To Bruce Chizen, the stylishly bald chief executive of Adobe Systems, a bottle of water is more than a bottle of water. It's Adobe water water...
SAN JOSE, Calif. — To Bruce Chizen, the stylishly bald chief executive of Adobe Systems, a bottle of water is more than a bottle of water. It’s Adobe water.
An action movie is more than a Hollywood hit. It’s an Adobe hit. A magazine fashion spread? An Adobe magazine layout.
“We are everywhere you look,” he said, referring to the San Jose company’s design and digital-video special-effects software, used universally in creative fields. “Whether it’s a logo on a bottle label, an effect in a movie, a TV commercial, an image on a Web site, a layout in a newspaper or a picture in a magazine — there is a high probability that the content was touched by Adobe.
“We’ve had that kind of influence on society,” Chizen said.
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The exuberant software executive looks and sounds like a man who has just collected on a winning bet.
Though lacking the name recognition of, say, Microsoft, Adobe has products that are almost as ubiquitous as those of the software giant.
Adobe’s Portable Document Format, or PDF, which lets people create and view digital documents in their original form, sits on more computers than Windows does, the company likes to say. That’s because it runs on all operating systems, not just Windows. Adobe estimates that between 500 million and a billion computers worldwide use PDF.
Adobe’s move in April to acquire rival Macromedia of San Francisco for $3.4 billion in stock is designed to give it Microsoft-like dominance in software to produce, edit and display digital documents and video on a range of devices, from personal computers to cellphones.
Macromedia’s Flash technology, used for creating and playing animated Web pages, is ubiquitous on the Internet and is embedded in millions of mobile phones. The deal is expected to be completed in the fall.
By adding Macromedia’s video technology, Adobe says it will be able to exploit the new digital era, which it said will be defined by digital video and mobile devices.
“I believe mobility will be one of the key trends,” said Adobe President and Chief Operating Officer Shantanu Narayen. “In China and India, you’ll have a whole generation of people who will access the Internet without ever owning a PC.”
Adobe, whose products range from the more artsy Photoshop to business-document-producing Acrobat, grew 29 percent last year. Revenue for its suite of software for creative professionals, such as those who design magazine covers, grew 66 percent. It got an unexpected boost from digital-photography buffs willing to hand over as much as $550 for photo-managing software.
For the first quarter ending March 4, Adobe posted a profit of $152 million, up from $123 million for the first quarter in 2004, which was a week longer.
Company executives forecast 15 percent growth this year, or revenue of $1.9 billion, which does not include revenue from Macromedia. The acquisition has been embraced by investors, despite many analysts’ belief that software-industry mergers are prone to fail.
“I can sit here and comfortably say we are in a better position than any other software company in the world,” said Chizen, 49, from his company’s three-tower campus in downtown San Jose.
That’s not to say, though, that Adobe, which has about 4,000 employees worldwide, including about 450 in Seattle, doesn’t face challenges.
An economic slowdown could put the squeeze on its software products as businesses pull back marketing campaigns, the kind of work creative professionals depend on. Bringing Macromedia, which reported nearly $436 million in revenue last year and has about 1,400 employees, behind Adobe’s firewall could prove difficult and distracting.
“It’s definitely not a small acquisition. You’ve got to watch out for the integration risks associated with that,” said Steve Lidberg, an analyst with Pacific Crest Securities.
Furthermore, Microsoft, which has long cast a covetous eye on the markets Adobe and Macromedia dominate, is preparing another assault with its own Acrobat-like product expected to be built into the next generation of the Windows operating system, dubbed Longhorn.
“Whenever another company controls a core standard of computing, that always gets Microsoft’s attention,” said Jupiter Research analyst Michael Gartenberg.
The merger brings together two companies with parallel but different strengths. “Together, they are a much better player against Microsoft” because of their respective strong market positions, said Stephen Jue, an analyst with RBC Capital Markets.
Adobe was founded in 1982 by John Warnock and Charles Geschke, who remain the company’s co-chairmen. They first created Postscript, which enabled printers to replicate a computer screen’s text or graphics. In the early 1990s, Adobe launched its Portable Document Format.
“We tried to charge for it initially and nobody wanted to buy it,” Chizen said. “So we started to give it away free and everybody said, ‘How will you make money?’ “
The move, though, provided a foundation that eventually paid off for Adobe.
By creating a document format that can be viewed across a variety of operating systems, from Microsoft’s Windows to Macintosh and Linux, Adobe had the perfect sales pitch to companies that want to distribute information to as wide an audience as possible.
Adobe makes money from the companies that buy Acrobat to write and disseminate digital documents.
“Apart from HTML, there is more PDF out there on the Web than any other format,” Chizen said. HTML, or Hyper Text Markup Language, is the language used to create documents for the Web.
The company also added Photoshop, Illustrator and InDesign, the core of its suite of creative software offerings that now account for about a third of its revenue. Its other group is digital imaging and digital video.
Chizen thinks Adobe, which had revenue of $1.7 billion last year, can eventually become a $5 billion company.
He expects much of the growth to come from the company’s intelligent-documents software, a highly interactive version of Acrobat that features 3-D capabilities for engineers and architects.
The Web-enabled documents provide real-time information, such as mortgage interest rates for loan applications, and feature such security protections as digital-signature capability.
All that can save companies time and expense from errors that occur when documents are manually retyped into a system.
Chizen, a former Microsoft sales director, thinks Adobe’s build-it-and-they-will-come business model will continue to pay off.
“Our mission hasn’t changed over the past 23 years,” Chizen said. “The world around us has. That’s why Adobe is as successful as it is today.”