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Adobe under construction

newsmaker CEO Bruce Chizen talks up the impending merger with Macromedia and what comes next for Flash.

newsmaker When you inhabit a market populated by megagiants like Microsoft, Oracle--and yes, include Google in the mix--there's no sense thinking small. So it was that Adobe CEO Bruce Chizen earlier this spring engineered a $3.4 billion deal to buy Macromedia.
A correction was made to this story. Read below for details.

It's an imaginative combination that brings the maker of Flash animation software together with the creators of the PDF (Portable Document Format) technology for presenting text files online. What with content developers hungry for new tools to use in the fast-changing world of multimedia, Adobe has set up a near-impregnable position.

At least on paper.

This sort of stuff is notoriously tricky, and the history of the software industry is littered with the detritus that remains from once grand ambitions gone astray--the most famous failure being Ray Noorda's quixotic attempt to refashion Novell by acquiring companies he believed would help him battle Microsoft on several different fronts. Novell has never recovered.

Chizen says he knows what he's up against and remains convinced that the Macromedia acquisition was the right move for both companies. CNET News.com recently met with Chizen to talk about the business and how he views the evolution of the technology world.

Q: Certain investors filed suit after the Macromedia announcement. What can you say about the lawsuit?
Chizen: We think it is totally frivolous and has no merit whatsoever. I can't comment further on it, but customers, the investors, everybody, were asking what took us so long to do the deal. It was so obvious.

The reality is Microsoft and Adobe have been competing for a number of years.

Well, not everyone. For whatever it's worth, we heard Jim Cramer on his CNBC show, and he didn't sound thrilled.
Chizen: Yeah, but other than Jim? If you read most of the sites and most of the blogs, there's the usual concern with customers asking whether we still will maintain their product after the merger.

A lot of the concern has to do with the integration of the two companies into one. This is probably the trickiest merger that you guys are attempting to consummate since Aldus.
Chizen: From a financial perspective, yes. But if you look at Macromedia--we understand each other's businesses and we've been watching one another for many, many years. Also, they are local. Many of the Adobe employees and many of the Macromedia employees live on the (Bay area) peninsula, so getting from one place to the other is pretty easy.

But what about the potential issues you're going to face to make the combination work?
Chizen: Any acquisition is hard. I think anybody who tells you acquisitions are easy or mergers are easy is lying. They aren't easy. But we're going about it with our eyes open.

What's different about the climate these days with all the consolidation going on in the industry? Was your thinking in doing the Macromedia deal that you need to be a certain size or you can't make it?
Chizen: I don't believe scale really buys you anything.

So what convinced you to go after Macromedia?
Chizen: Every year we go through our previous strategy plan...When we sat down this year, we talked about how to give users more of a rich experience, more animation, more graphics, more video and more collaboration around Acrobat. Then we took a look at Macromedia and said, "Jeez, if we had Macromedia as part of our asset base, we could speed up our execution against our strategy." Without that, we might have been late. That was driving me more than scale.

Is it because growth is slowing down for software companies?
Chizen: Not for us. But growth is slowing down for a lot of software companies who were charging multiple millions of dollars to do back-end, infrastructure stuff. Back when money was free, a lot of IT guys had bosses telling them, "Whatever it takes, get it done." They would spend $40 million on an ERP system or an HR system or a CRM system. Now the IT guy is saying, "Hey, we got burnt. We're not doing that any longer."

We recently spoke with the CEO of Texas Instruments, and he said he expects stronger growth coming from demand for non-PC computing devices. How do you see the next five years shaping up in terms of this PC versus alternative device debate?
Chizen: My view is (that) more people will view, consume and interact with information on non-PC devices than PC devices. It is going to be less on a PC and more on mobile devices. Two to four years from now it will be through an HDTV that has a satellite box or a video game or a cable box or maybe just natively has computing capability.

What does that mean for Adobe?
Chizen: It means that even though most of our customers will want to create and manage and deliver that information using their PC, we have to make sure that that information can easily be consumed on a non-PC. We're doing a little bit of that today with the Adobe Reader in Japan, so we make some money there.

