student price is cheaper in Australia and New Zealand than many markets. Region blocking of purchases is essential for local legal requirements and marketing.
11.17am AEDST: The question is put to Adobe: is it economically and ethically justified to region block purchases? Adobe says that customers want a personalised and bespoke experience. This is easier with region blocking. Adobe continues to emphasise its commitment to providing affordable products for education, including teachers and students, as well as not for profit organisations.
11.19am AEDST: Husic asks how this localisation helps Aussie consumers. Adobe says that local information, pricing and community is local, thus better for Aussies. However, redirecting purchasers from Australia to the Australian Adobe store is essential for Adobe to capture the local spend. This allows Adobe Australia to spend those profits locally.
11.23am AEDST: Husic asks what is specifically different with the product itself for Australian users that makes it essential for them to buy from the local site. Adobe says nothing is different with the product, just the community user experience.
11.25am AEDST: Once again, Husic asks what is so different about the Adobe product that requires such a high price for it in Australia. Adobe says that pricing definitely alters from region to region. Some are even cheaper in Australia. Adobe takes significant risks when introducing innovation products such as Creative Cloud, and that pricing is in line with the US.
11.28am AEDST: Husic asks why the cloud can be priced in line with the US, but not the traditional applications. Adobe says that more and more users are taking the cloud — 79 per cent of users, in fact. The regular enhancements and updates are a big drawcard for the user. Legacy products, however, lock you in to that version of the software. Even in older products, users had to pay for updates of "in the box"-style software to remain current.
11.30am AEDST: Currently, some clarification is being made regarding how Creative Cloud works, including the fact that pre-existing Adobe customers get a discount when purchasing Creative Cloud. Adobe also says that the Creative Cloud has features that were previously unavailable to Adobe customers, such as collaboration and storage. Also, strangely, Adobe needs to clear up that it doesn't sell music...
11.32am AEDST: Husic takes some questions for Twitter, asking once more if all the additional costs are for Australian products are just around the experience, not the product. Adobe confirms that the localisation is all regarding information, not any of the code or product itself. Husic asks if Adobe is aware of the user discontent about its product, to which Adobe says it is aware of all opinions about its products.
11.33am AEDST: So, once more, why can't Adobe Australia provide a fairer price for Australians? Adobe says it does, if you take Creative Cloud, just not the other stuff.
11.36am AEDST: Mike Symon (Deakin, Vic) is now quoting prices from the Adobe site, and asks if Adobe Creative Cloud is an admission that Adobe charges too much. Of course not, says Adobe; Creative Cloud is part of a clear Adobe strategy. Symon asks once more why the pricing disparity between CS6 in US and Australia. Can the "personalised experience" really be worth the additional money? Adobe continues to say that the geo-blocking of Adobe downloads is just about creating that personal experience. Still no firm answer on the pricing disparity.
11.41am AEDST: Paul Neville now asks if Adobe is aware of a recent US copyright decision that copyright cannot prevent the resale of a used product. He asks why Adobe has the right to stop Australians from buying Adobe products overseas. Adobe's Robson says he's not a lawyer and can't comment on the ruling, but that you can purchase products overseas and use them, but if you buy, for example, a US product to use in Australia, Adobe doesn't have to provide a warranty. Also, Adobe has local expenses, so it tries to make Australians purchase locally to help with this.
11.43am AEDST: So, asks Neville, if the costs that Adobe experiences are fixed, how can it have educational products available so cheaply? If Adobe Australia can sell to students for 20 per cent less than the US, it must be making a big profit on the other products.
11.44am AEDST: Are the student discounts Adobe keeps mentioning able to be made because they're more of a marketing move than a genuine sales decision? Adobe says it's more complex than that...
11.48am AEDST: Neville asks if Adobe thinks Australian students are dumb and they need philanthropic help, or, honestly, is it just marketing? Of course not, says Robson; he has high regard for the Australian education system. Pricing for students and teachers is different for Creative Cloud, as well. That's because Adobe wants to make people take up Creative Cloud. It's priced to encourage them to use the cloud service. Adobe, it says, has a strong tradition of working with and supporting schools.
11.51am AEDST: Neville once again asks for Adobe to clarify that it doesn't resell music or video. "To the best of my knowledge, no," says Robson. Neville says that Apple cited some of its price disparity as an issue attached to the media rights holders. If Adobe doesn't have this issue, why is the pricing of non-Creative Cloud products so high in Australia? Apple's software doesn't have this problem, says Neville. Adobe won't comment on Apple's revenue model, says Robson.
