Along with Microsoft’s Office 365, the launch of Adobe’s Creative Cloud last year proved the effectiveness of cloud products sold as a subscription. As I researched Adobe’s recent announcement that they’d be “terminating” their on-premise license, I realized that there was a lot of confusion surrounding the issue. Many people seem to think that Adobe no longer sells on-premise software and has made a complete shift to the cloud. That’s not exactly the case. So let’s set the matter straight and figure out why there is so much hoopla about Adobe’s announcement this week.
First the rumors: My first encounter with the Adobe announcement this week was a rumor that they were shutting down their desktop licenses and moving their entire line of products exclusively to the cloud. To put it mildly I was shocked. With the success of Google, Salesforce and others, software companies definitely see SaaS as an important business strategy. And over the past couple of years we’ve seen big name software makers like Autodesk, Microsoft and Adobe shift to the cloud and subscription licenses.
But that shift wasn’t supposed to be a complete departure from their core business of selling on-premise perpetual licenses. Not this soon. Yet here I was reading articles from the Wall Street Journal saying that Adobe were only going to sell cloud-based versions of their Creative Suite. Images of web designers frantically trying to access a cloud-based Photoshop without an Internet connection popped into my mind.
But then I looked into the matter carefully and realized that Adobe wasn’t doing anything that revolutionary. They are no longer going to update any new versions of their perpetual license products, neither as stand alones nor as part of their Creative Suite. However, they are continuing to sell and support the perpetual license, on-premise Creative Suite 6. But they are not producing a pure SaaS version of Creative Cloud; this was just grist for the rumor mill.
Instead Adobe decided to center their entire product development efforts solely on the Creative Cloud. The Creative Cloud is not pure SaaS. It does not run on a web browser. It is a hybrid SaaS model, whereby a thin client resides on the user’s desktop and provides access to the software. The only aspect of this product that is cloud-based is the once-a-month authentication call that the desktop client makes to Adobe’s servers. Of course, this has been the case with Creative Cloud since its debut.
The real issue here is the switch to subscriptions. Users can no longer make a one-time payment for new Adobe products. All new releases will be developed solely for the Creative Cloud, a subscription based product. In my mind this is a smart move. We know that subscriptions are all the rage. They create lasting relationships with customers and allow businesses a predictable, recurring revenue stream.
The firestorm controversy we’ve all been reading about is really just a matter of people going through the process of getting used to new things. Let’s take a look at how this shift to a hybrid cloud product and subscription payments benefit Adobe and its customers:
Benefits for Adobe
- Recurring revenue
- Higher revenue stream long term
- Consolidates development teams
- Casts a wider net for one off casual users
- Produces a new tactic against piracy
- Provides real time access to customer usage data
Benefits for customers
- Synchronization / storage
- Cheaper incremental payment options
- No more legacy software
- IT cost savings
Ultimately, this shift benefits high end users who want access to the latest and greatest versions of the entire Adobe product line. It also benefits casual users who may want to use the Adobe products for a limited time, e.g., one-off projects. Short term there will be a significant disruption that will see casual users unwilling to lock themselves into a cycle of monthly payments. These users will drop off and switch to similar products they can use for free or resort to using pirated versions.
While some people are saying Adobe’s announcement is similar to the New Coke fiasco in the mid 1980’s, Adobe is making a play to disrupt itself before it goes the way of Borders and Blockbuster.
Keystone
Shifting to a cloud model of delivery is an important way for software companies to provide greater value to their customers, while implementing subscription billing earns those companies smoother revenue streams.
Elan – Since we discussed this topic over the last few days, looking back I am quite surprised by the news in the media that is talking about this major revolution. We were even fooled for a period of time until actually *talking* with Adobe users who knew the real story.
I still believe that this is an important milestone because of the subscription focus, but not the cloud earthquake that some have made it out to be.
Will be interesting to track this over the coming quarters to see if the financials back up the vision.
cheers,
craig.
Looking through the comment sections on a lot of these articles you see a lot of rage from the casual users who heard the hype and didn’t understand exactly what was happening.
They assumed that all Adobe products were now going to be accessed through web browsers, which was simply not the case.
Like you said, when talking to the heavy users (who are the primary revenue target for the Creative Cloud)you realize not much has changed except a push by Adobe to offer users better features and gain a steady stream of recurring revenue.
I think we’ll see the financials taking a dip over the next few quarters as less people spend $2000+ on Creative Suites and more users fork over the $50 a month for the Creative Cloud. But over time, you’ll see the graph climb a little.
Thanks for the comment!
This is mainly about piracy prevention.
Stand alone Adobe products without any of the numerous incentives cost about 2k, @ $600 a year with major updates usually coming in about every 3-4 years the cost is basically the same.
That being said, by connecting to the internet to validate and update, it makes piracy a lot more difficult.
I think that this will be interesting to see if and how the software pirates will adapt to this.
I think Adobe saw that most legacy users weren’t updating with each new release, waiting every few years or so like you said. If they did want the new versions, it was easy to find them on torrent sites.
The truth is that the subscriptions are more expensive for users in the long run, even if those users were buying every new release.This is because Adobe would offer legacy users major discounts on upgrades.
The upside is that the subscription let’s users have continuous access to new features if they want.
re: piracy – In the end, people always find work arounds.
Adobe is doing good for us: only the big ones can really educate the users. As well Microsoft and others are moving to the “cloud” or “SaaS”. I see a lot of benefits for all of us, users as well as publishers. I remember when Microsoft introduced Product Activation with Windows XP and everyone was whining. Now, almost every application does it and no one questions it. In a few years, this will become also true for SaaS/subscription models.