Adobe CC- "Misunderstood", or poorly communicated?

[john beardsworth]

OK, painful as it is to out myself....

Jeff, you may be aware that I am (was) an accountant, the UK equivalent of a CPA, but probably not that I had period doing a lot of S/O (Sarbanes Oxley) compliance work with US-listed corporates like Heidelberg, Cytyc/Hologic, Verizon. The scars run deep.

I'm sure Adobe's revenue recognition policy is as you describe and for the reasons you give. You'll have heard it from many switched-on guys there. It's a good clear line in the sand.

"Can't" is a bit too strong though, "constrained" or "really really constrained" would be where I'd be more comfortable. If Adobe wanted to start releasing features within a perpetual licensing cycle, changing their well-established revenue recognition policies would not be at all trivial and you'd need to convince auditors, tax guys, the markets etc that you're not the next Enron. Can be done though, if you really want it that much, but really tough.

It's more likely you could release new features if the revenue/costs didn't "materially" distort the financial reports. That's harder with few products, but more practical if you are updating lots of products throughout the year. The bumps even out or are immaterial in the context of your other revenue streams. Materiality is a judgement call and there are all sorts of other cost / mgt / risk reasons why you'd probably hold the line, but I think this is closer to where Adobe now are. So I don't buy the idea that the good old policy is behind this week's move.

Anyone still awake?

[Schewe]

OK, painful as it is to out myself....

Anyone still awake?

Thanks, that gave me a chuckle...

:~)

So I wasn't completely wrong, just kinda wrong but you agree that Adobe would have some major work to do to change the revenue recognition accounting policies to allow incremental feature additions during the life of a specific product versions, times as many products that needed to change. And, that with the subscription model the all new accounting procedures are now set in place to allow incremental feature additions...and that trying to have two different revenue recognition accounting policies would be, uh, difficult?

And hey, I still like you in-spite of the fact you were an accountant! In fact, maybe more because you are a reformed or retired accountant :~)

[john beardsworth]

Reformed, Jeff, but still looking over my shoulder for them to come and lock me up again!

At the risk of inflicting more pain (it seemed acceptable in the privacy of an IM!), "difficult" wouldn't be wrong. The accounting should reflect whatever's going on in the real business above ground, but not shape it. though you'd expect it to constrain the mindset because the best way to ensure S/O compliance is to make it part of the culture. You'd have a number of policies for different income streams (I think Adobe already have plenty of non-CS subscription revenue) and in this case you'd be apportioning the CS cost between whatever methods they use for monthly subscription and the perpetual spikes. Perfectly doable - if Adobe had really wanted to go with interim releases in perpetual and subscription. If not, aren't accounting policies an easy way to explain something you don't want to do? Blame the beancounters - I do every day....

John

[Schewe]

Blame the beancounters - I do every day....

Beancounters=Suits (kinda American-meaning if you wear a suit then you don't actually make anything). And yes, many/most problems are caused by them...

[32BT]

OK, painful as it is to out myself....

Anyone still awake?

I think one of the problems in the "bean-counter" arguments is more along the lines of "lack of vision".

Because there is a lack of vision regarding the direction of development of Adobe's products and services (which have matured and are verging on bloatware), the bean-counters will automatically exert more control over what that direction will be. You will then automatically see more corporate centric decisions that lack connection to market and market developments.

e.g. marketing is results-driven, and comes up with aggregation of services to generate more revenue, where as the market is actually demanding break-down of services. etc…

Problem of course is that the more visible decisions in the last couple of years have seemed very corporate centric which result in a decreasing trust from customers. So if you now introduce a model that requires even more trust from the customer, and the model has all the signs of revenue induction written all over it, you have more than a slight problem.

[john beardsworth]

I don't think any of that applies to Adobe, but it's a reasonable-enough prejudice.

[Simon J.A. Simpson]

Adobe was prepared for this onslaught...I had a 2.5 hrs call with Winston and outlined all the issues that the photographic industry would push back on. I warned them that photographers really don't understand copyright law, don't understand license agreements , don't really want any change...even if the change may end up being good.
…

The thing I would caution people about is make your judgements based on reality and facts, not the bullshyte that has been thrown out there by a bunch  of people with anonymous screen names on the internet...

Jeff.  I'm a photographer and I understand copyright law, license agreements, and want change.  I know many photographers in the UK who are the same.  Take a look at the British Journal of Photography if you don't believe me.  I do not believe that a majority of photographers are as you represent them.

I am really concerned, that if what you say quoted above is accurate, that you are misguidedly misrepresenting photographers to Adobe – although I am sure you did not do this intentionally.

Perhaps you would be good enough to correct this "misunderstanding" with Adobe, please.

[designpartners]

....

