Adobe versus the world

CEO Bruce Chizen faces Microsoft on one flank and open-source on the other one. But is he worried? Not a bit.

Mike Ricciuti Staff writer, CNET News
Mike Ricciuti joined CNET in 1996. He is now CNET News' Boston-based executive editor and east coast bureau chief, serving as department editor for business technology and software covered by CNET News, Reviews, and Download.com. E-mail Mike.
Mike Ricciuti
7 min read
Does Bruce Chizen know something that other software executives don't?

Adobe Systems' chief executive is taking his company more deeply into the slow-growth enterprise software market. His company's products continue to command top dollar while other desktop software prices plummet. In fact, the company last spring reported its most profitable quarter ever. And he's--so far--managed to stay friends with Microsoft while simultaneously trouncing the world's largest software maker in the electronic-document market.

There are some clouds on the horizon, of course. Microsoft will--someday--get it right. And competitors to some of Adobe's most popular products are appearing from the open-source community, with more sure to come.

But Chizen, who took over as CEO from company founder John Warnock back in 2000, has a plan. He spoke with CNET News.com about industry consolidation and Linux on the desktop.

Q: Many people have come to expect software to be free or very inexpensive. How have you avoided that trend, and do you think that will last?
A: I get a lot of questions about what open source means to Adobe, and the reality is there have been a number of products out in the open-source marketplace that have competed with products like Photoshop, Illustrator and PostScript, and others. Yet customers are willing to pay for innovation and quality...I think that's what has enabled us to do well and grow as a company, unlike some of our competitors. Clearly, the software industry is consolidating, and it's great that Adobe is in a place where we don't have to consolidate.

Sometimes you have to wonder whether independent software makers and the proprietary software world will still be around in a few years.
We would like to think so.

It looks like adoption of Linux seems to be happening more with the business community than the creative professional.
Can you talk a little bit about changing software-licensing models? How do you view things like software and service, or software and, you know, on-demand? Do those trends affect Adobe?
They do. I think a lot has to do with how rapidly broadband capabilities increase. So at today's speeds, the power on the desktop is significantly greater than what kind of capability you could get by having an application that runs on a host, vis-a-vis a broadband connection. In fact, we have a service today up in Adobe.com called "create PDF online" where people send us their document and we convert it to PDF (Portable Document Format). That does well because it's pretty simple and doesn't require a lot of bandwidth...Three, four, five years from now, that will change, and you will see more and more applications that can be host-based.

Adobe has been making a push to increase its presence in enterprises. Acrobat and Portable Document Format are a big part of that plan. Can give me an update on how that's progressing?
There are two ways that we will make PDF more of an enterprise play. One continues to be at the desktop with Acrobat...A second way is clearly with our server products, where we have specific products to help with the creation of PDF documents, the business process rules, and management of the documents, as well as the extraction of information from those documents.

How did you change the mind-set within Adobe toward catering to big companies? Isn't that a major shift for you?
Well, it's a shift. This is going to sound strange at first, but I think about a company like Honda and what they were able to do over time. They build great engines and have an excellent manufacturing processes. That's their core competency, and they figured out how to grow from a lawn tools company to a motor scooter company to a motorcycle company to a small-car manufacturer, to a large-car manufacturer, to luxury-car manufacturer. And now they're manufacturing jet engines and they're working with GE on a small personal aircraft.

Well, the same is kind of true with Adobe. We went from being a provider of PostScript and printing systems to providing solutions for creative professionals...for digital photography, and now we're providing solutions to the enterprise. We've had to change some of the ways in which we sell; we've had to change the way we do business in terms of contracts, financial terms, partnerships, how we advertise our products. But quite frankly it's no different than the

transformation we had to go through when we went from being a PostScript company to being a shrink-wrapped applications software company.

Sticking with the analogy, what do you see as your Honda-like core competency?
It's software that helps people and organizations communicate better, and when I say better, it's where the information needs to be more impactful, more reliable, more secure. It's where the presentation of the information is important.

