Adobe Solutions Inc. Case Study

NEW YORK UNIVERSITY ABU DHABI

Adobe Solutions Inc.

NASDAQ: ADBE

Theodore Tenev

Management & Organizations

Prof. A Reuben

April 21, 2017

INTRODUCTION:

Adobe is a California-based^[1] software-development company popular for its iconic and industry-leading software packages, including Photoshop, Premiere, InDesign, Acrobat, and many others. In addition to its fame for its software products, Adobe is also known to be a creativity hub with stimulating company culture and competitive compensating packages, making it a dream employer for many Computer Science graduates, like myself.

MAIN ELEMENTS OF ADOBE’S STRATEGY OVER ITS CORE BUSINESS:

Since its inception, Adobe’s software products have targeted the needs of graphic designers, video production designers, and other creative professionals as a strategic arena of development^[2]. Adobe has differentiated itself by offering bleeding-edge technology and an integrated environment of products that complement each other. All of the software-development is done in house^[3], illuminating any suppliers, giving Adobe the ability to copyright its proprietary technologies due to its relative first-mover advantage and ultimately deter any new entrants into its arena. Nevertheless, the outputs (artifacts) of the in-house development strategy are inimitable internal resources that no other brand/company can use (or at least without the permission of Adobe).

In recent years Adobe has pursued a strategy of diversifying^[4] its product portfolio as a vehicle to extend its reach into the related field of digital marketing, and expand its customer base beyond just the niche market of creative professionals. As a result, and due to the relatively non-competitive nature of the industry, the company has become an instantly-recognizable brand to anyone involved in digital visual content-creation, from novices and enthusiasts to professionals.

Adobe captures a majority of its revenue^[5] from selling licenses for each of its software offerings. Under this system, a customer would purchase a single software product once and be able to use it indefinitely, but would not be entitled to future versions and added features to that software. A problem that many companies utilizing this distribution method face is that there is little customer turnover. In other words, once Adobe has reached a customer, the company cannot extract any further profit from that customer since the customer tends to stay with a particular product for decades and has little incentive to upgrade.

In May 2013, however, Adobe ceased^[6] selling its software under the old model and transitioned its economic logic towards a subscription-based model. Under this new distribution method, the customer pays a recurring subscription fee, receiving access one or many of Adobe's software packages. One instance is Adobe’s “Creative Cloud” package^[7],  including Photoshop, Illustrator, and Premiere Pro. Adobe’s other two packages—“Marketing Cloud” and “Document Cloud”—cater to digital marketing and PDF management, respectively.

The strategy behind this subscription-based model is to increase the predictability and stability of income (user has to pay continuously to use the software), to impose switching costs on customers and reduce the threat of substitute products, as well as to protect the product from piracy (the software will not function without being able to verify the user’s subscription validity). Moreover, this distribution model fosters Adobe’s strategy to expand its reach beyond just professionals by breaking down the cost of the software in time as opposed to a large single payment. As a result, Adobe has over 9 million paid subscribers in 2016 with record-high revenue of $5.85bn^[8].

UNIQUE ASPECTS OF ADOBE’S CORPORATE CULTURE:

A key aspect of Adobe’s corporate culture is the sense of unity around the core values of creativity and innovation. The company structure in terms of management, team organization, and recruitment is organized around providing individuals with the freedom to be creative and using their original ideas to drive innovation and create product features. One outcome of this trait of Adobe’s open culture is “DeepFont”. Given the freedom to experiment and pursue her original idea, Adobe’s research scientist Hailin Jin created DeepFont, which is able to “quickly identify, compare, and choose typefaces”^[9].

Another key aspect of Adobe’s culture is challenging its employees while providing an atmosphere of trust and support to help them meet those challenges successfully. To further analyze the example of “DeepFont”, this product was initially a failure^[10] and created results with accuracy of only 50%. However, though the culture of high propensity for risk instilled in Adobe’s employees and through the continued support of that project, Hailin Jin managed to turn around the success of DeepFont and ultimately generate value and profit for Adobe. In more general terms, Adobe’s stance on failure and risk-taking is clear: “It’s actually ideal when someone’s first attempt at a new product or feature is a failure,” says Mark Randall, the company’s vice president of innovation. This statement is a further testament to Adobe’s culture of high degree of personal freedom – avoiding micromanaging in favor of trusting employees to do their best^[11], indicating a small power-distance, at least within teams.