ONCE hailed as the graphics software king, Adobe is going through a transformation that has seen it repositioned as a digital media and marketing technology company.
Led by Shantanu Narayen, who has been at the helm since 2005, Adobe reported revenues of $US1.045 billion ($1.01bn) and $US185.2 million in net income for its fiscal first quarter ending March 2.
Narayen, an avid cricket fan, shared his vision exclusively with The Australian at the Adobe Digital Marketing Summit in Salt Lake City, Utah last month.
THERE were mixed reactions to your Q1 results. What is your view of the reaction?
I think when we look at the opportunities for the company, we have refocused, as you know, on digital media and digital marketing. And in digital marketing, we had significant growth, over 30 per cent growth, so we are very pleased with the results. The message about digital marketing is clearly resonating in the marketplace. We also successfully closed the acquisition of Efficient Frontier during that quarter. In digital media, I would say we were in our range and earnings were solid. But what we clearly hear is there is anticipation building for the next version of Creative, which (we hope) will be out this quarter, so we are excited about that.
DO you think the arrival of new products is going to enhance the Adobe name?
There is no question that, as we continue to deliver on this vision we have set for ourselves, the market will respond favourably to us growing the business, transforming it and being a more material player in digital marketing. I think we have a strong year ahead of us.
YOU are taking a leadership role in terms of the commitment to digital marketing: 74 per cent of your own marketing budget is spent on digital. Is it a gamble to put so many eggs in the digital marketing basket when so many marketers and even consumers are reliant on old forms of marketing: TV, newspapers, magazines?
Adobe traditionally hasn't done much television advertising and when we think of our customers - the creative professional customers, knowledge workers within an enterprise, enterprises for digital marketing and consumers - we do a lot of research to understand how they learn about our products and how they buy our products, what the criteria is for adoption.
We have clearly recognised that in order to get information about our products, people go to websites, so moving online is a fairly natural thing for us. All of our customers are digitally literate and they are using this online, so it is a natural way. When you think about how they make the purchase decision, it tends to be reviews. That tends to be one of the highest predictors of commercial success. They are looking at specialist magazines, review the products and then they look for references.
For us, in addition to walking the talk, it always starts with let's look at the customer: how do you attract customers to your platform? How do you communicate? How do you inform, how do you support? And for that, in the tech business, more and more of that is online. So I think we have to push the envelop in that regard.
DATA and the ability to manage data is a huge part of Adobe going forward, and the portability of that data and not having someone locked to a particular platform or even a place. What is the challenge in delivering data to customers in a way that isn't overwhelming to them? How are you going to manage the transition of you customers into a data world?
You are absolutely spot-on with the need for data to be more actionable and easier to use and understand. What we are doing is, we are rethinking roles and personas, and that is one way in which you make sure, depending on your role, you get the most appropriate piece of information or data available to you. You also have to start to understand where data is reporting (from), and where can you actually make that data actionable and easy to understand. And so we have invested a lot and need to continually understand the user, what the user case scenario is, how to make that data actionable, where it can be automated. I think that is the way in which you simplify this overwhelming volume of data that you otherwise present. Are we providing insight rather than raw data? Are we providing it in a way that can be actioned rather than just presenting it as information. Those are the things we are working on.
A LOT of these tools will empower marketers with measurable data. Is that one of the things that you see as significantly lifting the role of Adobe?
I do think that in the enterprise (segment), the marketer is a category that has not been targeted as directly as Adobe and other companies are doing right now, to make them empowered to use technology to better service their customers. I do think the discussion in the boardroom is increasingly about what is the return on investment on the marketing I am spending, and are we continuing to make sure that our brand is as differentiated as it needs to be.
There is no question that a CMO (chief marketing officer) within an organisation is increasingly worried about businesses moving online, about a direct relationship with customers. They are getting more empowered and so somebody has to step up and make sure we provide the right technology for that. We are doing it and I think other companies will also wake up to this big opportunity that exists. If you think about the hundreds of billions of dollars that are being spent, the reality is there isn't a good handle yet on what the exact ROI is from all of that stuff. So we think that the confluence of art and science, the brand and the art associated with creativity and the science, there is no reason for these two not to co-exist. That is what we want to do.
YOU are putting a lot of effort in the predictive modelling in your products. Any sense that might be a dangerous path to go down, a truly predictive model? It's a bit of a gamble, isn't it?
