Adobe Systems Inc.

1. Adobe Systems Inc. internet business models text and cases Anup Sharma

2. Index • Introduction • History of the Company • The Expansion Phase • Industry Overview • Get Big Fast • Trouble in late 90’s • Recovery and success story

3. Introduction • Adobe Systems Inc. is a leading developer of desktop publishing software. • Software products--Photoshop, Illustrator, and PageMaker. • Acrobat Reader, which allows Internet users to view and print portable document format (PDF) files free of charge. • Caters to PC manufacturers, designers, publishing houses and end consumer.

4. Origin. • Founded in 1982 by John Warnock and Charles Geschke. • Both former employees of Xerox Corp.'s Research Center. • Warnock conducted interactive graphics research, while Geschke directed computer science and graphics research. • Reason for start up- Frustrated by Xerox's policy of keeping the technology proprietary, because of the difficulty in getting the products out of the research stage.

5. Origin. • Believed that opening a new venture which would commercialize technology will be profitable. • Bill Hambrecht, one of Warnock’s advisors helped fund the venture. • Named the company after a local creek.

6. The Post Script Era • Introduced PostScript, a powerful computer language that essentially described to a printer or other output device the appearance of an electronic page, including the placement of characters, lines, or images. • Post Script supported multiple resolution, i.e same software application could print on a 300 dpi laser printer as well as on a high end 5000 dpi image setter. • Users could produce polished, professional-looking documents with high-quality graphics. • Adobe marketed and licensed PostScript to manufacturers of computers, printers, image setters, and film recorders

7. Post Script Era • In order to encourage the use of post script, Adobe gave it for FREE!!! • Strong technical support was provided to third party users for proper usage of post script. • In 1985, Apple Computer, Inc., maker of the MacIntosh computer, incorporated PostScript for its LaserWriter printer

8. Post Script Success.. • The applications supporting Post Script increased from 180-1986 to over 5000 -1991. • In 1986, Adobe signed an agreement to supply Texas Instruments Inc. with the software for two of its laser printers, producing the first PostScript-equipped printers made for use with IBM-compatible personal computers. • Used by corporations, professional publishers, and the U.S. government. • Became one of the most ubiquitous computer languages worldwide.

9. Cont. …. • To supplement Post Script, adobe introduced a software technology known as Type1, which provided digital type fonts that could be printed at any resolution. • 1986; went public to include the customer base of IBM and Digital Equipment Corp. • 1987; the company introduced the Adobe Illustrator, a design and illustration software program enabling users to create high-quality line drawings.

10. Cont… • Acquired Photoshop, for digital image editing in 1989, and Aldus Page maker in 1993. • A breakthrough in the long struggle for what computer buffs called 'WYSIWIG' (What You See Is What You Get) • Ownership and leveraging of Post Script brought huge returns: • Sales $ 2.2 M - $762 M from 1985-1995. • Compound annual Growth rate of 70% • Share price increased by approx 30%

11. Expansion Phase • Next on Agenda- International Markets. • Company signed an agreement with Canon Inc. of Japan, leading manufacturer of laser printers, under which Canon had full licensing rights to Adobe PostScript. • Introduced Adobe Type Manager, used Adobe's outline fonts to generate scalable characters on screen. • Success reason-Strategy of marketing and Licensing technology to original equipment manufacturers such as Apple.

12. PDF (Portable Document Format) • Introduced the first version of Acrobat on June 15, 1993. • Enabled users to convert electronic document into a universal document which could be displayed and printed as it had in its original application. • Also supported graphics and images. • Initial Cost for Acrobat Reader was $50 each. • Acrobat Exchange @ $195/- or Acrobat Distiller @ $695/-

13. PDF • Initial sales were low which came as a surprise. • Change in strategy to provide the reader for FREE.. • Goal was to set reader as a standard for exchange of documents on the internet. • The strategy proved fruitful and acrobat got great publicity.

14. Marketing PDF • 1994, AOL made it available to its users. • Relationships with computer vendors such as Compaq, Dell and Sony to preload reader on PCs. • 1995, free download was available from Adobe.com • IRS forms first available online in 97 were in PDF. • Cashed the opportunity of the need of document Integrity along with online presence.

