Adobe acquisition of Omniture

Sep 17, 2009

I felt it worth the time to post some thoughts on the Adobe acquisition of Omniture. As many of you know, I do investments and keep track of the business side of our tech world. The Omniture acquisition may work out but I suspect probably not, and here are the reasons. First, Omniture hasn't made any money yet and was never likely to. It lost $44 million last year (mostly from expensive operating costs) and lost $9 million the year before that. The technology they have is interesting but nothing that couldn't be reproduced. Yes, Microsoft was interested in Omniture as well but that didn't make much sense for them either. Will merging into Adobe help cut the operating costs and make their internal operations more efficient? That's very unlikely. So the key reason to pay $1.8 billion is to make that money back with profit. The Omniture purchase will not come even near that. The other reason given by Shantanu Narayen, the CEO of Adobe, was it would help diversify Adobe's product line. As an investor, I have grown to hate that term more and more. So you miss your sales forecasts for this year by as much as 44% with the most diversified line of products in the software industry and now you want to spend $1.8 billion on a company that hasn't made a dime yet? I see a problem with this plan.

The key problem for Adobe has been depending on cyclical software sales from their products like the Creative Suite (CS) line which comes out about every 2 years. This has also greatly hurt their image since most of the users have  grown tired of paying full cost for a new version of software that has a few new features. Part of the problem with CS4 sales is the recession, but it's also the repetitiveness and feature poor aspects of each version release. ColdFusion is likely to see similar results. The key for Adobe is to provide regular quarterly revenue that can right its financial situation.

So what should Adobe do? Frankly, diversification isn't exactly the right term. Adobe is actually very close to some really good ideas. With the Adobe Flash Collaboration Services and the purposed cloud computing AMI images for ColdFusion 9. Cloud computing is already a very muddle term as well, but the core logic behind it is not. Businesses spend a lot of money each year on capital investments for computers, servers, the software to run those systems, etc. The elasticity of the cloud makes these expenses far less problematic. On demand use of resources down to the per hour increments is creating flexibility and growth that companies need. Just as 'just-in-time' processes helped the manufacturing sector in the 80s. Elastic services are going to provide similar results for companies in this era.  Sadly few software providers have really spent the investment dollars to fully develop elastic services. Amazon, Google and Salesforce are the only true exceptions. If Adobe had spent the $1.8 billion to develop and provide more elastic services, based on their existing software line, they would have a real competitive advantage over most of the industry for the next several years to come. Plus, it would provide that dependable revenue stream they are looking for. Unfortunately, that didn't happen and the financing of this latest purchase may prove to be too much given Adobe's shaky performance lately.

Comments

stef

stef wrote on 09/17/09 8:10 PM

thanks for the comments, interesting. i too am interested from an investment point of view. cheers - stef
Ragona

Ragona wrote on 09/17/09 8:18 PM

I agree. Omniture is only slightly better than Google Analytics, which is totally free and has a much nicer interface. I'd be terrified if I were Omniture that Google would decide to dedicate a few more devs to Analytics and duplicate Omniture features and crush them with a totally free and superior alternative.
Rudi

Rudi wrote on 10/14/09 12:12 PM

John,

Good thoughts here. From a developer standpoint of both ColdFusion and a user of Omniture I am excited about the future enhancements this merger can bring.


-Rudi

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