BSc(B) 5. semester Seminar class: BSc(B) 3

Author: Georgi Pavlov

Opponent: Jacob Weber

Seminar advisor: Laura Staugaityte

Subject no. 1

The new strategy of Adobe Systems

Aarhus School of Business 2007

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Table of Contents

1.0 INTRODUCTION.................................................................................................. 2

2.0 COMPANY BACKGROUND................................................................................. 3

3.0 PROBLEM STATEMENT ..................................................................................... 4

4.0 MARKETING STRATEGY .................................................................................... 6

5.0 ADOBE’S STRATEGY TYPE ............................................................................... 8

6.0 ADOBE’S STRATEGIC MARKETING DECISIONS............................................ 12

7.0 CURRENT STATE AND FUTURE...................................................................... 15

8.0 CONCLUSION.................................................................................................... 17

9.0 REFERENCES ................................................................................................... 19

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1.0 Introduction

In the past years, the internet has grown dramatically. E­mail has

spread faster than any other method of communication. Every hour

over a billion of e­mails are sent. The world and the way people

communicate have changed significantly. According to recent

statistics 1 , the internet penetration in the world population has

increased to almost 20%. That is more than 1.2 billion people

accessing the web worldwide. It is a huge and still evolving market.

Here is the place to mention the mobile devices which are expected

to play an important role in the near future of the web.

The software sector is on its way of becoming ever more important

to the world economy. This industry basically involves activities of

producing, developing and trading software products, as well as

providing software services. Today, software applications are

hardwired in every business or organization to the extent that doing

everyday operations without them is literally impossible. The number

of players in the market is vast, and they come in all sizes. This

makes the environment extremely competitive, forcing the

companies to focus their efforts on acquiring a higher market share

and using all possible methods for gaining competitive advantage.

The particular firm I am going to focus on in this paper is Adobe

Systems, Inc. 2 It is one of the world’s largest software companies,

1 Source: http://www.internetworldstats.com/ 2 In the text I also refer to the company as Adobe for short.

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taking top places in the rankings of Forbes Global 2000 3 and

Fortune's “100 Best Companies to Work for” list 4 . Adobe offers an

extensive line of creative, business and mobile software products

and services targeting a specific range of users such as designers,

developers, photographers, knowledge workers and OEMs 5 .

I decided to write about this specific company, because I find it an

appropriate base for applying marketing strategy theories. Adobe

plays an important role in the global business as its products find

application in a wide range of organizations, from educational to

governmental. However, compared to its biggest competitors like

Microsoft and Apple, it does not receive the deserved attention. I

also consider the recent events that took place around the company

to be important and worthy of a discussion.

2.0 Company background

Adobe Systems was founded in 1982 by John Warnock and Charles

Geschke. Initially the company was operating only in the graphics

and publishing market. First they introduced PostScript as a desktop

publishing application, followed by Illustrator, Photoshop and

InDesign, all of which turned out to be exceptionally successful. The

next step was introducing Acrobat and the PDF document format,

which also quickly became an industry standard. In the subsequent

3 Source: http://www.forbes.com/ 4 Source: http://www.greatplacetowork.com/ 5 Original Equipment Manufacturers

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years Adobe added to its product mix successful products like

PageMaker, After Effects and GoLive by acquisition.

Despite all these achievements, the company experienced

substantial difficulties during 1998. Important product delivery date

was missed, sales declined and the stock price plummeted

encouraging a takeover attempt by one of their direct competitors,

Quark, Inc. Bruce Chizen, who was appointed as a CEO later in

2000, managed to stabilize the situation. This was not an easy task,

as most of Adobe's executive management left the company while he

had to lead a drastic restructuring of the business. Adobe had to

carry out a major reform.

3.0 Problem Statement

Dilemma

Managing a global software corporation is a difficult and challenging

initiative. The business environment is extremely hostile and

competitive. One of the central problems is finding the right strategy

for the company to follow. Several years ago Adobe Systems were

forced to redefine the way they run their business in order to

survive. They had to reinvent their strategy and make several very

important decisions. Now, the company has a clear vision and a well

defined road ahead. I will try to explore these events and discuss

how they helped the company to position itself better on the market

and realize its mission and goals. At last, I will take some time to

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describe the company’s current state and its future plans for

development.

Problem statement

Managing a software company like Adobe in today's business

environment and finding the right marketing strategy to implement

in order to develop and stay competitive.

Research questions

• What is marketing strategy and its role in an organization?

