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Web breathes new life into Macromedia

Once a struggling maker of interactive software for CD-ROMs, Macromedia now is a billion-dollar firm making a profit with popular content creation and playback software on the Web.

Even by Internet standards, the speed of Macromedia's turnaround has been impressive.

Once a struggling maker of interactive software for CD-ROMs, Macromedia saw its revenues dry up and its shares plummet to 6.5. Only a few years later, the San Francisco-based company is a billion-dollar firm making a profit with popular content creation and playback software on the Web. Macromedia's stock today is up 2.1 percent to 39.56.

The company's turnaround came a year after the November 1996 arrival of chief executive Rob Burgess, a former senior vice president at Silicon Graphics, who took the helm at Macromedia as its stock was sliding to its all-time low.

"We were betting the whole company on the fact that if you looked at the Internet, it was mostly slow, static, silent, and with not much graphics," Burgess said in an interview. "And we were making a bet that it was not going to stay that way."

One of Macromedia's competitors with roots in the desktop world is Adobe, which also turned its sights on the Web and has seen its stock surge as a result. Adobe's Illustrator software for vector graphics creation competes with Macromedia's Freehand tool. Adobe also recently acquired GoLive, which makes a Web design tool that competes with Macromedia's Dreamweaver.

On the whole, Burgess said, Macromedia is more focused on moving interactive media while Adobe concentrates on more static pages such as the popular Acrobat reader. Still, as Adobe hones its Web strategy, the companies are running up against each other.

To that end, Macromedia plans to announce Monday at the Seybold Web publishing seminar a free plug-in for use with Illustrator that lets users convert their files to the Flash format.

The shot at Adobe reflects an understanding at Macromedia that the same Internet rollercoaster that brought it so high so fast could do the same for a competitor at Macromedia's expense.

"Competition seems to be stepping up from Adobe," said Jay Vleeschhouwer, an equity analyst at Merrill Lynch who recently reiterated his near-term "accumulate" and long-term "buy" ratings on Macromedia. "Is there enough to go around for both in this market for the foreseeable future? Probably. But at one point we run into some kind of market maturity for Web authoring tools."

Another challenge for Macromedia is delivering on its content ventures, including the Shockwave.com site for content created with Macromedia's Director authoring tool. Shockwave plays back more advanced animation and multimedia than Flash and is geared for higher-bandwidth environments.

"Shockwave.com is an interesting undertaking, but they need to show that financially it's working in terms of generating advertising and revenue so we have some expectation of profitability," Vleeschhouwer said.

Macromedia this week said Shockwave.com had registered its millionth user and beefed up its Shockwave.com staff with the appointment of Stefanie Henning as vice president of content acquisition and head of a new Los Angeles-based office. Henning comes from International Creative Management's new media division, which she founded and led for the past five years.

Burgess's bet on the Web paid off in large part because the company's software engineers focused on technologies that worked on low-bandwidth environments, since most consumers access the Web via relatively slow dial-up connections. Macromedia moved in on a market that by and large was using tools born in the desktop software environment and ported over to the Web.

"People were using old software for desktop publishing and it was too slow, big, and cumbersome. That's where Flash and Dreamweaver found a home," he said.

Flash is software for creating and playing back basic animations in low-bandwidth environments. With a presence on more than 80 percent of Internet-connected computers, many refer to Flash as the de facto graphics standard on the Web. Dreamweaver is Macromedia's Web page building tool.

In another successful move to popularize Flash, Macromedia has gotten its technology included in both leading Web browsers, Microsoft's near-ubiquitous Windows operating system, the Macintosh platform, the software for America Online's proprietary online service, the Excite@Home online service, and Microsoft's WebTV.

Macromedia also published the Flash file format so that makers of various Internet-connected appliances and devices can use it. Macromedia engineers recently got the technology running on the popular PalmPilot device, and Burgess said a third party recently showed him Flash running on Microsoft's Windows CE operating system for small computing devices. Three hundred fifty companies have applied for free use of the source code, Burgess said.