Upgrading Adobe for the digital life

Few companies in the world have adopted cloud-based software delivery models as Adobe has done. From shipping boxed software to selling by subscription through cloud, the San Jose, California-based company has transformed itself under president and CEO Shantanu Narayen. Revenue has been growing since it dipped to $2.9 billion (Rs 18,101.8 crore) in 2010. Narayen is working hard to fill gaps and battling challenges such as security attacks and piracy in markets such as India. He talks to Fortune India about the tasks ahead and how the company has undergone a mindset change. Edited excerpts:


How do you evaluate your seven years at the helm of Adobe?
The mission has been to bring about change through digital experience. With the shift to cloud and mobile devices, and with social [media], the company had an opportunity to focus on the media business and also develop digital marketing software used for management, measurement, and monetisation [of Internet advertising]. In 2009, we acquired Omniture [an online marketing and web analytics firm], beginning the change from a desktop company to one that deals with the entire lifecycle. While it has taken us a couple of years, most people would appreciate that we were early in recognizing digital marketing as an opportunity. This is a billion dollar business for us. Then we were the first to re-imagine the creative process through what we call creative cloud. If we step back and take a look, Adobe is better-positioned than ever before. We are delivering more value and innovating faster.

Is the addition of new customers through cloud reflected in India too?

Revenues from markets such as China and India are still small on your balance sheet. Why is this so?
Piracy is an issue in these markets. But creative cloud is an opportunity to convert those customers into paying ones because there’s a lot of value in the cloud service and in being on the network. Traditionally, enterprise customers do not use pirated software as the value comes from [after-sales] service. With creative cloud, we are in a better position to grab a share in the media business because it lets professionals work whenever and from wherever they want, using devices such as tablets and smartphones. The Indian market is slightly different, as publishing continues to grow. But the trends are similar to what’s happened internationally. [That way] we are better positioned in markets such as India and China. Revenue is small but growing dramatically. The Indian, Australian, and Japanese markets for digital marketing will explode. Companies want to do business online, so they have to re-platform their sites. Whether it’s financial services, retail or government, people expect a responsive website. We have the best web infrastructure and this business is on fire.

What do you mean when you talk of ‘creative cloud’? Is this a profitable space?
We have introduced the creative cloud worldwide. A number of people who never transacted business with Adobe earlier find the monthly subscription more affordable. Whether India, the U.S., or Japan, the creative cloud has brought us new customers. We should start offering more differential pricing. In the first year, the focus was to deliver the cloud experience. We said in the beginning of the year that if we get a million subscriptions we would feel successful. We got over 1.4 million subscribers. In India, the marketing team is doing well. In the enterprise space, we continue to see more traction. The numbers for small and medium businesses, which want a one-stop solution, are good.

Adobe has compromised on data security more often than others. How are you preparing as cloud-and-online delivery replaces traditional models?
There is a new reality associated with being online. The attacks are a new reality. I wouldn’t agree that Adobe is in a situation that’s different from what’s happening in the market place. We see companies under attack every day. We were transparent in how we communicated with our customers [in such situations] and addressed their concerns. We intend to achieve world-class competency in security.

You have set a target to grow your digital marketing business by 25% and the media business by 15% to 20% in the next three years. Given the economic conditions, aren’t you being too ambitious?
When a company goes through the kind of transformation as at Adobe, you have to look at more than revenue and earnings per share to understand its health. Adobe is healthier than it has been in many years. The digital marketing business did not exist a few years ago. It is now a billion-dollar business. We intend to grow the business by 25% in the growing enterprise category. In SaaS [software as a service] businesses, the first few years are about acquiring customers. If you retain them, they provide a good and predictable business. Long-term SaaS companies can provide healthy margins. In the media business, revenue may appear to have dipped, but we were around $911 million on Nov. 29, 2013 [an increase of 346% year on year]. If you add that to the reported revenue, it shows the health of the business. We are the only company that has completely moved to cloud and has been recognised for flawless execution. We have given three-year targets to shareholders and talked about annual growth in double digits.

How is Adobe working to make the cloud-based digital media business profitable in India?
Our customers’ success and profitability is important for us too. In the Indian publishing industry, print circulation continues to do fairly well. The runway for Indian publishers is probably a bit longer than those in Europe and other markets, where the decline of print has started. Indian publishers recognise that use of content is only going to increase. The adoption of digital content and the advertising spend exclusively on digital is increasing. The growth rate of digital is significantly higher than that of the traditional medium, and customer engagement is better. Video is going to be an explosive category. Whether cricket or any other content, it’s going to be consumed digitally. Consumers will expect access to content anytime, on any device, and the content will be personalised. Companies have to rise to this challenge.

After Steve Jobs’ barb against Flash in 2010, how have you kept up the momentum?

How do you expect India to fire up, and what segments will drive your growth?
A company in India faces the challenges as a company in the U.S. or any other market. The basic questions are still: How to move towards online platforms; how to make sure the brand is available across mobile devices; how to enable transactions online; and so on. I will be hard pressed to find an Indian company that has global aspirations and a will to serve customers but doesn’t think online or digital. Companies anywhere are willing to spend because digital marketing brings returns. Adoption of cloud addresses any piracy issues. So, we are better positioned than ever before to grow the market. As far as focus segments go, enterprise is a no-brainer. Also, as small and medium businesses scale up, they see the value in cloud-based services. I think freelancers [particularly photographers] will continue to grow as a category though it will be a little behind SMBs and enterprises.

How has Adobe’s R&D team adapted to the cloud-delivery model?
Our R&D teams are excited because they want to work on new and interesting technologies. Cloud has allowed them to innovate faster. Feedback is now instant instead of a 12- to 18-month cycle [the norm for non-cloud based platforms]. They are creating algorithms that run effectively on the cloud with large amounts of data and incrementally improving algorithms on the fly. The Bangalore team has done some amazing work with predictive technology to enable people to understand social sentiments. You cannot do that with conventional desktop software.

Is there a strategy around acquisitions for the new-age Adobe?
We will see a lot of consolidation in the digital marketing category. We are well positioned in key solution areas. But we are strengthening them with smaller acquisitions such as EchoSign in the electronics signature space. We continue to find small companies, called ‘acqui hires’ in Silicon Valley, where someone has developed a feature or a service that can be plugged into the creative cloud.