• What marketing strategy is Adobe following?

• What important strategic marketing moves has Adobe realized?

Delimitation

The main goal of this report is to present and explain marketing

strategy theories and issues, and then use the selected company as

an exemplary base for their application. This paper is to be viewed

as a case study. Considering the data collection process, I have

carefully selected my information sources and I believe they are

authentic and reliable. I am not aiming to thoroughly explain the

management, strategy, past or future of Adobe, but just expose and

discuss several of its relevant strategic decisions to the extent I find

appropriate, considering the time and length constraints of the

report. This also applies to the other companies mentioned in this

paper, as I will only use them as a reference point as well as to

better describe the business environment. Furthermore, the paper

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will not cover the whole range of Adobe products as it is too

extensive.

4.0 Marketing Strategy

First of all, I will start with presenting a few definitions of strategy

by different authors through the years:

“Strategy is characterized by the determination of the basic long­term goals and

objective of an enterprise and the adoption of courses of action and the

allocation of resources necessary for carrying out these goals.”

(Chandler; 1963)

“Strategy is the pattern or plan that integrates an organization’s major goals,

policies and action sequences into a cohesive whole.”

(Quinn; 1980)

“The fundamental issue in strategy is the manner in which firms achieve and

sustain competitive advantage.”

(Teece, Pisano and Shuen; 1997)

“Strategy encompasses the decisions and activities that enable a business in a

firm’s business portfolio to achieve and sustain a competitive advantage and to

maintain or improve its performance.”

(Varadarajan, Jayachandran; 1999)

The definitions above apply to the general strategy of an

organization. This general strategy is divided into three different

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levels: corporate, business and functional. The latter includes

functions such as marketing, production, research and development.

Corporate strategy is concerned with the choice of businesses the

firm is going to be in, and the main goal is maximizing its market

value, so that it meets investors’ expectations. Business strategy is

concerned with how a particular business competes successfully on

the market, and what strategic decisions could be made in order to

achieve and maintain competitive advantage in specific product

market domains. This is possible by mobilizing competences and

resources in order to implement value­creating strategy, in

coordination with the functional level strategies such as marketing

strategy and R&D strategy.

In Marketing Management (2006), Kotler and Keller write about

marketing strategy representing the first phase of the value­creation

process: “The formula ‘segmentation, targeting, positioning (STP)’ is

the essence of strategic marketing.” Another standpoint is:

“The focus of marketing strategy is achieving competitive advantage by building

relationships with important constituencies, offering appropriate products,

identifying the timing for changes in relationships and product offerings, and the

deployment of sufficient resources to realize the choice of relationships and

offerings.”

(Sudharshan; 1995)

A much more simple explanation of marketing strategy is given by

Day, Weitz and Wensley (1990). They define it as marketing

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activities and decisions related to generating and sustaining

competitive advantage. Throughout the paper I will refer to

marketing strategy from this point of view. I prefer their definition

mainly because it is clear, concise and less restrictive.

Because of its specific nature, marketing strategy has a central

position in the organization and plays an important role in the

assessment of strategy at the business and corporate levels. This

makes marketing strategy a determining factor in the strategy

formulation process. The part of marketing strategy directly

concerned with the role of marketing at the corporate and business

levels is called strategic market planning.

5.0 Adobe’s strategy type

In this section I will present the Miles and Snow typology of

strategic behavior. This theory represents generic approaches to

marketing strategy and tries to explain the effectiveness of different

strategy types by introducing market­level and business­specific

factors. The model distinguishes between three types of behavior,

each with a different approach to the strategic management of its

product­markets. These three types are the Prospector, the

Defender and the Analyzer. I will first briefly describe each of the

different types and then try to identify which one best describes

Adobe’s marketing strategy.

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The Prospectors are categorized as proactive as they are always

trying to identify and exploit new opportunities by both product and

market development. Because of it they usually invest in multiple

flexible technologies and utilize product management and

decentralized control. High emphasis is put on new services and

niche markets. Prospector types constantly try to develop new and

innovative products which are the base for their continued growth.

They gain competitive advantage by cost or differentiation based

strategies. They also have the opportunity to achieve a sustainable

cost advantage because of their pioneer approach.

On the other side we have the Defenders. Unlike the Prospectors,

they tend to stick to their product­market and aggressively protect

it. Because of this “sedentary” approach they usually implement a

functional structure and centralized control in the organization, and

as a rule invest in technological efficiency with which to gain cost­

based competitive advantage. They also need a broader market

focus in order to back­up their low­cost strategy with the help of

economies of scale. Defenders’ growth strategy consists of focusing

on a stable market and attempting further market penetration,

whereas new product development is rare.

