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Macromedia, Adobe make peace for bigger fight

Software makers join forces in $3.4 billion pact to stave off larger threats from both Microsoft and open standards.

With its $3.4 billion acquisition of Macromedia, Adobe Systems is buying into a crucial battle to shape the next generation of Web application development.

Adobe, which built its name on the Portable Document Format, or PDF, for printable digital documents, has long struggled to make an impact in the purely digital realm where Macromedia has its roots.

Now, with Macromedia's Flash animation and application development software in its portfolio, Adobe has positioned itself as a primary competitor against Microsoft on the one hand and open standards on the other in building new platforms for Web applications.

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What's new:
By merging, Adobe and Macromedia have launched a gambit to become the dominant platform for multimedia Web applications.

Bottom line:
The two companies will have to overcome a history of bad blood and a formidable competitor in Microsoft, which, with Longhorn, intends to break into graphic-rich Web applications.

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"What's taking shape is the ultimate battle for the browser," said Paul Colton, CEO of Xamlon, a company that provides tools for creating applications that run in Microsoft's .Net framework. The company this month added the capability of letting its developers output Flash movies. "This (merger) play is about gaining dominance in the browser applications market," Colton said. "The reach of PDF and Flash already go a long way, and the combination of those two will be very intense."

From Adobe's perspective, the acquisition of Macromedia's tools for authoring multimedia content also bolsters its standing in the business market. The combined company can offer a fuller suite of cross-platform products for building document-oriented applications and "rich media" Web applications. It can also offer Macromedia's collaboration products.

"The enterprise market is absolutely what this is about," said Robert Markham, principal analyst at Forrester Research. "It's really broadening Adobe's capability to compete in the enterprise as opposed to having off-the-shelf packages."

The audience for Adobe and Macromedia's software consists of so-called creative professionals, such as Web designers and graphics artists. But the companies are also seeking to expand their business with corporate technology departments.

Adobe's "life cycle" business for document management software, which can tie into back-end computing systems at corporations, last year totaled about $100 million.

"Enterprises and enterprise developers want to provide a complete set of development tools to create rich interactive experiences and personalized content that tie into transaction systems," Shantanu Narayen, president and chief operating officer of Adobe, told CNET News.com on Monday.

The coming clash
While Adobe, with its PDF and Photoshop software, has generally held its own in the battle against Microsoft, analysts say the most pitched battle between the companies will come as software providers vie to provide the platform of choice for next-generation Web-based application development.

In this area, Macromedia has a good head start with Flash. Microsoft's forthcoming Longhorn version of the Windows operating system, which has a graphics engine called Avalon, is considered a major contender despite being late. Adobe, meanwhile, hasn't had a hand in the game until its Macromedia acquisition.

"It's not that Microsoft is going to specifically target Macromedia and Adobe," said Burton Group analyst Peter O'Kelly. "But we've seen blurring boundaries between traditional documents and applications and multimedia, so it's not surprising that Microsoft should wind up with an architectural model that's similar to what Macromedia has been proposing all along.

Today, analysts expect the upcoming presentation environment in Windows, which includes an XML-based language called XAML (Extensible Application Markup Language), to be able to do many of the things that Macromedia's Flash and Adobe's Acrobat software do. Microsoft's tools are optimized for Windows, while Adobe and Macromedia have been committed to a more diverse desktop environment including the Mac OS and now Linux.

Longhorn looms large among potential competitors in the market for online application platform providers. Others include Flash combined with Macromedia's Flex server software; Sun Microsystems' J2SE; a platform under open-source development by Laszlo Systems; and the collection of established Web standards recently dubbed "Ajax." IBM's Workplace initiative also offers a Java-driven approach for building "rich client" applications.

And with its acquisition of Macromedia and Flash, Adobe will have to reconcile its support for open standards with its ownership of one of the Web's most successful proprietary formats.

Not quite a year ago, Adobe outlined to the W3C its own vision for Web-based application standards, delineating a model that relied on the World Wide Web Consortium's Scalable Vector Graphics recommendation, conceived as a standard Flash alternative.

IBM, Sun Microsystems, SAP and Microsoft contributed papers to the W3C; Macromedia did not.

Enemies, a love story
The deal between Adobe and Macromedia was first conceived years ago, after a period in which the two companies were at loggerheads.

In the late 1990s, the companies started encroaching on either other's turf more and more. To compete with Macromedia's high-end Dreamweaver Web authoring software, Adobe launched its ill-fated GoLive title. To compete with Adobe's dominant Illustrator software for graphics professionals, Macromedia acquired Freehand and introduced Fireworks.

Adobe also tried to invade Macromedia's dominion by throwing its weight behind SVG. More recently, Macromedia took at nibble at PDF with its Flash Paper offering.

The companies hadn't begun as direct rivals. Adobe emerged from the world of print, and Macromedia came from the purely digital realm of CD-ROM and then Web content creation.

By the middle of 2001, it was clear to both companies that their efforts to compete with one another were stalling. The relationship between two culturally different companies had devolved into more of a petty rivalry than a strategically sound battle. As they struggled to compete in the marketplace, the companies took each other to court over patents.

Meanwhile, Microsoft was already talking about Longhorn, hinting that the software would include "an advanced presentation environment."

"After 9/11, we both realized that being enemies didn't make sense," Adobe CEO Bruce Chizen said in a conference call on Monday, referring to his discussions with Macromedia's then-CEO Rob Burgess. "We were not longer competing."

No longer competing with each other, that is. In fact, Adobe and Macromedia's peace pact had less to do with their own sense of corporate or technological comity in the wake of a national tragedy than with serious if not existential common threats, particularly Microsoft.

"When I think about competitors, there's only one I really worry about," Chizen said in an interview a year ago. "Microsoft is the competitor, and it's the one that keeps me up at night."

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