13 million users have installed their creative editing products. This is a market that continues to grow with devices like the smartphone and tablet increasing demand for content. ADBE has made the courageous decision to move from a perpetual software licensing system (one off purchase) to a recurring software as a service model called Creative Cloud. This means ADBE will develop two key business traits that investors favour subscription revenue and the cloud.
Subscription revenue and the end of piracy Aarghh!
Recurring revenue is the holy grail for investors as the revenue tends to be predictable, scalable and stickier for users. ADBE licenses their creative cloud on an annual basis with monthly charges. At the moment 40% of ADBE revenue is recurring and should increase over time.
As we know with our mobile and internet subscriptions the recurring nature of direct debits rather than an outright purchase every year should be a better sales model for ADBE. Moving to a subscription model has other benefits,one being piracy. ADBE estimates that 90% of usage in China and India involved piracy in the US they estimate it to be 20%.
Everyone wants to be in the cloud.
The other holy grail is the cloud. Cloud services make a lot of sense in a global, mobile world. Cloud services like ADBE tend to be delivered over the internet (in ADBE case apps) no individual software or hardware installations needed. Cloud is useful as it allows users to collaborate on mobile devices/ipads and teams should have an easier job as they all work on the most up to date version. Because services are delivered through the internet updates can occur more frequently there will be no need to buy new software every year. Files, fonts and preferences will be stored in the cloud so they can be accessed anywhere. This also makes the service stickier as all your data is stored and kept with ADBE and not your computer. Another innovation will be the ADBE cloud connected pen. See video below.
Marketing
A new growth area is marketing, this division achieved growth of 28% in the recent quarter. ADBE believes they have the best end to end value proposition with Creative cloud and Marketing cloud. ADBE believe they can address the lifecycle of content from not only making and managing (Creative Cloud) to now measuring and monetising (Marketing cloud). In their words bridging the art of the creative with the science of digital marketing.
Jason
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