The last type, the Analyzers, is positioned somewhere between the

first two ones. They maintain a stable core of skills, products and

customers. However, they are constantly evaluating new product

and market opportunities. Compared to the Prospectors, Analyzers

act as followers – they hold on their current businesses and enter

new markets or introduce new products only after others have

already proved it to be successful. Stuck in this middle position they

have to invest in both stable technologies (to continue to serve their

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current customers) and flexible technologies (to be able to quickly

enter new markets). Because of it they can not achieve efficiency,

and can only use differentiation as a source of competitive

advantage. Their growth opportunities come from either market

penetration or new product and market development strategies.

Considering the individual performances of each behavioral type,

there is no reason for indicating a superior one. The three strategies

are assumed to be equally successful, as each type has the

opportunity to outperform the other two. The main points about each

type are summarized in Table 1 below.

Table 1

Prospector Analyzer Defender

Proactiveness High Medium Low

Differentiation strategy High High Low

Low­cost strategy High Low High

Market focus Narrow Narrow Broad

New product importance High High Low

New product responsibility High High Low

New product success rate High High Low

Average profitability No difference No difference No difference

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There is also a fourth type, the Reactor, characterized as “a residual

strategy, arising when one of the three other strategies is

improperly perused” 6 . I skip the explanation this type, because of

the lack of consistent description and support for it.

Classifying Adobe’s marketing strategy in these boundaries is not

that easy. Obviously, the Defender type is not a good fit but there

may be different opinions when it comes to the other two options. I

personally believe that Adobe is following a Prospector approach

because from the founding of the company, they have been always

trying to push the envelope and present new approaches. Over the

years Adobe’s innovations have redefined the industries of Print

(PostScript, PDF), Web (Dreamweaver, Flash), Film & TV (Premiere,

After Effects) and much more. A recent recognition of Adobe’s

innovation and differentiation success is their 2006 Frost & Sullivan

award:

“Frost & Sullivan selected Adobe Systems Incorporated as the recipient of the

2006 Frost & Sullivan Award for Product Differentiation Innovation in recognition

of its ability to meet the demands of a very dynamic market with a product that

not only gives Adobe a competitive advantage but also offers customers a unique

interoperable solution.” 7

(June 19, 2006)

Adobe also manages to keep a competitive price on its products. For

example, one of the biggest direct competitors of Adobe, Quark,

offers QuarkXpress – a perfect substitute for Adobe’s InDesign.

6 European Journal of Marketing 27, 10; p.34 7 Source: http://www.frost.com/

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However, not only InDesign is cheaper, but you can buy the whole

Adobe Creative Suite (which includes Photoshop, Illustrator, Adobe

Acrobat and GoLove) for the price of QuarkXpress. The market focus

of Adobe is relatively narrow, as the company specializes in

delivering products for specific market niches. They continuously

improve their current products and present new applications on the

market, the most recent of which Adobe Flash Lite 3 8 (released

01.10.2007) and Adobe Thermo 9 (to be released in 2008).

Considering the product success rate, it is very high. Of course,

Adobe has had some bad shots (PageMill for example) but testing

and abandoning new concepts is yet another distinctive

characteristic of the prospector strategy.

6.0 Adobe’s strategic marketing decisions

In the recent years there have been a number of changes at Adobe,

most significantly, the company's $3.4 billion acquisition of

Macromedia, Inc., a multimedia software firm. The deal was

announced in April 18, 2005, and the transaction closed on

December 5, 2005. The shares of Macromedia common stock were

converted into the right to receive 1.38 shares of Adobe common

stock. The name of the combined company remained Adobe Systems

Incorporated.