11.55am AEDST: Adobe, once more with feeling, says it has some products that are cheaper in Australia, and that Creative Cloud pricing is in line with US and other market pricing. Neville says that this makes the pricing disparity of products such as CS6 even more stark. How does this work? Robson says that the cost of CS6 style products is regarding shipping, boxes, staff training, etc, which have always been an issue of boxed products. Creative Cloud can be cheaper because of the way it is delivered.
11.59am AEDST: When Adobe sells Creative Cloud, does it pay GST? Adobe is not sure, and will check. Is Adobe Australia a wholly owned subsidiary? Yes. Does Adobe Australia pay a licence for Creative Cloud? It's a little more complex than that, says Adobe, but there are costs involved on "how that software is moved around". Neville wants to know how the wholesale pricing of Creative Cloud works from Adobe to Adobe Australia. Could, for example, "price shifting" be in play?
12.02pm AEDST: So, who sets the price in Australia? Adobe internationally sets the price for Australia. Stephen Jones asks if Adobe make money on the Student edition of Photoshop in Australia. Adobe will not answer, as that's confidential company information. Jones insists that this is relevant. If Adobe can make a profit on the discount edition, then it's a big question about other prices. Adobe feels that's not relevant. Adobe says it won't share its marketing strategies in a public forum.
12.05pm AEDST: If Adobe won't share its information about the profitability of the Student edition of Photoshop, then, says Jones, it cannot be taken by the inquiry as evidence of Adobe's pricing being equitable in Australia. We are now debating if the writing on a box makes a product materially different. Also as "small d***" joke from Jones.
12.08pm AEDST: So is there any justification for the pricing disparity in terms of the costs of the material packaging? Jones wants to know why the Student edition of Photoshop is 24 per cent less in Australia than in the US, but the Standard edition 41 per cent more. Adobe begins to bring up Creative Cloud, and Jones calls it evasive and asks to move on.
12.11pm AEDST: Adobe's submission about the creation of intellectual property being a significant cost has merit, says Jones, but how is cost shared around the Adobe subsidiaries? Are we, as Australians, paying this IP cost more than anywhere else? Adobe is still citing the box issues: the physical shipping and storage is the cost. No one is pointing out that the cost disparity also involves digital downloads, not just boxed copies.
12.15pm AEDST: Jones suggests that some products that are essential for some businesses aren't in the Creative Cloud and are still priced higher for Australia.
12.18pm AEDST: Nick Champion (chair of the inquiry) asks if Adobe will commit to "eschew the price discrimination that Australian customers see". Adobe says that there are alternatives to every product it sells. It needs to provide value to keep its customers.
12.21pm AEDST: More questions about the nature of Creative Cloud: what happens to customers and their content when they stop subscribing? Adobe says the cloud is complex, but created content doesn't need to be stored in the cloud. People should store it locally, as well. However, Adobe doesn't know what would happen to data that was stored on the cloud.
12.25pm AEDST: Husic quotes a number of prices of Adobe products showing their differences, and asks carefully why these prices are different when the programs are being downloaded. Adobe once again cites costs about boxing and shipping, saying that the Creative Cloud versions are the same price.
12.27pm AEDST: The final question is asked: if you stop subscribing to Creative Cloud, you might still have your files but no way of opening them; is it a "digital handcuff"? Adobe doesn't understand the question. When clarified, Adobe says that upgrading technology always has that risk. Not so, says the inquiry; think of Microsoft Office.
12.30pm AEDST: (That really wasn't the last question, we've had a few since.) Finally, we get a definite question about why the extra cost even on downloaded products. Adobe says that because there is a physical version of a product, the digital version price will always match the physical box copy. That's why Creative Cloud can be cheaper — because there is no physical version.
12.32pm AEDST: Neville's final question is to ask if Adobe has an RRP list. Adobe does, but it doesn't tell partners what to sell its products for. Can Adobe provide the inquiry with the RRP list for all English-speaking countries? Yes, says Adobe, if it's on the internet, it'll take it on notice if not.
12.32pm AEDST: A final bit from Husic: if Adobe was stopped from geo-blocking, and people could buy from other regions online, what would the impact be on Adobe? It would impact on Adobe's ability to invest in Australia, says Robson. Also, does Adobe have a deal with Amazon to stop physical products being shipped from the US to Australia? Robson doesn't know if that's true. Then there's a quick joke about ABC's Q&A to end. We break for lunch.