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Making Macromedia's $360 million bet pay off

For Jeremy Allaire, the merger between his company and Macromedia offers an opportunity to build on long-held visions and ambitions.

After Jeremy Allaire founded a software company in 1995 with his brother, the eponymous start-up quickly became a leader in Web application server development.

Allaire also became one of the hottest stocks on Wall Street, soaring well north of 100.

Then the Great Tech Correction of 2000 happened and the company's shares suffered along with the rest of the Nasdaq. Last week, the company agreed to merge with Macromedia in a deal worth some $360 million.

But for Allaire, who will become chief technology officer of the combined companies, the merger offers an opportunity to build on the vision and ambitions that fired him and his brother J.J.--but on a much broader canvas. The challenge will be to find a way to nurture and expand the front- and back-end Web development plans offered by the respective companies.

And then there is the matter of taking care of a huge developer community, which at least at first is going to need a lot of handholding through what promises to be a delicate transition. Allaire talked about the deal in a recent interview.

How do you envision the merged companies pairing up their respective products--DreamWeaver and Flash on the Macromedia side, with Allaire's developer-focused tools, such as ColdFusion and JRun?
The product lines are really complementary. Macromedia has focused very strongly on the authoring side, on the user interface, on the user experience. But they never had the server side, which is the deployment engine for this technology. And that's where this deal will come together.

The core tenet for both companies is that developers are champions. We had authoring tools for coders; they had authoring tools for designers. So, very clearly, there are very interesting ways we can take the companies' respective tools to make them stronger.

Talk specifics. How are you planning to go about making that happen?
There's a process, though we're still operating independently while the deal goes through SEC review. Obviously, we're going to try and get the best and brightest minds we have together to figure out how to make the two sides work better together.

If I did my math correctly, the soon-to-be-constituted Macromedia product line will command a composite base of 2 million developers, everything from Web designers to Java programmers. That's a new world order. How do you make sure all those developers get the proper TLC and you don't wind up screwing it up?
The core tenet for both companies is that developers are champions. One thing (Allaire and Macromedia) did great was to build strong developer programs for their product lines. These are strong organic cultures...The challenge is to strike a balance between making sure those products stay on a good trajectory and bringing those communities together.

What do you expect will be the biggest benefit to users?
For our customers, the biggest benefit is that it will become significantly easier to create compelling user experiences, based on the richness of flash players and authoring tools.

Help me out on one point. Allaire enjoyed market leadership, but nonetheless continued to run up losses for several consecutive quarters. Where was the disconnect?
We've had to reset expectations with Wall Street. As an Internet software company, we turned profits for three quarters--although by thin margins--but as soon as we experienced this downturn, we lost money. But that was only a couple of million on $100 million-plus in revenues. The most important thing for people to look at is the combined company and how profitable it will be.

OK, but at the outset, management is going to have to make some choices. DreamWeaver and ColdFusion and JRun Studio overlap in that they offer Java Server Pages and all have HTML design features. What do you plan to tell users about which product to use for what?
DreamWeaver is very focused on visual design. As soon as you want to work with code, you have to go to Studio. And we've already built in the hooks for that, so already, we have a story for customers today. Going forward, (we) want a suite of tools that will be very well integrated. Specifically, what features get ported we'll leave to our product teams and feedback from customers about what they want.

Will you need to pare down the combined product line?
I don't think so.

What we are presenting to industry and Web developers is a dream. But now we have to deliver on that.What's going to present the biggest challenge to the reconstituted company?
What we are presenting to industry and Web developers is a dream. But now we have to deliver on that. People are going to be looking and watching us. If we fail to deliver on that promise, or do it in a half-assed way, that's a real risk. Over the next 12 to 18 months, we need to show visible progress in the technology.

Your stock's 52-week high was $92. And last year, your shares were easily north of $100. Is it a disappointment to have to sell out for a deal worth only about $360 million?
I'm pretty rational about the marketplace and Wall Street. If you had asked me the same question when our stock was about $50, I would have had a different answer. (Laughing) But there's been a major reset and you can't deny that and play in Fantasyland. This year will be one of consolidation and intensified competition, and we wanted to come out as a stronger supplier.

Knowing what you now know, how do you think the company's fate would have evolved had you remained private? Do you ever wish you had remained private?
No. Going public was extremely important to us in terms of our credibility and ability to recruit.

When did you first come to the conclusion that it made sense to hook up with another company in a merger?
We've worked with these guys for several years and talked on and off about how to get together. But we never had the right timing. We saw the shift in forces in the last year and got involved very closely with each other. The agenda became clear very recently.

You and your brother came out of Minnesota in order to be closer to one of the high-tech coasts and build a company. What do you do now?
Ironically, Macromedia has a big and growing presence in Minnesota. But I'm staying east, raising my family in Boston.