There was a lot made of Microsoft's decision to get into the electronic-forms market and the potential for head-to-head competition with Adobe. Have you seen any increased competition with Microsoft as a result of products like InfoPath?
I don't think so. At least, we don't hear much about their current offering. I don't hear much about (Microsoft's) success with products like InfoPath, and I don't think it really met the target...I do believe that as they make progress, or try to make progress with the long-haul components, that they will look to do more things similar to what we do today with PDF.

We have been at this now for about 10 years and PDF has become such a standard around the world that it is going to be really hard for many organizations to change their mission-critical workflows. If you just look at the number of government agencies around the world that already encourage the use of PDF and accept it as a de facto standard, it's pretty hard for me to see how Microsoft's going to come in and just unseat all those workflows. But they are Microsoft and they do have $40 billion in revenue and...

They do have a platform advantage, right?
They do have a platform advantage. They do have a monopoly; that's what the Justice Department said. But, you know, I think we're in pretty good shape.

While we are on the subject of competitors, what about Apple? Do you see Apple as a competitor? Partner? Both?
They are clearly both a partner and in some cases a competitor. They're an important partner in that about 25 percent of our business comes from people who own Macs. That's a very loyal customer to Adobe and a very important customer as well. That's also a very important customer obviously to Apple. So it's in both of our best interests to partner, and I think we do a pretty good job of it. If you look at which software company had more OS X applications available before anybody else, it was Adobe. If you look at how we optimized for that platform, it's probably more so with Adobe than anybody else; we're probably the largest ISV (independent software vendor) for the Mac. There are some places where we do compete...in particular in video, and we have agreed to compete. And we compete ferociously.

It's pretty hard for me to see how Microsoft's going to come in and just unseat all those workflows.
Has that percentage of your business from Mac users been pretty much holding steady?
For Adobe holistically, it's decreased. A big reason for that is the success that we've had with Acrobat and the enterprise business because that is predominantly a Windows business.

What about Adobe's plans on Linux? We reported last fall that Adobe was recruiting a head of Linux market development, and I know that you announced a Linux version of Acrobat Reader recently. Is that just a toe in the Linux water at this point? Or is there enough demand for Linux versions of your other products?
Yes, so first of all most of our servers (software products) that we make available at the enterprise level will work on top of Linux. In terms of (the) Linux desktop, that is one where I think you characterized it correctly. We're dipping our toes in the water, we're listening to our customers and we're watching and we are trying to learn. We are looking at what other applications might make sense.

The reality is, today, other than some vertical markets and some emerging markets, there aren't a lot of corporations that have moved to a Linux desktop. So we're listening to our customers, we're trying to understand if they're going to move and when. We see a lot of people who were traditionally on Unix workstations doing video type of work, moving to Linux. We see a lot of people who have vertical applications, manufacturing, customer service, move, and then we're seeing some government agencies around the world move, but we?re not seeing a lot of our traditional customers moving.

So, what products that might make sense there? Would that be things like Photoshop or...?
What we're trying to do is look at who is moving to a Linux workflow and then say, "OK, what applications will they require?" If you're a government agency, a bank or insurance company or any other large enterprise and your citizens or your customers or potential customers for whatever reason have a Linux desktop, you want to make sure that the document that they're trying to interact with works well. You want to make sure that you support the ability to save the information so all of the rich capability we have in the current Adobe Reader for Windows and Mac, you will see on Linux, and that will interface with our server products--so that's absolutely something we will do and are in the process of doing.

That's a definite plan on that?
That's a definite plan. It looks like adoption of Linux seems to be happening more with the business community than the creative professional. There's still a lot of Macintosh users there...people who are very comfortable with their operating systems. So there's not a compelling reason to switch. I think the one place where we're seeing switching going on a little bit is in some of the emerging markets like India and China. But quite frankly, for us, those are relatively small markets because of some of the piracy issues.