Flashing the Web
Now that everyone from YouTube to Viacom relies on its software, CEO Bruce Chizen thinks Adobe is ready for its close-up.
By John Battelle, Business 2.0 Magazine contributor

(Business 2.0 Magazine) -- Pop quiz: Which software company reaches the most people around the world?

If you answered Microsoft, you'd be wrong. But you'd be hard-pressed to name the right one - Adobe Systems. The company's products launched the desktop-publishing revolution. Photoshop and Illustrator have long been mainstays of every designer's digital tool set. And Adobe's PDF has become the standard for exchanging documents.

chizen_bruce_adobe.03.jpg
Adobe CEO Bruce Chizen

While its software may let its customers express their creativity, Adobe (Charts) has for the most part stayed out of the picture.

That may be changing, though, thanks to CEO Bruce Chizen's bold moves. First and foremost, there's his $3.4 billion acquisition of Macromedia last year, which made Adobe software the back end of sites like YouTube just as the online video trend was catching fire. Now Adobe's Flash, which displays video and animations, and Reader, which displays PDF documents, are spreading to cell phones too.

Adobe's new reach is drawing Microsoft's attention, of course. Microsoft (Charts) is rolling out XPS, a competitor to PDF.

But Chizen says Microsoft-where he worked early in his career-is fighting old battles. Instead of worrying about XPS, Chizen is thinking about what happens when the kind of content-creation software his company makes moves onto the Internet.

We may not be able to edit high-resolution photos over the Web today, he says, but with the explosion of bandwidth, it's inevitable that we will. Chizen sat down with Business 2.0 contributor John Battelle to lay out how he plans to stay on top of the next wave of change.

Adobe is one of these companies that you never hear much about. Why is that?

If you think about the impact we've had, it's pretty significant. We're just not well known for it. Any content you see in your daily life, chances are there is Adobe type sitting in there. If it's a magazine or newspaper, it's probably laid out with InDesign or PageMaker. The logo on that water bottle was done with FreeHand or Illustrator. Any image you see on the Web or in print or in a film was probably worked on in Photoshop. An animation or video on the Web is probably in Flash. If you download a tax form off the IRS website, that's in PDF. So what we do touches just about everybody's life. We're just quiet about it.

In some ways it's a strength of the company. We're important to our customers, who are the ones creating information. It's less important to us that the consumer realizes that Adobe's behind it. So a person who's on a cell phone in Japan today, they're using Flash Lite. They don't know it's Adobe. But NTT DoCoMo (Charts) knows it's Adobe. And all the content developers and designers know that they need to use Adobe products to work with NTT DoCoMo.

You were a sales guy at Microsoft in the 1980s. Now your former employer is coming after you. How are you dealing?

I was there from 1983 to 1987. The reality is we've been competing with Microsoft for many, many years. Before I even got to Adobe, Microsoft came up with a competitor to our PostScript product that helps documents print clearly, called TrueImage. It ended up in one printer from one manufacturer. It was a complete disaster.

When I came to Adobe, I worked on a product called PhotoDeluxe, and Microsoft came out with a competitor called Picture It, which was going to change the world of consumer photo editing. Today, Picture It has, you know, this much market share. [Pinches two fingers together.] Microsoft tried to include another product, PhotoDraw, in Office for free. It made no impact and ended up dying. And then they tried to include a PDF-like format for Office documents in the mid-'90s.

Now they're saying they'll do it again.

In Windows Vista, they're including support for a format called XPS, which imitates a lot of what PDF does. Microsoft is, in effect, trying to make the Web proprietary through Vista. They would love to eliminate the need for anybody else's products to create content, so it becomes a wonderful Windows world, from server through desktop. It's a brilliant strategy.

But doesn't a Windows-only world strike you as a deeply uninteresting one?

Agreed. I think Microsoft finds us an annoyance because through the combination of PDF and Flash, we have greater reach and are on more devices than Windows. And if you design your content for that, you don't need Windows. So it becomes a potential threat to Microsoft.

What lessons do you draw from Microsoft's repeated failures in trying to compete with Adobe?

I'm not sure this is unique to Microsoft. I think it applies to any company in any industry. If you're trying to go after an entrenched competitor, you can't just copy them, because you're trying to chase a horse that's not going to slow down. If you look at what Microsoft has been trying to do vis--vis Google (Charts), it's similar. You know, Google does search, Microsoft does search. Microsoft hasn't been able to think differently.

The one example where Microsoft was able to do better than the competition is the Xbox. Microsoft used better graphics and the Xbox Live service as vehicles to differentiate. But other than that, you have to go back to my days there, with Excel and Word, which were drastically different products than Lotus 1-2-3 and WordPerfect-and they were successful.

Has Microsoft tried to come in and buy you out?

Not that I know of. But in late 1998, we had a market cap of $1.7 billion. We had lots of revenue and cash, but we were not Web-savvy and not as well managed as we could have been. Anybody could have bought us with their cash on hand-Microsoft, Apple, Sony (Charts), Hewlett-Packard (Charts), IBM, and on and on. Our market cap today is $18 billion. That's an expensive acquisition.

How are you making money off Flash?

Let's start with cell phones. NTT DoCoMo in Japan is the best example. Virtually every handset has Flash Lite on it, and some of them have Adobe Reader. We get paid for that. DoCoMo has also launched a new service, I-Channel, that has attracted 2 million new subscribers who pay $4 a month on average. It's a huge success, and we partake in that. And we expect to launch a similar service with a major U.S. carrier early next year.

Flash has become the unofficial standard for Web video sites like YouTube, MySpace, and Google. Is that helping your business?

What we have is a video format that can be embedded in a website for a great experience. You can't do that with Apple's QuickTime or Windows Media. Because MySpace forced everybody to upgrade to Flash 9, that version will end up having the quickest upgrade cycle we've ever had-90 million MySpace users, just like that.

We also announced a deal with Viacom in August. They want to create content for TV, the Internet, and cell phones with a single production team. So we make money when companies like Viacom purchase our creative tools to develop video content. They can also purchase our Flash Media Server to serve up the content, or sign up with our wholesale customers-content distribution networks such as Akamai.

I don't think people realize, on an emotional level, how the use of video is going to explode. Video is the best form of communication besides face-to-face. And I think we're the only company that can do everything from video editing to delivering it in a great way.

You've done a software distribution deal with Google. But is there some point where you two run into each other?

Today, our customers need the power of a CPU on their desktop. But there is a scenario in which, as broadband speed gets greater and greater, Google uses its advertising model to deliver applications over the Web for free, potentially replacing the desktop applications we make.

I'm sitting here telling you that it's coming. I recognize that our strength is on the desktop, not the Web. I don't know whether it's going to be three years or five years, but we have to get there before Google. And we're starting.

John Battelle is the chairman and publisher of Federated Media Publishing and the author of "The Search."

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.