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Adobe’s disappointing results, headcount reduction plans

Adobe has announced earnings slightly below its estimates. More worrying is its report of “weaker-than-expected demand for its new Creative Suite 4 family of products” and “steps to reduce its headcount by approximately 600 full-time positions globally”.

Is Adobe getting it wrong, or is this the effect of a weak global economy? I’d guess the latter; it may even be a good result in context. Adobe is dominating web video; Flash usage is still growing; there’s nothing out that that can compete with Photoshop; and there is a lot of interest in its Flex/Flash/AIR programming story. CS4 is a remarkable release; you can argue about some of the details (why is Soundbooth included instead of the superior Audition?) or grumble about the price (especially outside the USA), but there is a lot more right than wrong.

Even so, Adobe has a weakness in its business model. It makes its money on tools and server-side products, while giving away the runtimes like Flash player and Adobe reader. Could Adobe get into a Sun-like funk where everyone uses its technology, but the company itself gets relatively modest benefit? It is possible. You can do a lot with Flash and PDF without paying anything to Adobe. This is good for users, since even with high adoption of the runtimes, Adobe cannot sit back and watch the money roll in. It has to maintain the quality of its design and authoring tools, and it has to charge real money for them, because they are the heart of its business.

According to this document (PDF) Adobe’s business breaks down like this:

Revenue by segment ($millions) FY2008 YTD August 2008 – representing 3 quarters

  • Creative Solutions $1564.3
  • Business Productivity Solutions $786
  • Mobile and Device solutions $64.9
  • Other $249.4

I’m guessing a little; but I imagine that Creative Solutions is mostly Creative Suite, though it also includes Flash Media Server; and Business Productivity mostly Acrobat (authoring and server). Note that LiveCycle Data Services ES, which connects Flex to enterprise application servers, is part of Business Productivity, though Flex Builder is classified as Other. It seems that CS + Acrobat is where Adobe makes most of its money.

3 thoughts on “Adobe’s disappointing results, headcount reduction plans”

  1. Hey Tim,

    Well exactly! I mean, when we at Adobe MAX last week listening to Michele Turner VP of Flash I only had one question if you remember:

    “You segment product areas by function or group – but not by which you monetise and which you provide for free. How do you ensure long term profitability with these stratgies…?”

    Well, I said something close to that as I recall.

    Best

    Adrian

  2. Hi Tim,

    Adobe CS4 “you can… grumble about the price”.

    OK then.

    The Adobe CS4 Master Collection today at Amazon.com (US) is priced at $2,495 but at Amazon.co.uk (UK) it’s £2,297 (and at Amazon.eu €3.405). Given the current £/$ exchange rate $2,495 = £1,682.

    Seem fair to you?

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