Adobe channels its inner Larry Ellison and goes shopping

The design software maker's announcement to buy Omniture could make it a one-stop shop for web development.

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By Michael V. Copeland, senior writer

How has Wall Street responded to last year's collapse of Lehman Brothers?
  • Made significant changes
  • Some reform, but more needed
  • Business as usual
  • It's gotten worse

NEW YORK (Fortune) -- Two things happened yesterday of interest to Adobe Systems investors.

The software company announced its fiscal third-quarter earnings: Profits were down 29% compared to the same period last year as the recession hurt sales of its flagship Creative Suite software. That wasn't a surprise.

The surprise was the announcement that Adobe (ADBE) would buy web analytics company Omniture (OMTR) for $1.8 billion in a deal that ought to close early next year.

In after-hours trading Omniture shares soared, up almost 25% on the news. That's about the premium that Adobe is paying for shares of the Orem, Utah-based company. Adobe share drooped a bit, down almost 5% after the acquisition was announced.

If you are thinking about buying into Omniture at this point, don't. Whatever upside was in the stock, just got priced in. But if your interest is Adobe, it makes sense to tease out the implications of this deal.

Adobe's main money-maker is still its creative software, the photo-editing and design tools that practically every graphics professional uses. After acquiring Macromedia in 2005 for about $3.4 billion, it extended its reach deep into the online world, especially via Macromedia's ubiquitous Flash media technology. By every measure that acquisition went well, with the two companies combining businesses and cultures without any major hitches.

Adobe CEO Shantanu Narayen says he sees a similar cultural fit with the 1,200 employees of Omniture, a company that Adobe has had a fair bit of interaction with already. Omniture sells a subscription service to its customers that enables them to monitor the effectiveness of online properties and advertising (CNNMoney is an Omniture customer).

If that doesn't sound like anything resembling creative software, that's because it isn't. And this is where, in their argument for buying Omniture, Adobe sounds a lot like Oracle.

"Adobe's Creative Suite products and Flash platform help customer create and deliver engaging experiences," Narayen said following the acquisition announcement. "The addition of Omniture's online marketing suite will help customers help measure, analyze, and optimize the impact and value of those experiences, creating a continuous feedback loop."

Like Oracle in its business, which aims to sell you the software and hardware to manage all your data, Adobe wants to be a one-stop shop. You buy the software to create your online universe, and now Adobe can sell you a service (likely conveniently embedded into its tools) to help you analyze which image, which video or advertisement you just made is performing the best by whatever measurement you choose.

It makes a good deal of sense, especially given the steps Adobe took five years ago in its acquisition of Macromedia. On the plus side it expands Adobe's market. In its last quarter ending June 30, Omniture pulled in about $88 million in revenue, and a loss of almost $5 million. While Adobe CFO Mark Garrett doesn't expect the acquisition to result in cost-savings, he said the deal will be "accretive" to Adobe's earnings in its fiscal 2010, and grow from there. In other words, Omniture isn't likely to boost earnings at Adobe dramatically for some time.

Another benefit of the deal will be Adobe's ability to plug into Omniture's software-as-a-service model. Don't expect to see the entire Creative Suite lineup available via online subscription tomorrow, but you can see parts of it headed in that direction. Shrink-wrapped software has become the exception, and while Adobe still makes a living at it, even it knows there are other business models it needs to explore. Omniture helps it do that.

Did Adobe offer too much? That is a debate that now begins, and it will have an impact on the stock. You can expect Adobe to bump along in a tight range before the dust settles. To top of page

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