This case features a highly diversified software company at the top of its game. Content is provided to enable a thorough situation analysis. A discussion of industry trends, the competitive environment, and competitor information is included, along with internal elements regarding Adobe’s strategic approach, product portfolio, culture, organizational structure, and human resources.
Primary among the company’s current strategic concerns is the need for Adobe to protect and strengthen its position of market leadership in the face of changing industry conditions. As competitors challenge the sustainability of Adobe’s business strategy for design software and digital media, the firm will be attempting to define new industry standards for the emerging and growing mobile computing platform and will be bidding for domination of the online business optimization market. To address these issues, an analysis that delves into external environmental factors, Adobe’s strategies and capabilities, competitor resources, and diversification considerations should be conducted. Adobe’s strategy should be designed to secure sustainable growth and revenue streams over the long-run.
* Examine the external factors affecting Adobe’s emerging business environment. What strategic implications surface from this review? * Describe the significant components of the company’s business and product strategies. What are the strengths and weaknesses that will impact Adobe’s strategic choices? * What can be learned by comparing major industry competitors? * Discuss the characteristics of Adobe’s corporate-level strategy. Define the nature of its diversification approach.
* Examine the external factors affecting Adobe’s emerging business environment. What strategic implications surface from this review?
Adobe’s dynamic and highly competitive industry is characterized by evolving technologies, short-lived product life cycles, changing customer needs, and intense rivalries. Technology commoditization is occurring, and informed consumers respond quickly to attractively priced alternatives. As a result, profitability and the ability to differentiate are compromised. However, some very vigorous growth opportunities do exist in the industry. Digital content, online business, mobile and cloud computing, enterprise marketing, and global trends are particularly promising, but are not without some risks.
Digital Content The volume of online media being consumed is rising rapidly, including news media, entertainment, books, and music. This increasing market impacts both consumers and creators of content. Adobe believes that, as the majority of the media creation market transitions to digital formats, increased exposure for its wide-ranging suite of creative and development products creates a great opportunity to obtain a sustainable stream of revenue. New market entrants are inevitable in any mass market expansion, and the proliferation of digital media is no exception. Therefore, the continued market share dominance of Adobe’s Flash platform (and its corresponding licensing revenue) is uncertain.
Online Business In addition to powering a major socio-cultural trend for greater consumption of online content (especially among younger generations), Internet technology offers businesses the potential for enormous economies of scope, increases connections and stakeholder relationships, and facilitates the smooth flow of expanding global operations. The increasing importance of establishing a presence and maximizing performance in online commerce touches modern corporations of all types and sizes. This trend presents Adobe with a vast and attractive opportunity for sustained growth in an apparently limitless market.
Mobile Broadband Computing Mobile computing is the fastest growing platform in history. It presents opportunities not only for Adobe, but also for new entrants with radically different technologies that could threaten the dominance of its popular desktop products.
Cloud Computing The rapid advent of on-demand software and storage services has introduced significant savings for corporate consumers. By running web applications from centralized servers, enterprises reduce hardware, maintenance, and licensing costs and increase the efficiency of computing. This trend threatens Adobe with a low cost, highly responsive, pay-as-you-use software alternative to its premium products.
Enterprise Marketing Management The software market targeted for the management of enterprise marketing is estimated to be worth $2.5 billion per year, and this figure is expected to double annually for the foreseeable future.
Global Markets Growth potential in emerging markets is extremely high. As economic interdependence intensifies across regional borders, organizations will increase their reliance on Internet-based information technology. This provides another opportunity for Adobe to expand the use of its products and services and to secure long-term revenue streams.
Adobe must weigh the advantages of pioneering and the company’s desire to expand against industry and economic uncertainties. The rapid rate of change associated with the online environment, especially related to media and data exchange platforms and file encoding formats, impacts the company’s strategic decisions. As the market leader in media creation and editing software, perhaps Adobe is more at risk than its competitors of making an unwise commitment to unproven or tenuous platforms (such as 3D) before real acceptance, consumption, or growth trends are determined. Industry users and developers who adhere to unsound data formats can also disrupt strategic planning. And finally, current economic conditions dictate that home users’ delay of expensive upgrades, the increased threat of software piracy, and the floundering fiscal condition of Adobe’s state of incorporation (California) be taken into account as the company formulates its strategic response to the external environment.
* Describe the significant components of the company’s business and product strategies. What are the strengths and weaknesses that will impact Adobe’s strategic choices?
For 30 years, Adobe has been a groundbreaking software developer. With current annual sales of $17 billion, the company is an industry leader whose products are commonplace and pervasive in the workplace and in the home. Its reputation for reliable, industry-standard tools and top-grade innovations is the basis for unique, sustainable competitive advantages that secure enterprise and business customers worldwide.
Its company mission is to “revolutionize how the world engages with ideas and information.” Adobe’s strong brand identity, customer loyalty, and product prestige challenge potential market contenders. User perception of Adobe products is that they offer efficient, useful, effortless, meaningful, immersive experiences.
Adobe products are oriented toward professional use in a variety of design fields and are accordingly priced at a premium. Product support includes a high level of regularly released product upgrades, supplemental networks and online services, and attractive, user-friendly interface continuity. The company’s extensive product offerings constitute entire product “ecosystems” for users to create, market, and mass distribute across a broad range of media platforms. Adobe tenders one of the most diversified product lines in the multimedia design world.
Innovation has given Adobe a significant edge in the marketplace, deterring new entrants while reinforcing the company’s industry leadership role. It is the authoritative first mover in the tech industry, competitively posturing to deliver products with no real substitutes. Committed to identifying unmet needs of the market, Adobe has set the standard for communication and collaboration via pioneering software and technologies.
Adobe Systems traditionally focused on the creation of a variety of high-end multimedia and creativity software products, and proprietary software rights remain an important source of revenue for the company. However, through exploration, the company has more recently become a broad-based Internet application and software developer. In addition to internal development, the company has successfully used strategic mergers and acquisitions to extend its leadership status beyond software into data and content delivery formats.
Despite its strengths, Adobe’s product line does face criticisms from the marketplace. These include accusations of expensive and slow-to-load updates that offer only marginal improvements to functionality, unfair pricing policies (particularly in international markets), security flaws, stability issues, and closed source development of its player in the Flash system (which is the industry standard for online streaming video development and delivery).
Internally, Adobe fosters a culture of creativity and innovation. The company’s four core values—Authenticity, Excellence, Innovation, and Involvement—shape everything it does, are instilled in all employees, influence how products are developed and marketed, and determine how the organization’s stakeholders are served. The company values integrity and treating others with respect. It seeks to produce exceptional quality (in products and employees), eliminate forces that build resistance to change, and accept ideas from “everywhere” to create and introduce innovative business solutions.
Claiming that human capital is the company’s greatest asset and the source of an employee-based competitive advantage, Adobe recognizes the link between company and employee growth and success. Recruiting the best talent to support the firm’s first mover strategy is deemed a priority for discovering the next big idea in the constantly evolving industry environment.
The percentage change in the past year for key indicators of financial performance is calculated in the following table. The highlighted items draw attention to potentially problematic conditions. Though total assets grew at 12% in 2010, debt and capital lease obligations increased by more than 50%. The cost of revenue, sales and marketing, G&A, and total operating expenditures grew disproportionately to revenue growth. Meanwhile, R&D investments went down as a portion of operating expenses relative to increased sales. And, both operating and net income were lower than 2009 earnings levels.