I don't think so as long as you can tie spend to business impact. The acid test is: can you measure exactly what is happening and is it better than any of the systems you have today? I think if you use that criteria, the ability to measure is becoming better than ever before and therefore the ability to predict is getting better than ever before. Again, I don't think it ever eliminates the need for human intuition, human judgment and human aesthetics, but I think it just enables them to do their job more effectively. Look at companies that have done fixed-price auctions. That is predictive. Companies that are doing automated bidding for financial systems. They're using technologies that have actually been used in different fields and now applying it in marketing.
WHAT about pricing? You are moving away from a perpetual licence model. What challenge do you face continuing to charge a premium versus the need to get products out to as many companies and consumers as possible?
I'm assuming you are talking more about our digital media products. First, I believe that if you look at the value of our products for somebody who is a graphics artist, who is using Photoshop as a mission critical application, I think it is actually incredible value. If you go to financial systems and think about how much you might spend on a Bloomberg or if you go to other careers and think about how much you spend on software, I think our spend (cost) is a fraction of the value we provide. These are mission critical applications in the publishing industry and the marketing industry.
Attracting the educational student has always been a focus for us as a company and that is why we do want to make it easy for them to adopt our platform. So I think over the years we have actually done a good job of making sure that we provide value for the products that we deliver.
Specifically, we are offering it now increasingly as a monthly (subscription). With a number of the customers today, it's like buying a car versus leasing a car. This just broadens the adoption potential for us with new customers and that is part of the reason why we are moving to subscription. Subscription also allows us to innovate faster rather than have these monolithic product releases every 12 or 18 months. We will continue to offer that for those customers who prefer to stick to that option, but we think a better option right now is to continuously innovate with all the changes that are happening, with screens, with social, with formats.
THE market has been so dynamic over the past five years, the rise of the tablet, the rise of apps as a way to do business, the rise of mobile platforms. Are we potentially approaching a period of calm and things settling down?
I think the frenetic pace is going to continue for a little bit longer. What you have seen is a leap in the computing power available on a mobile device and I think software still hasn't caught up. There is so much room for innovation to provide more value in that. I think the pace will continue. It is an exciting time. Social networks are still trying to find out how they can provide more functionality to their customers. Businesses are thinking about how they can take advantage of social, so I think the next few years you will continue to see a torrid pace of innovation.
SOCIAL is a place where you really want to make a mark and particularly the ability to manage campaigns in real time. What has the challenge been in getting you developers on top of the growth in social, how they can measure it and get the products out there?
Social impacts us in multiple ways. Let me address two. In digital media, for our products, how we introduce the community into the products. Whether it is to help train others or provide collaborative services is a continued area of focus for us, and with the creative cloud, I think you will see the community become more a core part of the offering than it has been in the past.
In digital marketing, every CMO is asking themselves, "What should I make of social?" Because communities are more vocal than they have been before. It's more real time than it has ever been before, the viral nature of what you can do on social is unparallelled with prior generations of technology. And so if you are a creative marketer you are trying to make sure that this is used as an asset in your marketing campaigns.
Our job in the digital marketing suite is to ask: how do we measure sentiment for your brands in the social networks? How do we analyse what you do on your website? What's the impact in social networks, how do we truly attribute the value of marketing spend on a social network where it is not tangible because it's not happening on your website?
I think there are so many areas in which social is going to impact marketing. In analytics, in marketing spend, in understanding attribution, in being a vocal community for your products. Our job is to continue to provide great technology to enable you to address all that. Every website not only has its own web presence, it has a presence on a social network. We can help you manage that brand presence. We can help you understand the sentiment of what is going on there. I do think every marketer should be thinking more about how to take advantage of the phenomenon - the wisdom of crowds.
YOU have had a busy year in the acquisition stakes. How important does acquisition remain on your navigation chart?
I think every tech company of any size has to understand how they are doing in organic innovation, how they are driving organic innovation and new products, and we are no exception. Products like social analytics and Edge and digital publishing solution are all brand new to us and we have created them organically. And you have to look and see other external assets that help you with people and technology and that round out your offering faster than you could do before. The core part of both the digital marketing suite and the creative cloud, we think we now have. And so our focus will continue to be on integration and on driving more predictive (technology). So we don't anticipate doing any more large acquisitions, but I think we are always interested in seeing if there are small, creative, nimble startups that have built pioneering technology and have great people.