Has Adobe done a poor job of messaging their CC initiative? To the pro markets, not really...the pros are starting to get it...a monthly nut and they get all the apps they need and free new upgrades with new features as long as they stay subscribed...yes, there's an effective price increase–which is a pittance to the total cost of operating. Now it's up to Adobe to come through on the promise of more frequent upgrades with new features which is one of the main motivations to going all subscription.
....

And if any of you fail to remember, Adobe is a company that excels at one thing, designing professional applications for use by professionals. That's what they are good at, really good at (and about all they are good at). Look at the markets Adobe "owns": graphic design with Illustrator and InDesign, digital imaging and graphic arts and prepress with Photoshop, web design with Dreamweaver. The one market Adobe doesn't own outright is digital video because Apple's Final Cut Pro has a large segment of the market. Adobe knows pros ad what they need/want and a long track record of delivering.

.....
They did it anyway because they (Adobe) honestly believes tat this is the best way of addressing their core market, professional now and in the future.
...

it took a lot of guts for Adobe to do what they believed was the right thing to do for Adobe and the pro marketplace.


...
All of Adobe's marketing and advertising is directed towards the pros...because that's the market Adobe knows.

Schewe and others,

Thanks for your info, it's genuinely helpful.

the thing is, we are one of those small production houses.. we have about 20 design standard licenses, 3 production premium licences, maybe 15 acrobat pro and a few individual PS, and AI and maybe 10 or 15 PSe licences. (we have no master suite)

we're currently using CS5. we wanted to move to 6, but we were kinds srewed by the 5.5 bull saying we were 2 releases behind.. but we can get over that..
as a company, we've been using some of the adobe suite since release 2.5

in general, we've upgraded every 2 releases. we certainly see the advantage of upgrades, but we have to balance costs.

so.. the last time we upgraded from CS 3 to CS5, I think it cost us about €15k (it may have been €18k I can't remember)  -so annualized, it's maybe 5-6k.. a very manageable amount of money.

the thing is, almost none of us use just 1 program, a lot of us use PS, AI and ID on a daily basis. design standard was the ideal package for the majority of us, and we expanded where needed.

I certainly understand the benefit of the full master suite - I'd love to have it.. but.. not everyone in our team need it.. you can buy the individual licences but, it's not really viable to do it for 3 individual licenses per user.

quickly doing the math - even just for 25 CC licences (which isn't enough for us) - €61 per user per month, that's 61*12*25  - that comes to €18k per year! 

now to make things worse, instead of getting a discount for buying 25 licenses, they introduce "teams"... so instead of paying €61 per month, it's €86!!!  so that's 86*12*25 - that's almost €26,000 per year!!!
I like centrally managed licenses, I don't need 100gb of online storage.
 
so that goes from an annualized cost of €6k per year to €26k per year..

I know they have an introductory offer - I don't care about that.. that's only 1 year in what I hope is a long company future.

and we're growing.. increasing our number of users.. but at this price... well.. we will be looking long and hard at alternatives..

so I'd argue, Adobe hasn't got the first clue about the SME Pro market..

genuinely, I'm not sure what to do.. I called adobe sales and spoke to them at length, and while the lady I spoke to was very able to answer my questions, I got no real advice.

thanks for listening and I look forward to seeing how this pans out.. and I'll continue to read this post, watch eps of the Grid, read the adobe blogs and press releases.

James

[Alan Goldhammer]

At the risk of inflicting more pain (it seemed acceptable in the privacy of an IM!), "difficult" wouldn't be wrong. The accounting should reflect whatever's going on in the real business above ground, but not shape it. though you'd expect it to constrain the mindset because the best way to ensure S/O compliance is to make it part of the culture. You'd have a number of policies for different income streams (I think Adobe already have plenty of non-CS subscription revenue) and in this case you'd be apportioning the CS cost between whatever methods they use for monthly subscription and the perpetual spikes. Perfectly doable - if Adobe had really wanted to go with interim releases in perpetual and subscription. If not, aren't accounting policies an easy way to explain something you don't want to do? Blame the beancounters - I do every day....

John

I'm not an accountant but a somewhat astute investor.  Personally Adobe is now going to have to be far more accountable on a quarterly basis with investors as the concern shifts from sales to subscriptions.  It's not unlike the cell phone industry where the focus is on increased subscriptions (ATT got hammered a couple of years ago when they reported flat subscriptions).  With 18-24 month product cycles for 'owned' software it's a different ballgame.  I think this is why you are seeing Adobe aggressively coming out with subscription numbers right now.  It's going to be interesting to see how the new CC is taken up by the user community.  One further note on large enterprise users - they might actually need fewer licences than with traditional packaged software because of the ease in transferring user priviledges.  I don't know if this will play out in actuality but it could be reflected in subscription numbers.

