Adobe may divest software after Macromedia merger

Similar to PDF's ubiquity in both print and general office workflows, Flash Player has become the "leading platform for delivering rich media on the Web." In a quarterly custom research study that NPD conducts for Macromedia, it was determined that over 95% of PCs connected to the Internet have Flash 6 or higher installed. NPD believes that Adobe will not only leverage the Flash platform to drive sales of its graphics and digital video editing and compositing applications, but will use Flash to extend the reach of its "intelligent document" platform automating enterprise business processes as well.

Another key driver in Adobe's decision was Macromedia's new offerings in the mobile software
segment, including Flash Lite, a multimedia platform for mobile phones, and FlashCast, a
platform to stream channel-based subscription content to mobile phones. "Adobe has been trying
for years to offer solutions that would enable customers to communicate anytime, anywhere, on
any device, but Macromedia has been the vendor that has gained traction in the mobile software
market."

The Impact on Customers

NPD believes that customers will "most definitely" benefit from the merger, especially when it comes to product integration. According to the report, creative professionals complained "for years" about the inability of the products they use to work together efficiently. As a result, Adobe has worked to make its suite of products integrated, and Macromedia has done the same within its product line. Because the products of both companies do not entirely overlap, NPD believes users want integration between certain Macromedia and Adobe offerings. For example, integration between Adobe Illustrator and Macromedia Flash would enable animators, Web designers and advertising professionals to "streamline their workflows." Although integrating and consolidating the Adobe and Macromedia lines will take time, NPD believes that by 2008, "customers can expect true integration features to emerge in the applications Adobe acquires
from Macromedia."

Despite the elimination of the element of competition between the two firms, customers will not be subject to dramatically higher prices or alack of innovation, NPD insists. Not only are most customers “locked in” to using the tools from a particular vendor, but the professional products produced by both firms are "mature, feature rich, and so expensive compared to other point products, that existing customers often can’t justify spending money on a new version of a particular product or a suite unless it helps them do their jobs demonstrably better." Thus, both Adobe and Macromedia are not only "forced to keep their prices reasonable, but they are forced to adopt a strategy of rapid innovation in order to generate demand for future versions of the product." NPD says evidence of this is clear when looking at Adobe’s revamped collection strategy. "Not only has Adobe lowered the price of some of its leading point products, but Adobe has changed the
structure and the pricing of its various tool suites in order togenerate more demand for its offerings."

Changing product line

NPD predicts that Photoshop and Dreamweaver customers will be least affected by the merger, as these products will remain largely intact. In the short run, the customer using both Photoshop and Dreamweaver "won’t need to do anything differently." Later, this customer will "probably be able to buy a single suite of tools from Adobe, resulting in significant cost savings." Over the long run, Adobe will likely "offer this customer a suite of tightly integrated solutions, built on an ever increasing number of core technologies and common user interface elements." Dreamweaver may eventually be "forced to do things slightly different" as Adobe modifies the application conform to its interface standards, but NPD expects Adobe will “reduce the pain” for the Dreamweaver customer by offering Quark XPress keyboard shortcuts and more.

GoLive customers may see the product sold to another vendor, according to NPD. Not only would Dreamweaver replace GoLive as Adobe's Web site creation package, but FTC regulations will likely require the sale of GoLive. "While future versions of GoLive will no doubt still be appealing to designers, the eventual integration of Dreamweaver with other Adobe programs, not to mention Dreamweaver’s inclusion in future versions of Creative Suite, will entice many users to make the
switch."

Fireworks/FreeHand customers may also see these products divested: as with GoLive, the FTC
is likely to mandate that Adobe sell Fireworks and FreeHand to a third party. "These customers
will be most adversely affected by the acquisition," NPD says. "Although they won’t have to do
anything in the short term, if customers have standardized on Fireworks or FreeHand workflows,
they should strongly consider migrating to Photoshop and Illustrator over the medium term,
especially if they use Dreamweaver or Flash extensively."

Current market share figures

2004 U.S. professional graphics and Web market share figures show Photoshop, Illustrator, Dreamweaver, and Flash as leaders in their respective markets, so it comes as no surprise that the four applications are expected to survive the merger, while Fireworks, Freehand, and GoLive will be eliminated.