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.


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 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

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