Graphics- and publishing-software company Adobe Systems Inc. will gain a foothold in new markets with the agreement it disclosed last week to buy Web-publishing software company Macromedia Inc.
For $3.4 billion in stock, Adobe will get Macromedia's ubiquitous Flash technology, which makes it possible to deliver graphically sophisticated Internet applications without substantial bandwidth. It will gain professional development tools for rich Internet apps in the form of Studio MX and Flex. Other notable Macromedia apps are Breeze, its well-regarded conferencing tool, and RoboHelp, a tool for creating desktop and online help systems.
"This acquisition strengthens Adobe's mission of helping people and organizations communicate better," Adobe CEO Bruce Chizen said in a conference call. "Together, we will be able to offer customers full, integrated solutions for next-generation communication and interaction, especially on non-PC devices."
These devices are mainly mobile phones, a software platform considered to have greater growth potential than the more-mature PC market. Because Macromedia's Flash technology is ideal for delivering graphics applications and content on portable devices, the acquisition opens a promising new market to Adobe.
"Flash becomes a very, very interesting technology as we start to roll out multimedia services on mobile phones," Yankee Group analyst Rob Rich says. "But we're pretty early on with that."
Chris Swenson, an analyst at market-research firm the NPD Group, says that while non-PC devices are insignificant from a revenue perspective now, they're important from a growth perspective. "Macromedia, with far fewer resources than Adobe, has been able to seal some amazing deals on the mobile side," he says.
The acquisition also moves Adobe into direct competition with Microsoft and other enterprise-software and -service vendors that aim to provide graphically sophisticated business apps on the Web. "Adobe is now in a much stronger position to deliver the information workplace, which will be hotly contested by EMC/Documentum, IBM, Microsoft, Oracle, and potentially SAP, and will provide the contextual, role-based delivery of voice, documents, rich media, process models, business intelligence, E-learning, and collaboration tools through presence awareness, information rights management, and personalization," research firm Forrester Research said in a published note.
Coach Wei, founder and chief technology officer of Nexaweb Technologies Inc., a developer of rich Internet business applications, sees the deal as a natural marriage of two similar companies. They're both "very consumer oriented and rely on consumer-software packages for most of their revenue," Wei says.
More than half of Adobe's $1.67 billion in fiscal 2004 revenue came from its digital imaging and video and Creative Professional products, of which Photoshop and Illustrator are the stars. And 86% of Macromedia's $370 million revenue in 2004 came from its designer and developer products. Usually priced at several hundred dollars and up, such applications generally are considered professional rather than consumer products.
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