Adobe Takes Aim at Microsoft

Acquisition of Macromedia gives Adobe a formidable collection of Web publishing and document management software.

Stacy Cowley, Martyn Williams, and Laura Rohde, IDG News Service

Adobe Systems' agreement to acquire Macromedia for approximately $3.4 billion will give the company a formidable collection of Web publishing and document management software--and will place it squarely in the path of tools rival Microsoft.

The deal marries Adobe's ubiquitous PDF and Acrobat Reader software with Macromedia's Flash products for creating media content. Adobe will also have a sizable portfolio of desktop software popular with creative professionals--including Photoshop, Illustrator, and Macromedia's Freehand and Dreamweaver.

"I see this as both companies bulking up against Microsoft," says Steven Brazier, an analyst at Canalys.

The expanded Adobe could create a variety of rich media and Internet applications that use Flash, bumping into areas Microsoft has shown interest in, says Bola Rotibi, an analyst at Ovum. Although Flash is best known to Web surfers as a format for viewing animations, the technology is a powerful development platform, and Adobe says leveraging it will be a "key component" of its strategy for a combined company.

"When you think of where Microsoft is headed with the future of its Media Player and Media Center PCs, this goes head-to-head," Rotibi says.

Adobe also gains Macromedia's base of ColdFusion Web developers. RedMonk analyst James Governor predicts that dynamic forms that allow users to create, change, and share information online will be one of the first products of the marriage. Graphics automation is also in the cards. Both of these capabilities would fly in the face of Microsoft's plans.

Looking to Lomghorn

"Adobe's ambition in this acquisition looks like a bit of a Longhorn-killer to me," Governor says.

Microsoft has been working on dynamic-form technologies and a graphics system called Avalon as part of its upcoming Longhorn OS. By moving into these areas, Adobe may be trying to cut the software giant off at the pass, analysts say.

Meanwhile, developers anxiously await decisions about what products will survive the merger. Company executives declined to comment on product plans until after the deal's completion, but Adobe and Macromedia have several products that compete head-to-head--such as Dreamweaver and Adobe's GoLive, and Freehand and Illustrator.

During a conference call with company executives, analysts repeatedly raised the question of a possible antitrust investigation, but executives dismissed the possibility.

"There's a lot of competition. CorelDraw outsells both of us in Germany, and there are open source products like Killustrator [which changed its name to Kontour in 2001 to avoid an Adobe lawsuit]. We don't see it as an issue," Adobe CFO Murray Demo explained.