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Adobe's Mid-Sea Change of Course
Adobe's transition from perpetual license to monthly subscriptions for its Creative Suite offerings presents delivery and pricing challenges. Will it be smooth sailing or rough seas ahead?
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In late 2007 I praised Adobe for the altering course of its Creative Suite (CS) ship away from the shoals of an enterprise-only approach and back toward open revenue waters, in order for Adobe to chase a prize catch: the creative content producer who first set Adobe afloat but had been abandoned in the early 2000s.

For the past five years, Adobe has experienced fairly smooth sailing, with Creative Suite (now at CS6) continuing to dominate in particular markets (web and design) and gaining traction in others (video and media production).

With fair winds and an after-tax income that has risen over the past three years—from $690 million at the end of 2009 to almost $1.1 billion at the end of 2011—it would seem Adobe's revenue forecasters could fathom deep water for years ahead.

Yet, at this very moment, without any sign that the winds of revenue are slacking off, the company is modifying its method of propulsion. Tomorrow, Adobe will launch the Creative Cloud version of its Creative Suite applications in the cloud, using a subscription model to complement and eventually replace sale of Creative Suite applications via physical media.

Will Adobe be able to navigate the fairly tricky transition from smooth sailing for high-priced physical media (with perpetual licenses costing up to $2500 for the CS6 Master Collection) to monthly recurring subscriptions (currently set at $50 per individual for an annual subscription, or $75 for a month-to-month subscription)?

Another seafaring tale may best illustrate this need for change, even when all appears to be smooth sailing ahead.

Last year I visited the site of the 1878 wreck of the Loch Ard.  Close to Melbourne, in Victoria province, Australia, the Loch Ard wreckage site struck me as much for its beauty as it did for its isolation.

Two simultaneous factors converged, resulting in a catastrophic loss of life on the cliffs of southern Australia, yet the journey had started out uneventfully. After passing the Cape of Good Hope and heading across the open waters of the Indian Ocean, the Loch Ard logged more than 2000 miles of smooth sailing on its voyage from England to Australia.

Just before reaching Melbourne with a cargo of fifty immigrants, however, the Loch Ard had to navigate a channel separating the island of Tasmania from the Australian continent.  This channel was known to cause trouble for captains of many sail-powered ships that, like the Loch Ard, were subject to the gusts and gales of the unpredictable winds of change.

In what would become Victoria's worst maritime disaster, two smaller failures formed one giant disaster. First, the winds shifted as Loch Ard approached the channel, blowing it toward the Australian coastline. Second, perhaps due to interference from iron ore carried in the ship's hold, the captain's compass readings were off mark enough that the ship ran aground during fog.

The Loch Ard broke apart, and only two people survived the repeated dashing of the ship against the cliffs. Given the loss of life and the irony of being so close to its destination—after so many leagues of sailing—the Loch Ard incident struck a nerve with Australians and Britons alike. From that point on, every immigrant ship sent from England to Australia was steam powered, allowing for lesser reliance on variable winds, an ability to navigate under adverse wind conditions, and the ability to reverse course if a ship ran too close to land.

So let's bring the analogy back around to Adobe. After years of smooth sailing, the company is attempting to change from sail power to steam power, while rapidly approaching two perilous stretches—digital delivery of applications and the accompanying sizable drop in prices charged for other creative applications—that may cause the company to run aground.

If Adobe can master steam power as well as get good readings on the best pricing models, it should be able to navigate the transitional channel and move back into open water en route to the port of its choice.

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