HOW do you see the next five years going forward? Do you have a sense of what you might see develop or what you might like to see develop?
Going back to the question of pace of innovation, I think in every generation of technology you had one tectonic shift, and what is unique about what we are all experiencing right now is the move to cloud and the move towards mobile devices and the move towards social are all happening at the same time.
And the ability for people to innovate on a global scale is also something very unique. Silicon Valley used to be the place where a significant amount of innovation happened. Now it is a global phenomenon.
I look at those three key vectors in the two areas where we are really focused, which are digital marketing and the whole content life cycle, and ask: how do we continue to innovate? How do we make it easier for people to create content and get it out on as many devices to as many people? How do we help them manage all of that content across these different locations? How do we measure it, how do we help them monetise it?
Because monetisation is going to increasingly move towards IP networks from more proprietary networks.
That is the area I would consider myself invested, to make predictions. I actually think you are going to see more disruption before this settles down.
What are your views on mobile? It is seen by developers as a much lower margin space. Is that a challenge for you?
In all businesses it's a combination of the volume and the revenue per unit and I think mobile just opens up digital possibilities for hundreds of millions of people who would never have been on a PC before. I think the price points are potentially lower but overall the market size is increasing. And let's remember, PC sales continue to be very vibrant. If you see what happened even in PC sales last year we continue to see growth. I think it's the creative companies who are going to figure out how to monetise on both these platforms.
Is there advice that you can offer publishers who might have been giving away products to make money?
I think it is a unique opportunity for publishers frankly. It is a do-over. What you have with tablets is the ability to charge for your brand, charge for your content, charge for what's your specialty that when the web came along people were not doing it. There were very few companies who decided to charge for web content. So I certainly think it's a do-over. What we have seen in the initial partnerships that we have had with many publishers is that people are willing to pay for it. People do want the experience both across print and these apps. They expect to pay for it once and they are willing to pay for it. The ads can be richer and so you can actually measure the effectiveness of the ads more quickly. But the advice I would give is you have to experiment and you (will) understand whether subscriptions is the right business model for you or advertising is the right business model for you. The sooner you experiment and the quicker you change the more likely you are to be successful and make that transition effectively.
Do companies need a certain scale to have the ability to do that or can you do it regardless of your size?
I think it is probably easier, frankly, for smaller companies because you can argue that they would feel that they have less to lose, correct? But I frankly think that all companies - to your earlier point, News Corp - has been aggressive about trying all of these things out and I think it is absolutely the right strategy which is what is your digital strategy and how do you continue to experiment because it is clear it is the future.
Nothing is perfect in this world. What should, or could, Adobe be doing better?
You always want to move faster and so when I hear what our customers would like us to do, the sense of urgency is certainly there within the company but we have to continue to execute flawlessly to keep our customers happy. I think the second one, and again, maybe this is the question around Asia, how do we really think global and how do we continue to understand that while the trends are the same globally, the way it gets rolled out is different. I think we have to truly embrace what it means to be a global company and enable people in different countries to make decisions that enable us to serve customers better.
So it's a journey that you feel you're still on at the moment?
I think we have been very successful. The good news is our products are standard around the world, but people say only the paranoid survive. You just have to continuously make sure that there aren't two people in a garage in some emerging country that disrupts what we've been able to do.
Who ultimately won the flash wars, if there was a winner and a loser? Apple or Adobe?
I just take it as at the end of the day for us it is about how do we enable people to create the digital experience that they want. We have always been agnostic about standards. We support public standards like JPEG, PDF's been an open standard and PostScript is an open standard and Flash is a standard and HTML will be a new standard. So when standards don't exist, we create it and when standards exist we innovate and Adobe benefits when there is more rich, interactive standards because we build the world's best tools for that. I prefer to think of it in terms of customers and are we serving customers in a broader way and more meaningfully than before. And every year I look back and I think we are doing that, so that is what drives me.
Did that whole issue take up more public attention than it warranted?
I think the press continues to spend more time on it than frankly any company does. We have moved on, we are innovating and I think that's what I would say.
What are you getting the most personally out of the role?
The impact that Adobe has had on communication. The impact we have on society, on communication, on information. We are doing our bit to make the world a closer place. The impact, that's the most gratifying thing for me.