[john beardsworth]

I think that's very likely, Alan. Something people may not have noticed in the Adobe Max brouhaha is the financial analyst briefing slides which puts the 500k voluntary subscribers to CC in context of there 8.5 million CS installations, half on CS6, and 4.5 point releases (single app?). Maybe it was already a well-known figure, but it was new to me. They are also showing quite a long haul with reduced sales until 2015 when they forecast 4 million subscribers (they don't distinguish between voluntary and involuntary ones). I can't decide whether this week is a sign of their confidence or not.

[CMitchell]

As a customer of several of Jeff Schewe's excellent books purchased through Amazon, this is my one and only post on this forum to state - whether you care or not, Mr. Schewe - that while I may consider paying for Adobe's Creative Cloud, I shall never again buy one of your books or videos. There may be some past agitation between you and the guy with the Russian-sounding name, but I'm appalled by the supercilious tone of your reply. It's not the "Jeff Schewe" in the videos I've seen, either.

I'm not a "pro" so I evidently fall outside of your purview, but whether you like it or not, your customers (like Adobe's) are watching. I'll leave it here, because I, too, have other things to do.

[Bart_van_der_Wolf]

so that goes from an annualized cost of €6k per year to €26k per year..

I know they have an introductory offer - I don't care about that.. that's only 1 year in what I hope is a long company future.

and we're growing.. increasing our number of users.. but at this price... well.. we will be looking long and hard at alternatives..

so I'd argue, Adobe hasn't got the first clue about the SME Pro market..

genuinely, I'm not sure what to do.. I called adobe sales and spoke to them at length, and while the lady I spoke to was very able to answer my questions, I got no real advice.

thanks for listening and I look forward to seeing how this pans out.. and I'll continue to read this post, watch eps of the Grid, read the adobe blogs and press releases.

Hi James,

I just wanted to express my admiration for your considered tone of voice, while facing a major blow to your commercial viability. I'm not sure it will impress Adobe as much though. They seem to have other things in mind than acting as a partner.

Cheers, and I hope things get better but I'm not holding my breath,
Bart

[Tim Lookingbill]

so that goes from an annualized cost of €6k per year to €26k per year..

I know they have an introductory offer - I don't care about that.. that's only 1 year in what I hope is a long company future.

and we're growing.. increasing our number of users.. but at this price... well.. we will be looking long and hard at alternatives..

I feel for you and designpartners, James. It's really hard to keep in mind all the various customer base scenarios this CC impacts. Single users have nothing to complain about in comparison.

In Jame's situation it's not the same type of subscription model as say my cable TV setup. If TWC goes up on the price for basic expanded, I just call them up and tell them I'm going to At&t or satellite service upon which I'm transferred to the "Retention" department where I get to "negotiate" with another sales rep which brings the subscription price to a reasonable level. Same things happens in reverse with my At&t phone/internet bill where I get to say I'm switching to TWC.

With James' situation there really isn't a similar "retention" way out with regard to multi-app packaged licenses choice with all the Adobe apps his small firm uses. When Adobe gives lower priced introductory 1 year offer, all that synched, linked and custom sets/preferences generated content created within that year will be made unusable if they don't agree to the higher subscription price.

What other sets of apps are their other than Adobe for James company to turn to?

Maybe Adobe's bean counters need to work in a design studio in a deadline situation to see just how complicated it can get managing that level of integration of that many apps with that much content. They seem to not have a clue.

[designpartners]

thanks for your comments Bart and tlooknbill.
as for my tone... well there's not much point in blowing up over it. Adobe have the option to change or increase how they bill and we have the option not to buy it.. being based in Europe, we're pretty used to being taken advantage of by the software companies ($ to € parity for example).

We're also used to paying software maintenance, which I feel is a MUCH more fair business model. You buy the software at full price, and pay in the region of  15-30% of the cost per year as maintenance. it's a known cost, you get support, you get updates and if you choose not to pay in future, you keep what you have. and if you chose to go back on maintenance, well.. unfortunately there is a penalty, you back pay a portion of all of it..  but critically, you are not held hostage, you can always open your old files, you can continue to run your business.

we're also lucky that we've a pretty strong leadership within the company, it's been run well through the last few tough years and we are in a strong position. as I said it's the long game. we're not guaranteed to always be this fortunate.

as for alternatives, well... we can stick with CS5, we can upgrade to CS 6, we can move PS to PSP, AI to Coral Draw, ID to Quarke, premier to final cut, AE to Apple motion, Fusoin or Blender, Acrobat to any of the freeware PDF  converters.

the funny thing is that about half of our designers used Coral Draw instead of AI for a long time and when we moved to CS5 we standardized on AI..

we'll bide our time.. read all the info and make a considered decision on the future, and that could be moving to CC.. or it could be something else.

