Adobe Under Attack

Although commonplace in Hollywood, we very rarely get to see showmanship in the tech industry these days. Some of us younger techies fondly remember the bravado of industry icons like Larry Ellison and Steve Ballmer but lately it seems like the Silicon Valley is overtaken by understated professionalism that leaves many of us uninspired and hungry for a real showdown.

But then there’s Steve Jobs. Never one to disappoint, he’s the last man standing of the Tech 1.0 generation still exhibiting the magnetic charisma we all miss from the nineties-era leadership. And he’s still swinging for the fences, more than compensating for Apple’s defeats in that decade. Just when you thought Techland lost its pulse, at a recent employee meeting Jobs reportedly dropped the software industry equivalent of a WMD on the venerable software company Adobe:

[Adobe is] lazy. They have all this potential to do interesting things but they just refuse to do it. They don’t do anything with the approaches that Apple is taking, like Carbon. Apple does not support Flash because it is so buggy. Whenever a Mac crashes more often than not it’s because of Flash. No one will be using Flash. The world is moving to HTML5.

Those of you who follow tech industry movements will know that Adobe seems to be under attack from several directions right now. In addition to Steve Jobs’ very public castigation, Adobe is taking arrows from Google and Microsoft as well through both company’s public support of HTML5. What’s at the heart of this angst? Essentially this is an all out war to control content, developers and ultimately the consumer. Given that Adobe Flash is today’s primary distribution vehicle for video on the Web, media companies should monitor this battle closely.

The digital media industry value-chain is composed of several key constituents:

• Content (eg, Studios, Game publishers, App developers)
• Platforms (eg, Microsoft, Adobe, Google)
• Devices (eg, Dell, HP, Apple, RIMM, Samsung)

Media companies like a distinct value-chains because its analogous to the home video and broadcast industries whereby media companies make a piece of content, hand it off to distribution platforms that define standards for things like terrestrial broadcast signals, DVDs, etc. Devices are manufactured to conform to these standards so that consumers can enjoy media with the same experience regardless of location or device. Along the same lines, YouTube and Hulu leverage Adobe Flash to reach many millions of PCs and Macs, and similarly Netflix uses Microsoft Silverlight to do the same thing.

An alternative value-chain would be one where the Platform and Device are integrated into one entity. Examples of this exist in the game console market. A game developed for Play Station 3 doesn’t work for Xbox 360 and definitely doesn’t work on the Wii. Although gaming software for each platform may leverage the same title or franchise (eg, EA Sports John Madden Football), more often than not, a game publisher like EA has to develop the content specifically for each console, leveraging technology that is often proprietary to each manufacturer.

Adobe Flash is currently the world’s most robust content development platform. It exists on 97% of all computers, most mobile phones, most game consoles, and even many Internet-connected consumer electronics. Flash enjoys a community of developers that numbers in the hundreds of thousands and all of them enjoy the ability to write with one language (Action Script) to reach any Flash-enabled device regardless of operating system. None of the drawbacks of traditional cross-platform development exist in Flash: Flash apps look great almost all the time because Adobe has a knack for putting only as much functionality in Flash as it needs, never more. That makes the software resource-efficient, user-friendly and easy to install. Although Java has been touted as the open-source, technically superior Flash-killer for many years, Flash thrived because of the strength of its developer community and superior user experience. (More info on that here: http://blogs.zdnet.com/Burnette/?p=286)

So how did Adobe become ubiquitous? By offering a very strong product (technically speaking) and very affordable pricing. YouTube’s founders chose Flash Video to enable their service because everyone already had it installed on their computers, and to deliver video to those computers using a standard Web server (using HTTP), there was no cost to YouTube other than cost of buying the Flash development (CS4) tools for a few thousand dollars. YouTube is the largest video distribution service in the world and although it was valued at $1.6 billion by Google, Adobe only captured thousands of dollars of revenue from that deployment. Is that bad business? No. That’s precisely why so many developers choose Adobe over alternatives, and why Adobe has such incredible ubiquity on the Web.

Alternative to an ubiquitous, cross-platform development environment, the game-console value-chain is very powerful for the device manufacturer if they can get it. It locks the consumer and the content into one proprietary platform that is owned by the device manufacturer. Traditional attempts to build an integrated device and platform have failed because developers and content generally gravitate to the platform that reaches as many devices as possible. Notable failures have been the Sony Betamax that was much more proprietary and expensive to manufacture compared to the VHS-standard for home video which was less rigidly controlled by one manufacturer. In the nineties, the Macintosh failed to the PC because the PCs were cheaper and had more content and application development surrounding the platform.

But what happens when the proprietary device is also the market share leader? Take the iPod for example. Incredible industrial design, product experience and marketing have catapulted the device into 80%+ market share. With dominant share, Apple was poised to create a developer community that is proprietary to Apple products (the “App Store”). The strategy failed when Macs were less than 10% of the PC market, but as the market leader in portable devices, developers flock to submit apps to Apple. Of course Apple is smart to take its proprietary developer community to its other products, the iPhone and now the iPad. You can bet that Apple will take the App Store as far as it possibly can, because for the first time it owns its own the hearts and minds of the developers!

So when Steve Jobs calls Adobe and its product development organization “lazy,” that is unfair and probably disingenuous. He’s a shrewd competitor that doesn’t want to share his company’s crown jewel: a proprietary distribution channel for content and applications. He probably also remembers when Adobe stopped publishing Photoshop as a native application for the Mac in the mid-90s. This was the equivalent of kicking Apple while it was down, and now with Apple rising up clearly the institutional memory is long.

As for Microsoft and Google? By taking aim at Adobe, it appears that each company may want the world to look a bit more like the game console market with 3 dominant, proprietary platforms. Furthermore, HTML5 is a powerful development environment that is non-commercial. Adobe stands between the consumer and Google or Microsoft and therefore exposes each company to risk of being intermediated by competing commercial interests.

Media companies brace yourself: the balkanization Apple, Google, and Microsoft will try to create result in more complexity and drive up the cost of content distribution. It shifts the balance of power away from you and deeper into the proprietary platform-devices.

Make no mistake however, HTML5 is a very solid improvement over its predecessor and will undoubtedly erode some of Adobe’s value proposition. Because its built into the browser, HTML5 will not suffer the user-experience glitches that Java Applets are known-for. However, media companies need the ability to reach consumers on any platform very efficiently, reliably, and securely. If media companies take Steve Jobs’ comments on face value, they’re likely to suffer a pretty rude awakening when they realize Apple’s lock-in isn’t just about the consumer. It’s about content as well, just as Universal Music Group found out when it unsuccessfully tried to muscle Apple out of its one-size fits all pricing model for music. Cross-platform development (when it doesn’t hurt user-experience) is good for the content business, but I have a strong feeling that’s not what Apple wants.