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
Table of Contents
1.0INTRODUCTION .................................................................................................. 2 2.0COMPANYBACKGROUND ................................................................................. 3 3.0PROBLEMSTATEMENT ..................................................................................... 4 4.0MARKETINGSTRATEGY ....................................................................................6 5.0ADOBE\u2019SSTRATEGYTYPE ............................................................................... 8 6.0ADOBE\u2019SSTRATEGICMARKETINGDECISIONS............................................12 7.0CURRENTSTATEANDFUTURE......................................................................15 8.0CONCLUSION.................................................................................................... 17 9.0REFERENCES ................................................................................................... 19
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1.0 Introduction In the past years, the internet has grown dramatically. E\u00admail has spread faster than any other method of communication. Every hour over a billion of e\u00admails 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\u2019s largest software companies,
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Source: http://www.internetworldstats.com/ 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
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Source: http://www.forbes.com/ Source: http://www.greatplacetowork.com/ 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?
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What marketing strategy is Adobe following?
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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 5
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 6
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 7
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 9
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
Narrow
Narrow
Broad
New product importance
High
High
Low
New product responsibility
High
High
Low
New product success rate
High
High
Low
No difference
No difference
No difference
Market focus
Average profitability
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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.
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European Journal of Marketing 27, 10; p.34 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 Thermo9 (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.
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Source: http://www.adobe.com/ 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 13
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 14
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.
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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 17
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
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