• Adobe's move to the cloud - Genius or Suicide?

    Adobe's recent announcement of moving to the creative cloud has a number of users up in arms. Today we look at the implications of doing this and whether Adobe has made a big mistake. If you missed the decision, basically what Adobe is doing is no longer allowed users to buy software outright. If you want to buy Adobe software (with the exception of some consumer level products), you have to pay a monthly subscription.

    I'm a bit of a mixed bag when it comes to Adobe. They make some really good products, and they make some horrible decisions to go with it. There is no doubt that Photoshop is the leader in photo editing tools but their attitude to the Australian consumer has been somewhat lacking recently.

    The problem Adobe has in Australia is the decision to removed boxed packages comes directly after Adobe PriceGate fiasco with Adobe not providing one decent response to the questions posed about the exorbitant Adobe pricing in Australia. With Adobe moving to only creative cloud, some of the answers provided make sense, but it doesn't take away the arrogance in the way responses were worded and these were not seen as favourable in the local market. I understand why the questions were answered this way with Adobe intended move to the cloud but given this strategy moving forward, it would have made more sense to simply drop the pricing due to the impending Creative Cloud announcement than annoy the hell out of local consumers.

    In looking at the move to the Creative Cloud, it's important to note this is not Cloud in the convention sense of the word. Your apps don't exist online, you download them to your hard drive and use them in the conventional sense. The only difference that most users will encounter is that they will never own the software as it will be subscription based. In return for their subscription, users will receive the latest software all the time.

    The pricing of the cloud is actually favourable if you're a user updating every 3 years. It costs $1800 for the Creative Cloud software based on $50 for 36 months, provided of course Adobe don't lift their pricing which is a distinct possibility. We were paying nearly double that in Australia for a boxed set of Creative Suite which excluded Lightroom so for the average Australian consumer buying every 3 years, this is good. In essence, what this does now is put our software pricing on a par with the US and Adobe may feel that this solves the problem. The problem is it only solves the problem if you're happy to pay on a subscription basis and upgrade your software on a regular basis. For a user like me that tends to follow the latest version of Adobe every release (2 years), this pricing is actually pretty good. The problem Adobe has is that not all users are like me and not all users are business. Some people use their software for 5 years, sometimes longer and that's where the Adobe pricing becomes downright horrible. Yes, they may be using an older version, but often that's a limitation of hardware (the cost of upgrading your hardware and software can be high) and it's still a "choice" the user can make. Adobe hasn't given them that choice and this is likely to be the frustrating part. I understand the move to the cloud, but some users still want the choice to own their software and choose when they want to upgrade it. I think Adobe has made the assumption that these users will immediately move to the cloud but I think the exact opposite is true, Adobe has just created a big market for competitors due to its own arrogance.

    Some users believe that this is Adobe's attempt to circumvent the pirating issues occurring at the moment. I don't believe this is the case and Adobe is doing this to prevent pirating, I don't believe this is an appropriate response. To solve pirating, you have to understand why the pirating is occurring because I have yet to see any company solve pirating through software protection.

    To understand why pirating of Adobe products occur, let's look at a multiple choice question which outlines potential reasons why Adobe products are being pirated:

    A. Adobe products are too expensive
    B. Adobe products are too expensive
    C. Adobe products are too expensive
    D. Adobe overcharges Australian's (for Australian users)
    E. All of the above

    The music industry has done a good job of targeting pirating using a simple method: Make music cheap enough for users to buy. If I have a choice between buying a song for $1-$2 or pirating and potentially getting a virus, the buying options become more attractive. It doesn't complete destroy pirating, but I personally don't know of many people who pirate music these days when 10 years ago, the number was much higher. The movie industry still hasn't come to this conclusion and therefore will continue to have issues until they make movies affordable and provide movies to download at the time of release, rather than forcing them to go to a cinema and get charged exorbitant pricing. The problem with movies is that it isn't about paying $15 for a movie, it's about paying $60 for a family, $25 for popcorn and drinks, parking and all of a sudden you starting looking at a $100 plus cost for two hours of entertainment which is often outside the budget for some families. If someone has a choice between a DVD quality film at $15 and a movie at $100, you can guarantee they'd be doing it more than not having a choice.

    This is exactly the same position Adobe finds itself in. $900 for a product may be fine if you're a business but paying $900 for a home user becomes expensive and the temptation of pirating is higher. Student packages are cheaper, but you have to be a student and the assumption is that anyone who is working can afford the professional license. If you look at photography as an example, there is a range of photography tools to cater for different levels, entry level DSLR's, mid level, semi pro, pro etc. With Adobe, it's entry level (Elements) and Pro (Photoshop) and nothing in between. The second issue is users don't see software pirating as a crime in the same way that stealing other products is a crime and the general perception is, I'll pirate now and pay for it when I can afford to.

