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'Betting Big On Creative Cloud'

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Adobe systems President and CEO Shantanu Narayen is tired of telling people that Adobe is no longer only about Photoshop. That it is now a big player in digital marketing. Three years ago, the digital markets business did not exist, but today it fetches Adobe $700 million in revenues. “We have committed to the street that we will grow this business 20 per cent year on year. Last quarter, it grew 40 per cent,” says Narayen. In an interview with  BW’s Chitra Narayanan and Swati Garg, Narayen talks about how Adobe, which turned 30 recently, has embarked on a business transformation journey. Edited excerpts from the interview:

Why and when did Adobe start transforming itself?
Our mission as a company has always been to change the world through digital experiences. A few years ago when we saw what was happening to the touch points for digital experiences — the move towards the cloud, mobile, and social media— we realised that we had to re-invent the company to really take advantage of the technological trends and continue to be more relevant than ever before. So when we talk about our two large growth opportunities, we talk about digital media and digital marketing.

In digital media, what we talk about is the creative process. People have known Adobe for its creative products — whether you are doing page-layout with InDesign, art work with Illustrator, images with Photoshop, video editing with Premier or animation with After Effects. But we felt we had to completely re-imagine the creative process. Hence, we introduced this product called ‘creative cloud’ and we think it’s a big fundamental change because we have now re-imagined the creative process through a combination of what you can do on personal computers, on tablets, and what through cloud services. We believe that tablets are not just going to remain consumption devices but over time, they are going to be just as much creation devices.

The big new thing about Creative Cloud is not only do you have access to all of our desktop products at any time, but on other form factors too. We’ve already done multiple releases of the Creative Cloud.  It is a dramatically different business model because you can now pay as you go. There is a monthly subscription fee and, financially, the extent of adoption of Creative Cloud has exceeded our expectations. We will be bringing out an enterprise offering as well as a team-based offering for small and medium businesses.

Our big move in digital media has been to re-imagine the creative process through the introduction of the Creative Cloud. It’s off to a great start and now it’s really all about accelerating the transition to the creative cloud.

What about the digital marketing side, where you have grown through a few acquisitions?
Well, we’ve done both — acquisitions and grown organically. When we looked at the big picture, we found that every single company in the world has to have a distinctive online presence right now due to the mobile and tablet. Everybody has to re-platform their website to these new form factors. Every business is thinking about it.But unless they know who is visiting their websites and what their demographics are, they cannot provide a great experience. So we introduced this product called Marketing Cloud.

The acquisitions of Day Software, Omniture and Auditude have all made us the leading analytics player. We process 6 trillion transactions a year.

We bought a company called Demdex that allows you to do demographic segmenting. We have introduced our own Adobe social product which allows you to have your fan pages on Facebook or an appropriate presence on Twitter and then we also bought a company called Efficient Frontier, that was started by an Indian, based in the US, and this allows us to do media optimisation.
  • Adobe Systems was founded in the US in 1982 by Charles Geschke and John Warnock
  • The firm was named after Adobe Creek, which ran behind Warnockfs home in California
  • Till June 2012, it employed around 10,474 people worldwide
  • It has acquired many companies over the years, with Behance being the latest
  • India is the largest R&D centre for Adobe outside the US
We manage over two billion dollars of annualised marketing spends. If you think about technology companies that are actually now spending money on behalf of customers, the idea might be that businesses come to us and say, ‘Hi, I want to spend so many million dollars, help me decide how much I should spend on search engine optimisation versus display versus social versus on videos.’
So you are playing the media planners’ role basically on the digital platform?
Correct. And the best part is that we created this whole business from scratch. Three years ago, this business didn’t exist for Adobe, now it is a $700 million business, growing at 40 per cent a year. So, we are actually the largest provider of technology to marketers around the world. Last quarter, we committed to the Street that we are going to grow this business 20 per cent a year in revenues, and 25 per cent a year in bookings.
When the web came along, everyone put out all their content online but didn’t really monetise it.  I mean, you put dollars and you converted them into dimes, or you put rupees and converted them into paise. Now here is a brand new opportunity that everybody is seeing and the amount of time that people are spending on creating digital editions is actually increasing.
What about the cloud? How do you see the adoption of it shaping up?
Well, we expect to see significant new customer adoption. That is a business that we expect to grow as well. We think that the move to the cloud enables us to continue to grow our creative product business — Illustrator, Photoshop and so on — more rapidly. The combination of Marketing Cloud and Digital Cloud is what makes Adobe a very different business.
I think the one other thing that the creative cloud allows you to do is it actually allows you to combat piracy in a more meaningful way than we’ve ever had before because all these features and all these services are delivered through the cloud. You need access and you need the account ID to be able to do that.
How much do you end up losing due to piracy?
We think we lose over a billion dollars a year to piracy around the world and you know, if you are of four-and-half billion dollar business, that’s very significant. We invest 20 per cent of all of our sales revenue into research and development. We’ve always taken the approach that we want our legitimate customers to have a great experience, but unfortunately we see a lot of piracy. We think over time, we will see a world where even if you have a tablet, through the Creative Cloud you can stream a version of Photoshop and use it on the tablet — the possibilities are just endless.
I think last year, we have already done the heavy lifting in terms of delivering the Creative Cloud. This year also is a big milestone by the way for the company as we finished 30 years. We want to be the company that enables all the revolutions on digital experiences.
How do you see the launch of the Windows 8 changing things for you?
Frankly, I think it is too early to tell about Windows 8. But re-imagining creative apps in ‘touch’ and how touch is going to change the way we work is going to be very exciting. We can show you prototypes of what we are doing and of how touch and gestures are going to change what you do with these applications. I mean, if you think about Illustrator, actually, using a mouse is an artificial way of drawing and so, I think touch will enable us to go back to having a more intuitive input mechanism for creation.
Other than Windows 8, the second important thing is stylus devices. I think you are going to see new input mechanisms in stylus devices. Soon you could have a pen that when you press hard, increases the brush width. So, very interesting and exciting things are happening in Adobe research for taking advantage of technologies.
Do you see a lot of technology spending moving from the back office to the front office? Do you see the chief marketing officer (CMO) playing as big a role as the chief information officer (CIO)?
Absolutely. We have said that we think this is going to be the decade of the CMO and customer-centric expense. I think there are two things. People are religiously going to start measuring everything that they spend to understand the return on investment; and, again, clearly every business is moving online and every business will want to measure what is happening. And so, I think the CMO, the chief revenue officer, the chief digital officer — they call them by different names in different organisations — will be important. In media publishing, they might be called the chief revenue or digital officer.
But as for the spending amount, there is no question that it is going to increase. At Adobe itself, we spend about 70 per cent of our marketing budget online and everything is measured, so it doesn’t become just a subjective discussion of whether the act was effective; it becomes an objective discussion of what exactly it is driving.
Is Education the biggest vertical for you?
Education is our biggest vertical on the creative side. The big picture is that we are a little over $4.2 billion, in which the creative business is about three billion dollars in order of magnitude, while the digital marketing and our enterprise business is about a billion dollars. On the creative side, education is our largest vertical. On the digital marketing side, we can share this piece of statistics —In the US, seven out of the top ten banks use our analytics. You know, we are the big data company already for marketers. Analytics is one space where we are leading. Our content business is absolutely exploding.

(This story was published in Businessworld Issue Dated 28-01-2013)