8 Source: http://www.adobe.com/ 9 Source: http://labs.adobe.com/

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There may be many motives for an acquisition: economies of scale,

financial, market­related and much more. An acquisition can built on

core competences and enhance competitive advantages so it is an

important part of the organization’s general strategy. Normally, the

acquisition issues are a part of both corporate and marketing

strategy, but in this text I will only concentrate on the strategic

market planning side. That is, I will view the acquisition as a

strategic marketing decision taken by the company in order to gain

competitive advantage. That narrows down the motives to mainly

product and market related, so in Adobe’s case they could be:

­ Industry restructuring (removing a competitor like Macromedia

from a target market)

­ Increased market power (a larger company may have more

control over its prices, customers and competitors)

­ Access to new markets (effective way of entering a new market

by acquiring an already well­established company in it)

­ Economies of scope (combining both firms’ product ranges may

provide consumers with a more desirable product offering)

­ Acquisition of new skills (in the fast­developing software

industry, Adobe could benefit from the acquired firm’s skills

and develop faster than it may be possible only internally)

­ Diversification (diversification as well as innovation and growth

by acquisition, instead of internal creation of new activities)

It is hard to evaluate an acquisition after only two years of its

completion, but considering the evidence that only around 50 per

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cent turn out to be successful, the way Adobe and Macromedia are

working together today is rather promising for their shared future.

Acquiring Macromedia was a very important strategic marketing

decision for Adobe. It allowed the company to make a big step

forward by adding another industry­defining technology platform as

Flash to its product offering. This platform is helping Adobe to meet

a broader set of customer needs and expand its current market. The

acquisition opened the doors for significant long­term growth

opportunities, as the Flash platform already has a big influence on

the emerging area of mobility. On an interview, Adobe CEO Bruce

Chizen said: "Clearly, they [Macromedia] have been more aggressive

in mobile than we have. We'll be able to take advantage of that."

Adobe’s move positioned the company in the growing cell phone

market, where Macromedia had been aggressively expanding by

establishing Flash as a core mobile technology. I believe this was

one of the main drives behind Adobe’s acquisition. They already

managed to sell the PDF as an ‘invisible’ platform, which is the stage

when a technology gets so common, that people take it as granted.

Today most computer manufacturers ship their products with the

PDF technology pre­installed. I expect them to do the same with

Flash technology by making it not only an ‘invisible’ technology in

the personal computer area, but also an essential element of every

mobile/ handheld device.

As both companies had similar mission, vision and culture it was not

that hard for them to integrate their products and offerings. They

offered solutions for overlapping market segments and by combining

their product ranges they went one step closer to satisfying all their

customers’ needs. Soon after the acquisition was fact, Adobe

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decided to offer on the market three new product bundles: Adobe

Design Bundle, Adobe Web Bundle and Adobe Video Bundle. The two

companies were not yet fully integrated, so these bundles were just

a combination of Adobe and Macromedia products arranged in a way

to target special consumer profiles. However, this was just the

beginning. The final strategic marketing decision was made during

the fiscal year ended December 1, 2006, when the company

categorized its products and services in six Business Units: Creative

Solutions, Enterprise and Developer Solutions, Knowledge Worker

Solutions, Mobile and Device Solutions, Platform Business Unit, and

Print and Classic Publishing Solutions. I believe this was a very

adequate decision, because Adobe’s product range rapidly expanded,

so they needed a way to organize their products by offering them in

different forms of packages and bundles that are individually tailored

for the needs of each particular customer group. By that way they

also utilized cross­selling of their products. I see the segmentation

as part of their marketing strategy and their effort to identify their

“unique role in the marketplace in terms of value to the customer” 10

I also consider the fact that Adobe keeps improving and updating

their segment groups to the current customer needs as one of the

main reasons behind the success of their product bundles.

7.0 Current state and future

One of the arenas Adobe decided to enter with its developer tools is

the interactive/rich web application market. Putting aside the rumors

that Google is also heading towards the same market, the players

10 R. Kalakota and A. B. Whinston, Do or Die: Market Segmentation and Product Positioning on the Internet

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are well known. Microsoft, trying to market its RIA 11 platform

Silverlight, is one of them. Another one is Sun Microsystems which

hopes for a deeper market penetration with the introduction of the

reinvented Java FX. After that comes Mozilla with its AJAX platform.

And of course, Adobe with three products, namely Flash, AIR and

Flex. Now I believe that one of the competitive advantages of Adobe

in this battle is its specific market focus. The segmentation

marketing strategy I referred to in the previous chapter gives the

company a much better market position, compared to Microsoft, Sun

and Mozilla as they have much broader market focus. The interesting

thing is that all these applications are basically the link between

personal computers and mobile devices. For example using the latest

Adobe product bundle (Adobe Creative Suite) users can create

prototype interfaces for various mobile phone devices. So far

Adobe’s marketing strategy is working and the company has an

undeniable leader position on the market. However, after feeling

that they are loosing control over the situation, some competitors

decided to make defensive moves that may threaten Adobe’s leader

position. Apple, for instance, did not add Flash support to its iPhone,

and then convinced Google’s YouTube to start offering its videos in

Apple H.264 format instead of the current Flash format. Anyway, it

is still very early to make predictions as the battle for the future of

mobile devices is just beginning.

