Wednesday, July 22, 2015

The Lessons of Adobe


CPM, IBM, WordPerfect, Lotus, and now Adobe - companies or products that once dominated the computer world, but were quickly relegated to marginal status.

Adobe is a company whose products used to dominate the computer graphics business.  If you wanted to print something on your HP laserjet, you have to have Adobe PostScript drivers installed.  If you wanted to play any kind of animation over the Internet, you needed Adobe Flash Player.  And if you wanted to create graphical documents you needed Adobe Acrobat in order to create, modify, and read .PDF docs.

But over the years, things have changed.   The marketplace abhors monopolies, and Adobe, once the "go to" place for graphics, is seeing its market share slipping.

I am sure some would argue that their products are still in wide use.  But the beginnings of the end are already in sight.

In the last few weeks, both Google Chrome and Mozilla Firefox have blocked Adobe Flash Player as being so buggy and vulnerable to attacks as to be utterly unreliable.   I uninstalled flash player from all of my computers and you know what?  I don't miss it a bit.  Oh, sure there are a few "legacy" sites out there that still use flash.  But for the most part, you won't notice it not being there.   And you will notice the sites that have flash animation now load faster.

I suppose we should have seen the writing on the wall when Adobe started asking us to update Flash Player on a daily basis - each time asking us if we wanted some crappy "virus protector" (that other virus protectors recognize as a virus!) created by some guy who shot his neighbor in Belize - and making us use negative option to opt out of it.   It was cheezy and sleezy and came across as some sort of come-on from some clown outfit.  How the mighty had fallen.

Adobe Acrobat is OK, I guess.  I bought one copy a long time ago.  Since then, you can download version 8.0 for free online, and it works pretty well.   Some government agencies require I submit documents in PDF format, and as such, Adobe has to tolerate some piracy in order to have their standard adopted by Federal agencies.   This means, of course, there are a plethora of programs that will read and create PDF documents - all for the low, low price of free.

And meanwhile, Adobe's free "Adobe Reader" gets worse and worse and crappier and crappier.  I finally uninstalled it, as it was just hijacking my documents away from Acrobat 8.0 where I wanted them.   And the latest version of reader wants to talk to my smart phone, which I don't own.

The point, however, isn't that Adobe is a crappy company or has shitty products.  The point is, what you think is a class leader in the tech world ends up on the trash heap in only a few years or decades.   And this means investing in tech is a dodgy deal - you can never tell when a company that is on top will end up on the bottom.  And in every situation, all the pundits would say, "That company can never fail - they have a monopoly on the market!"

But monopolies are exactly why they do fail - even if it takes decades.  IBM owned the computer world for decades.  But a mere toy - the "Personal Computer" ended up being its downfall - ironically the iteration that they designed , the "IBM PC".   WordPerfect owned the word processing field for many years, but within a few years of WORD for Windows being bundled with that O/S, well, it went away in a hurry.  Lotus 1-2-3 was the last word in spreadsheet computing for DOS systems.  Today, it is a trivia question for oldsters.

And so on and so forth.  Technology changes, and often companies fail to catch on to these changes.  Microsoft fumbled with music players, and then with cell phones.   They still command a big chunk of the operating system world, but for how long?  Does anyone really like Windows 8? 

Apple has finally cracked more than half the smart phone market, while pulling in a staggering 94% of the overall profits, according to a recent Wall Street Journal article.  That's great for Apple, but it illustrates that charging $650 for a phone is a wildly profitable business.  Samsung charges about $150.   Where does the other $500 go?   And for how long will people pay 3-4x the cost of a phone?  Maybe forever.  Maybe not.

So what does a company have to do in order to stay on top in the tech world?  I am sure that is a question being asked at Nokia, Motorola, Blackberry, and Ericsson these days.   I think the answer is twofold.  First, you have to stay on top of the technology - and either lead or quickly follow to keep up with new developments.   Second, you can't try to control or corner the market - too much.  The market abhors monopolists, and eventually tears them down.

It will be interesting to see what happens to Adobe's stock price.  The stock has shot up in recent months, to over $80 a share, with a P/E ratio of over 110, and of course, no dividends.  Some are betting that Adobe's move to "creative cloud" computing will drive profits upward in the near future.  Maybe this is so - and products like Flash and Acrobat will just fall by the wayside and the company will move on to its "cloud" customers (which won't include me, I am guessing).

Or maybe people will gravitate toward other products.  Frankly, the analysts expectations for further price rises sound like so much gobblygook to me.   Increased revenues and profits are fine and all, but with a P/E ratio of 110, this still isn't a great payback for the investor.  In other words, the stock is overpriced.

In a way, it reminds me of the fate of IBM.  IBM is still around, of course, but people are no longer fearful of "big Blue" anymore.   They have reinvented themselves as a software "enterprise solutions" company and for a while there, were quite profitable at it, too.   Maybe Adobe is headed the same way.  The bottom line is, it is no longer a software company.  But maybe the era of software - as a product - is coming to an end.

After all, if the product is "free" how are you going to make a profit on it?

5 comments:

  1. UPDATE: Adobe's stock price continues to rise as its "Cloud" solution generates profits. Who the hell pays subscriptions to software? I guess a lot of people, but not me.

    Problem is, the stock is trading at a P/E ratio of 54, which is better than 110, but they will have to at least double profits in order to achieve a rational share price. Or the share price will have to drop by half.

    And the barriers to entry in this field for competitors is..... what?

    ReplyDelete
  2. For some reason this posting from a year ago is now getting a lot of hits. Adobe is supposed to be releasing earning results, and the thought is, if they don't continue to keep increasing earnings with their "creative cloud" solutions, the stock price could tumble.

    My posting was not about "Creative Cloud" but their legacy programs - Acrobat, Flash, etc., which they seem to be abandoning or at least putting less emphasis on.

    As for their earnings report, it had better be good, with an existing P/E of over 50. This is an improvement of the 100 level last year when I wrote this, but still double what it should be for a nominally profitable company.

    A classic case of the market getting ahead of itself? Perhaps!

    ReplyDelete
  3. By the way, "Creative Cloud" starts at $49.95 a month. See my postings on "Subscription Fatigue". This is the new model of software - you rent it, you can't buy it.

    A shame, too, as a well-written program can work well for a decade or more.

    ReplyDelete
  4. I did not mention Photoshop, of course, which is another major Adobe product. I am not a big Photoshop buff, but appreciate the power of the program.

    From what I am reading online, it is not possible to "buy" the program anymore (obtain a perpetual license) but rather you have to rent it monthly through their "cloud" model.

    Very interesting. I prefer to buy software rather than rent it. But I'm old school.

    ReplyDelete
  5. Someone must have linked this posting in a site somewhere as it is getting a LOT of hits since December 1st. Very bizarre!

    ReplyDelete

Sorry, Comments have been disabled due to the large amount of SPAM and TROLLING as well as GROOMING comments. Thanks for reading, though.

NOTE: Blogger says below that "only members may comment" - however comments have been disabled and I have no idea how to make someone a "member". Sorry!

Note: Only a member of this blog may post a comment.