Adobe went all in with cloud apps not long ago, changing their business model from offering products on physical discs to a subscription-based model where users can access their products via the Creative Cloud service. Consumers and professionals have been frustrated, but Adobe’s stock has soared, rising 63% in the last 12 months. At the same time, net income is down to $47 million, a 28% drop from last year. This apparent disparity can be explained in part by the overall success of the Software-as-a-Service (SaaS) industry, given prominence by leaders like Salesforce and now Adobe.
Adobe’s Cloud-Based Service Model
Adobe’s Creative Cloud service offers a slightly less expensive to their traditional boxed products. Industry analysts say this is one of the reasons for the dip in Adobe’s profits. Another reason is negative reviews and backlash from a wide base of professions that have been loyal to Adobe's unique suite of design and development applications. Investors, however, are optimistic that the short term dip in profits will lead to higher profits in the long run as subscription based model stabilizes cashflow and increases the lifetime value of each sale.
Applications are downloaded from the cloud, after which they run completely on your computer. The cloud is only used for downloading, upgrading, and media storage. Apps can be installed on two different computers but can only be run on one at a time. New features include Adobe Edge, a program for creating animated, interactive Web content, as well as the Creative Cloud for Teams feature, which is more expensive and provides 100 GB of cloud storage for each user. Apps like Photoshop and Illustrator have also been updated to be compatible with the latest hi-res screens, like the Apple Retina.
Subscribers to the Creative Cloud get instant access to new apps and updates, and Adobe is offering a variety of incentives to attract new customers and retain subscriptions, like bulk discounts and promises of new software.
How Consumers and Businesses Feel About the Change
More and more people are subscribing to the Creative Cloud, with Bank of America predicting that fiscal year 2015 will see 5 million subscribers before rising to 12.5 million in fiscal year 2019. During the same period, earnings before interest and taxes are expected to rise from 55% to 60%.
Many professionals, however, are somewhat upset with the major changes being made to the systems they have been using successfully for years. The fact that the service is cloud-hosted has raised several concerns. After all, increased profits for Adobe means increased costs for businesses. The subscription based model forces users into "renting" the software instead of owning it. Stop your subscription and you lose access to the software.
Some are worried that the reliance on an internet connection will prevent them from using the service, or that new licensing restrictions would do the same. The need to download and update from the cloud will cost some bandwidth, and those updates will probably be made whether or not the user actually needs them. Updates could also include a new bug that could interrupt work in the middle of a project. Some of these problems are addressed in Adobe’s Creative Cloud FAQ, which explains that updates can be done at the user’s discretion. Adobe's Creative Cloud licensing structure does benefit consumers by making it much harder for people to illegally priate the software, which industry analysts say can increase retail pricing.
Some shareholders, however, are not expecting the recent positive stock trend to continue. According to the Schaeffer Research firm and as reported by Forbes, most short-term speculators are leaning towards the put option much more than recent years.
Despite these concerns, it is likely that the success of Adobe’s Creative Cloud will be determined by the number of subscribers they get in the coming years, and whether or not they will choose to continually renew their subscriptions.
Royal Discount is a Certified Reseller of Adobe products.