15. PDF Success and enhancement • By July 2000, 197 million readers had been downloaded. • 11 million unique visitors for Adobe.com • Adobe exploited the huge traffic on the website to sell bundled products. • Adobe kept updating the software by launching newer versions such as Acrobat 2.0, 4.0 and so on.

16. Success Cont. • 1999, targeted office users by launching Adobe Business Tools. • The aim was to facilitate the usage of the electronic documents within an office. • Allowed business users to mark up PDF documents electronically, digitally authorize and sign documents. • An attempt to offer value proposition to B2B process.

17. PDF Enhancement • Adobe Distiller, enabled high volume conversion of post script data into PDF format. • PDF Merchant, August 1999 , server based technology to enable websites to sell documents without the fear of illegal copying. • It encrypted PDF files which were then unlocked through web buy. • Sold Merchant for $5000, plus transactional royalty in an amount equal to 2% of the transaction or $.05, which ever is greater.

18. PDF Success.. • Fall 2000, 100 million copies with web buy had been downloaded. • Sales of Acrobat had taken off and increased over 100% between 98-99. • By 2000, 20% of sales revenue for Adobe was from Acrobat family. • Widely used among government and private sector.

19. Ebook market • Primarily used for electronic reference manuals. • Spread to PDA’s for professional reference material. • Increased publicity in the text book market due to features such as customization and keyword searches. • Overall performance was still under question.

20. Value to Players involved • Authors • Ability to bypass the publisher and get straight to consumer through website • Unknown authors could publish without screening. • Publishers • Reduction of the major costs of printing, warehousing and distribution. • Online Bookstore - Different revenue models such as subscription, per book charge or advertising model. • Device Manufacturers - Convenience and different market segment benefits

21. Adobe Vs Microsoft • Microsoft was one major competitor in the ebook business followed by Gemstar. • Both were pursuing relationships with publishers, hoping to pre-empt alterative formats. • Besides Microsoft’s exclusive deals with major publishing house was not a threat because of first mover advantage and reputation. • Other major chases were for BarnesandNobles.com, Simon & Schuster, Amazon. • Adobe’s Acrobat had an edge over Microsoft’s reader because it was printable.

22. Trouble in late 9O’s • Due to certain unfortunate acquisitions, Adobe’s sales experienced a downturn. • Revenues fell to approx $1O1M in 3Q. 1998 from $179M. • Competitors such as Microsoft Corporation took away precious market share. • In 1997 Hewlett-Packard chose to stop licensing PostScript from Adobe when it developed its own clone version of the software. • Economic recession in Asia, sales in Japan, one of Adobe's stronger markets.

23. Recovery.. • Company planned to eliminate about 12 percent of the work force, about 300 people, including several top executives. • Concentrate more heavily on corporations and businesses, which represented a wider and more profitable market. • Adobe successfully fended off QuarkXpress professional publishing software, attempt for an hostile takeover. • Huge investments in marketing efforts.

24. Recovery. • In 1999, introduced new version of Photoshop, Go Live, Press Ready, Active Share, and In Design {high end design software}. • Record sales of $267M in 1999 and $1 B in 2OOO.

25. Get Big Fast… • Network effects • Extremely strong : business goal was to make a standard which is impossible without network effects. • Economies of Scale • Increased number of users result in spreading of costs and basis . • Customer Retention - Cost of switching, walled garden, one stop shop etc.

26. Some concerns facing Adobe • Should Adobe concentrate more on the international markets than Americas? • Most of the company’s products are in their mature stage, given the fact that they have been updated several times in the past. Moreover, for such products it is difficult to keep updating them by constantly adding new features without customers becoming suspicious. • Where to compete with giant Microsoft and where to back off, is offering FREE really working? • Self destruction to due increased size and functionality.

27. Why Adobe Made it.. • Significant first mover advantage over Microsoft and Gemstar. • Leading player with a strong brand name • Financial position • Strong customer loyalty and R&D support • Strategic business alliances

28. Today • Adobe stays as a leading provider of desktop publishing software and business tools and solutions. • Adobe PostScript, Adobe Photoshop and Adobe Acrobat are still hottest in the market. • One of the major partnership are with Macromedia to be settled by December 2OO5. • Major Competitors are Quark Inc.; Corel Corporation; Microsoft Corporation. • Subsidiaries in Europe, Japan, Asia, Australia and UK.

29. Q U E S T I O N S ????/