Does that suggest a change in what your customers use to create content?
Chizen: Most of our constituents will still use their PCs to create that information because the CPU horsepower is still going to be better for sophisticated creators of information.

In the battle between media players, is the standards issue again going to be an impediment?
Chizen: We'll support every format that makes sense. Many of our

 

Correction: An earlier version of this story incorrectly referenced Macromedia as the inventor of the Flash animation software. Flash was invented by FutureWave Software, which was later acquired by Macromedia.
customers use QuickTime. Many use Window Media Player. Not as many customers use Real--but we'll continue to support the Real Player. However, we will take advantage of the Flash Player--especially for Web sites. The lightness of it and the quality--it seems to be taking off. Plus, if you look at the installed base of Flash, it is greater than any of the other video players on the Web.

Do you see that as a differentiator for Adobe?
Chizen: A major differentiator for both Adobe and Macromedia. If you look at our (combined) reach and the proliferation of PDFs and Flash, our reach is greater than that of Microsoft because Microsoft is only on one platform.

Speaking of Microsoft, will you be running into each other a lot more?
Chizen: The reality is Microsoft and Adobe have been competing for a number of years. Go back 20 years to when Microsoft tried to do a PostScript competitor...and that was a total failure. But they tried.

The one that I remember intimately was PhotoDraw. It bundled in with Office and was designed to knock off Illustrator and Photoshop...a total failure. And now you have Digital Imaging Pro. They really haven't been that successful at it, but they haven't stopped trying.

As much as I prefer not to butt heads against Microsoft, they're a $40 billion software company that has a monopoly and unfortunately we do butt heads. What we try to do is to stay focused on what we do well.

As you prepare for your September planning meeting, does Google figure into your thinking as a possible rival down the road?
Chizen: Google is interesting. They are a potential competitor. They compete a little bit in the visual photo area, but the reality is where they're focused is much different than where we're focused. We're not focused on the lower end consumer, but they certainly have the resources and their business model is such that they don't have to charge the user for applications.

It's just a tough market.

Fortunately for Adobe, because our users have content and their need to manipulate that content and enhance that content is so great, they need client applications to do that. I also like to think that as broadband does become faster and faster and faster, Adobe will be able to provide those host-based applications in a much better way toward our customers than what Google is able to do. I think Google will be successful for the nonprofessional or the nonenthusiast that aspires to use the same tools as the professional, but as long as we do our job, I think we'll continue to be successful against Google. Today, we don't compete.

Will eBooks ever break out of its niche?
Chizen: Yes.

In our lifetime?
Chizen: Absolutely. I've always said the problem was the value proposition of the book versus what was being delivered electronically. What's been limiting has been the devices....knowing the hardware manufacturers, I would be willing to bet that two or three years from now, you will have a dynamite eBook device for $199 or less.

Let's talk about Apple Computer. What is the early word about moving Mac apps over to work on Intel-based systems? Not so easy?
Chizen: No, it's not...If you look at most testing cycles, that's three or four months until the product's out. You can't just turn a switch and get a MacTel product...and Steve knows that.

So when do you think Adobe will be ready to take Photoshop to MacTel?
Chizen: I haven't given a date yet...there's just a lot of work to do.

What's your opinion of where Microsoft is with Vista?/> Chizen: It isn't quite there yet.

What do they still need to do?/> Chizen: It's just not complete. I can't get into the features per se. Conceptually it's there, but when you play around with it, you know they just have a lot of work to do. If they expect to get it out in 2006, it means they have to ship in the summer to meet (manufacturer) requirements. There is not that much time between now and then. So, it's going to be really interesting to see what they deliver at the Professional Developers Conference in September.

If you look across the venture capital community, are you still seeing much interest in terms of the real heavy-duty software investment? Or is it pretty much over?
Chizen: Not in the traditional sense. I still see investments going into security, and I see some investment in low-end apps. I think Salesforce.com has proven to a lot of people that you don't need a $10 million solution to satisfy a simple problem. It's a much different world than it was five years ago. It's also harder to compete. It's not just about the product any longer. The big guys have gotten bigger and R&D budgets are big. It's just a tough market.  

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