11 RIA stands for Rich Internet Applications software

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8.0 Conclusion

The aim of this paper was to introduce the reader with marketing

strategy theory, and apply it Adobe Systems as an illustration.

Adobe Systems was chosen for the purpose, because the company

operates in an extremely competitive market where it is very

difficult to be successful and have competitive advantage, so

implementing the right marketing strategy is crucial.

I started by presenting some information about the software

industry and Adobe in particular. Then I explained the concept of

strategy. As you can see strategy is divided into three different

levels ­ corporate, business and functional. And it is the interaction

between these three strategic directions that defines the general

strategy of the organization and guides all its strategic decisions.

Marketing strategy is basically part of the functional strategies and

deals with marketing activities and decisions related to generating

and sustaining competitive advantage. However, because of its

specific nature it is also an important factor in the corporate and

business strategies, hence its key position in the general strategy of

the organization.

In the next section of the report I presented the Miles and Snow

typology. This theory tries to identify the marketing strategy of

organizations by dividing them into three behavioral types. After

explaining the three types (the Prospector, the Defender and the

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Analyzer) I applied the theory by looking at Adobe. Considering the

company’s marketing strategy and examining factors like innovation,

differentiation, market focus, low­cost strategy and new­product

importance, I came to the conclusion that Adobe is following a

Prospector approach.

The next section of the paper focuses on important strategic

marketing decisions recently taken by the company. After presenting

the theoretical marketing strategy related motives for Adobe’s

acquisition of Macromedia, I discussed the event explaining my

position. I believe that the main reason behind the acquisition was

Adobe’s marketing strategy aimed at exploiting the mobile market

by acquiring the Flash technology. Then I discussed Adobe’s

strategic marketing decisions related to the market and product

range segmentation that took place after the acquisition.

In the last section I presented my thoughts on Adobe’s strategic

marketing decision to enter the rich web application market, which I

believe is dictated by their strategy to take over the mobile market.

However, it is going to be very difficult for Adobe to realize its

strategic goals, competing with companies like Apple and Microsoft.

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9.0 References

Dyson, Robert G. (1990), Strategic Planning: Models and Analytical Techniques. John Wiley & Sons Ltd.

Kotler P., Keller K (2006), Marketing Management – 12 th ed. Pearson Prentice Hall.

McGee, J. (2005), Strategy: Analysis and Practice. McGraw­Hill.

Slater, Stanely F., Narver, John C., “Product­market Strategy and Performance: An Analysis of the Miles and Snow Strategy Types”, European Journal of Marketing, Vol. 27 No. 10, 1993, pp. 33­51. MCB University Press.

Thompson, Arthur A. (1999), Crafting and Implementing Strategy: Text and Readings – 10 th ed. McGraw­Hill.

Thompson, John L. (1990), Strategic Management: Awareness and Change – 1 st

ed. Chapman and Hall.

Varadarajan, P., Jayachandran, S., “Marketing Strategy: An Assessment of the State of the Field and Outlook”, Journal of the Academy of Marketing Science 1999; 28; 120. SAGE Publications.

Kalakota, R., Whinston A. B., “Do or Die: Market Segmentation and Product Positioning on the Internet”.

Web resources:

http://www.adobe.com/aboutadobe/invrelations/adobeandmacromedia_faq.html

http://www.adobe.com/aboutadobe/pressroom/pdfs/acquisitionfacts.pdf

http://www.adobe.com/aboutadobe/pressroom/pdfs/profile.pdf

http://www.adobe.com/aboutadobe/pressroom/pressreleases/200709/100107FlashLite3.html

http://www.forbes.com/technology/2005/12/02/adobe­shantau­narayen_cx_dal_1202adobe.html

http://www.forbes.com/lists/2007/18/biz_07forbes2000_The­Global­2000_IndName_17.html

http://www.frost.com/prod/servlet/press­ release.pag?docid=72553835&ctxixpLink=FcmCtx1&ctxixpLabel=FcmCtx2

http://www.greatplacetowork.com/best/list­bestusa­2007.htm

http://www.internetworldstats.com/

http://knowledge.wharton.upenn.edu/article.cfm?articleid=967

http://labs.adobe.com/wiki/index.php/Thermo

http://www.pdfzone.com/article2/0,1759,1787018,00.asp