James

[hjulenissen]

I'm not an accountant but a somewhat astute investor.  Personally Adobe is now going to have to be far more accountable on a quarterly basis with investors as the concern shifts from sales to subscriptions.  It's not unlike the cell phone industry where the focus is on increased subscriptions (ATT got hammered a couple of years ago when they reported flat subscriptions).  With 18-24 month product cycles for 'owned' software it's a different ballgame.  I think this is why you are seeing Adobe aggressively coming out with subscription numbers right now.  It's going to be interesting to see how the new CC is taken up by the user community.  One further note on large enterprise users - they might actually need fewer licences than with traditional packaged software because of the ease in transferring user priviledges.  I don't know if this will play out in actuality but it could be reflected in subscription numbers.

I am an engineer, not an investor. It always amaze me when investors/"the market" seemingly hold indirect indicators more dearly than direct indicators.

"The bottom line" seems to be what (should) matter? If I am (consistently) able to sell my products/services at a sufficiently high price to cover my costs and reward my investors with a nice return on their investment, why should the number of employees, the number of licenses, etc matter?

I am aware of companies where executive bonuses are paid based on how many employees are cut (independently of the bottom line), how much maintenance cost is cut (no matter what future costs will be), and I have a hard time understanding why the investors would accept (or promote) such a system. Given perfect data on how the business is being operated (something that is, of course, impossible), should not only actions that affect long-term profitability and risk, be in the interest of (even) shorter-term investors? Any actions that are based on (prospective) investors imperfect knowledge of how the business is run seems counter-productive and something that should be regulated?

-h

[gbillett]

Mr Schewe

I have bought your first book and pre-ordered your second book.  I have purchased a video you completed with Michael.  Your rudeness will make me consider very hard whether to continue with my pre-order as well as future products you may make with partners.  I would suggest it also reflects unfavourably on the businesses you are identified with,  including a more corporate Lula.  This move by Adobe,  and its associated distancing from photographers as you have suggested and apparently defend, appears prima facea as bullying as your comments. 

Am I done with ya ( and the corporate ruthlessness you apparently defend) ?  I shall think long and hard before I make a final decision.

Is this a watershed moment generally within the digital photographic industry?  Seems somehow a relevant question :-)

[Schewe]

Am I done with ya ( and the corporate ruthlessness you apparently defend) ?  I shall think long and hard before I make a final decision.

Ok...see ya...

Is this a watershed moment generally within the digital photographic industry?  Seems somehow a relevant question :-)

A watershed moment? I don't know. I think we'll only know in hindsight. It may offer an opening for some bright young minds to do some interesting and cool new products–I hope so. But I think it'll be a blip in the road.

Edited to fix the bad quotes I did :~(

[John Camp]

If Adobe's decision is so smart for their core business, why hasn't the stock price shot up?

Just a quick comment on this -- I've seen several similar comments here and elsewhere.

Eh, Adobe's price *did* shoot up. Just not when us amateurs were buying it. If you were a serious professional investor, you bought it last autumn, or even a year ago. In the past year, it has sold as low as ~$28 a share. It's now $44, just a little bit off its record high. How did it get to its record high? Because a lot of people knew that a subscription model was coming, and that would be good for Adobe's bottom line. Then why has the stock dropped since the announcement? Well, it's only dropped a very small amount, well within random variation...this off a record high. And this conforms well with the old Wall Street adage, "Buy on the rumor, sell on the news." The smart money got in last year, when rumors of the new model began to leak.

Bottom line: the Adobe execs with stock options just made a bundle.

[Schewe]

And this conforms well with the old Wall Street adage, "Buy on the rumor, sell on the news." The smart money got in last year, when rumors of the new model began to leak.

Bottom line: the Adobe execs with stock options just made a bundle.

John...yep, you got that right...by the time something "happens" it's already too late. The reason that Adobe's price/share has dropped was because of profit taking after the recent highs...

The "news" of the subscription model will take several quarters or till next year for the market to digest the results of the recent "news"...

[Deardorff]

Adobe does not seem to understand that some of us have SLOW connections. Also, that some of us do not have our work computers online - ever.

No chance of a faster connection in the rural area we live in. More people live in a decent sized city Apartment building than our entire county. The phone company won't upgrade for the 4 farmhouses on our 12 mile stretch of road at the end of the line.

Satellite is even slower - we tried it and quit. Really lousy when you can't get a connection because it is cloudy, raining or snowing.

As for the work computer never going online - that won't change.

Adobe does not care and we know it. Their 'tech help' is worthless and only gets more so with each new iteration of their programs.