Saturday, August 18, 2007

Adobe Market Share Analysis

When we think of Adobe, we think of PDF files (Portable Document Format). As well we should. Adobe owns the market when it comes to the graphic and text files that we download from the internet. We take it for granted the universal use of the PDF file. It was marketing genius for Adobe to give away its document viewer. There is a download link on most of the internet pages that post PDF files. Before reviewing Adobe’s products in relation to its competitors, it is important to know the history of the products Adobe offers today. Today’s market analysis will look similar to what Adobe’s managers were faced with throughout much of their history.

The founders of Adobe left Xerox to develop and sell the Postscript page description language. Apple licensed Postscript and desktop publishing was invented. Adobe marketed digital fonts. However competitors Apple and Microsoft introduced competing fonts. Adobe developed the Adobe Type manager to try and stay in the market. Over the years Adobe had to concede the market to OpenType font format.

Adobe developed the Adobe Illustrator software package for Apple computers. Illustrator competed with, and stole the market share from Apple’s MacDraw. Adobe’s follow up product to Illustrator was Photoshop. Photoshop was Adobe’s mainstay graphic application and quickly dominated that market.

Adobe did not immediately capitalize on Photoshop by expanding it into the desktop publishing market. Because of this, they lost market share. Unable to develop what they needed in house in a timely manner, Adobe used the profits from earlier success to purchase what it needed. Ultimately they released FrameMaker which was a fully integrated desktop publishing program.

This leads us to Adobe’s most important products today, at least from a market analysis point of view. Adobe’s market focus should be in two main areas, one concerning its Acrobat products, the other concerns its Creative Suite product.

Adobe needs to maintain its PDF files as being the defacto standard for use in product manuals, scanned documents, any document on a web site that all down loaders can open with the free Acrobat Reader. The money stream for licensing the format and selling Acrobat must continue well into the future to support internal software development and company acquisitions. This is the same model that was used for years with the Postscript product. The cost per user is small, but the number of users is very large. It is like printing money.

There is a dark shadow falling on Adobe in the form of competition from Microsoft. Microsoft has developed a file format that competes with PDF, the XPS (XML Paper Specification) file. Microsoft has made this format available as an open source standard. To aide in making it popular, Microsoft has bundled Microsoft XPS Document Writer into its Vista operating system. XPS Document Writer is their equivalent to Adobe Acrobat. Users of Windows XP can download and install the SPX viewer from the following link

http://www.microsoft.com/windows/products/windowsvista/features/details/xps.mspx

Microsoft’s marketing model is to give away the XPS viewer program to all XP users. The XP viewer is the equivalent to Adobe Acrobat viewer. They then bundle Microsoft XPS Document Writer with all future Windows operating systems starting with Vista. Their dominance of PC operating systems guarantees that XPS will be widely used. Microsoft is also pushing XPS as an open source format so that other companies can use it free of charge. Microsoft is trying to eliminate Adobe’s PDF format.

What can Adobe do? It doesn’t hurt to be king of the hill right now with their Adobe Acrobat products. Adobe Acrobat reader is installed on nearly every PC. Adobe is able to advertise and offer new products to consumers every time an automatic update takes place. If they can improve the functionality of Acrobat while keeping the cost down, they can maintain an advantage over Microsoft (see following text concerning India). Adobe should be able to keep its products fresher than Microsoft. XPS is tied to an operating system and users do not all update their software.

The Adobe Creative Suite integrates Photoshop, Illustrator InDesign and ten other programs into one package. The Suite costs less than the combined price of purchasing each program by itself. The package is becoming more capable and more tightly integrated with each release. Professional customers appreciate being able to do all of their work within one integrated package. Customers needing the full functionality of the suite also appreciate the price break.

Competitors of Creative Suite is the open source AJAX , QuarkXpress and Microsoft’s new Expression Web. Ajax and QuarkXpress are not nearly filled with the features that Creative Suite boasts. Expression Web is Microsoft’s replacement for Front Page. At this time Creative lab has the lead on all of these products in terms of capability.

To summarize, Adobe must keep its costs down while maintaining the lead on the capabilities of its products. It cannot compete with free products on price alone, it must innovate. This requires a two prong approach. For the bulk of its software development it must use offshore software engineers. Adobe already has an R&D facility in Bangalore India. Adobe must leverage low cost labor for the bulk of its development work. That will keep costs as low as possible. Adobe must then innovate in its experience American facilities, or if necessary it must find and acquire companies who have integrated products. Low cost, and the best innovation will be needed to ward off open source software and Microsoft. Don’t count Adobe out, they have been in the game for 25 years and will not go down without a fight!

2 comments:

Lorre Zuppan said...

Adobe does not yet realize it has competitors, behaving as if it is the only game in town. Whether calling purchase and support lines, browsing their web site or chatting online with a representative, everything they do is oriented toward their corporate perspective. Nothing is oriented toward or considers their customers. Adobe is going to continue losing market share to competitors until it addresses this issue.

Microsoft is going to need to improve the XPS interface and file szie before it's widely adopted, but it's a good start. This is one area where competition can only help.

Senor Kyle said...

Strategists are in love with the innovator's dilemma. Most people think that in order to retain or grow market share, you have to innovate. This is true up to a point.

For example, I purchased Adobe's Creative Suite 3 Design Premium that features products like Illustrator, Photoshop, Dreamweaver, Indesign, etc. I am not a graphic artist nor a photographer, but I've used the programs for web development and some small logo design. I am pleased with the overall capabilities of the Adobe CS3 programs.

Last year CS4 came out, and I debated whether to upgrade. I realized that the changes to the programs in CS4 were nominal and hardly noticeable for a intermediately skilled user like me. So to me and thousands of others out there who aren't experts with Adobe software the CS4 upgrade cost exceeded the benefit.

The bottom line is how will Adobe sustain/increase market share when less and less people are going to shell out $ for the upgrades when they're perfectly content (as I am) with their current program version? The answer is innovate into new products or new markets, because I just don't see their existing products getting incredibly better (because they're already amazing)

Anyway, my 2 cents