    Whilst I don't profess to be knowledgable in the hacking space, if pasty face computer nerds can hack the supposedly unbreakable iOS from a company that is generating a much higher revenue than Adobe and can therefore afford to invest more in trying to make their software hack proof, I have no doubt our monitor tanned individuals could crack a solution that has to call home every couple of months to allow the user to continue using it. The problem with hackers is they're relentless and they like a challenge and companies like Adobe that annoy customers provide a challenge that they want to overcome. If the department of defence is unable to provide systems that are completely hack proof, I'm willing to bet that Adobe has more chance of falling pregnant through wind pollination than providing one. The only way for Adobe to provide a complete hack proof solution is one hosted in the cloud and that would be unworkable for photographers who are unlikely to be connected to the internet all the time.

    I think the danger with this approach is Adobe is likely to alienate their existing customer base, but I don't believe they will gain many new customers through this approach. If people are pirating because the product is unaffordable, it's no more affordable now and if anything, this may given them more of a reason to pirate because they now feel Adobe is being unfair.

    What this approach will achieve is an opportunity for the competitors in the market to gain a foothold in the market and for a company that has priced itself for no competitors, that's a dangerous recipe. For those customers against pirating, the choice to use an alternative product at the expensive of functionality is now option and where there is an opportunity, someone in the market will take advantage of it. Competitors will see their software sales increasing and with that, so will their functionality as they are able to invest more into research. Adobe may have the best product right now, but given Apple and Google's sudden gain of market share in the mobile market, companies need to be aware that customers can and will move quickly when there is a viable alternative and market share in the technology market can slip quickly. Adobe may feel that they still have the option to drop their pricing to compete with any potential competitors, but once someone has a negative perception of a company and has jumped ship, it's unlikely they will move back to Adobe. If you want an example of that, look at most Mac users where the majority are unlikely to ever return to Windows. In the case of Adobe, the the fact that there are so many standard image formats on the market, providing files in an exclusive Adobe format isn't the only option.

    I personally think Adobe is taking a big risk. It's this exact type of arrogance that lost them market share in the Flash space and they could find themselves in the same boat with their Photoshop suite. Adobe's biggest problem has not been their products, I get the impression that their management needs a shake up to get in touch with their user (or potential) user base. I suspect most of the feedback they have done is with their business customers when what they really need to do is establish what their potential (or pirating) customers need.

    I believe the alternatives for Adobe could be simple. I do believe that Adobe needs a price drop but I don't believe that Adobe will be prepared to drop the pricing of their software across the board, or at least not to the levels required to make it affordable for most home users. I don't believe the Cloud option is a problem in itself, but I think still think they are alienating a portion of their customer base who do not want a subscription based model and I believe boxed sets should still be available along side the subscription based models to allow subscription to sink into the market and gain consumer confidence.

    I think a price drop by at least 50% would not lose them a substantial amount of revenue but if that's not possible, I believe a home user option may be a viable alternative to try gain market share in the home and hobby user market, priced closely to the student/teacher version. I.e. offer users the option to purchase the software at a much lower figure on the proviso it's not used for business. I think Adobe has made the assumption that home users would typically fall into the Elements category, but as users become more technology literate, the option to use more power based products has increased. As part of the terms and conditions, if a user wants to sell anything generated in the suite, they're required to license the business version which is essentially the same package. This is not unlike the current models for stock images. I.e. you can buy an image but if you want to use it for commercial use, the costs are higher. It may seem difficult to manage, but it could be as simple as a piece of imbedded metadata that Adobe imbeds in the file to indicate that the picture cannot be licensed or used for commercial use of any kind. A popup could even be offered as a warning when opening the file. Yes, a user could easily remove the imbedded metadata but if they're prepared to go to this extreme, it's likely they may just resort to pirating anyway. This caters for the vast majority of users may never use their images for commercial use and are therefore unlikely to be able to afford the cost of the software.

    The way I see it, $600 a year is a lot for a suite of products a someone may use occasionally, but $150/year is far more palatable if the user in question doesn't intend selling any photos. With that kind of pricing, it may push the user into working with the solution rather than pirating whilst still maintaining income from the business customer base. It reminds a little of Apple's cloud based music offering which effectively legitimises older music files. Apple realised that most users will not go through their entire collection of music they may have torrented in their teens, but by offering a nominal $30 annual fee to legitimise it, they've picked up an extra annual income channel they didn't have before. With the amount of iTunes subscribers in the world, (200 million), even if apple was to get 10% it creates an annual revenue stream of $600 million per year. Given Adobe's annual turnover is only about $4.8 billion and the fact that any additional revenue from ex-software pirater's is likely to simply add to their bottom line, they'd be idiots not to consider it.
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