Finance Matters

Archive for April 22nd, 2010

Netflix is offering customers 10% off their next month’s bill if they try its online streaming service on their Nintendo Wii, Dan Rayburn reports. That’s one way to boost streaming penetration higher than 55% among Netflix’s 14 million subscribers.

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The past weeks’ events surrounding the new language in Apple’s iPhone Developer Program License Agreement — which prohibits developers from using such software as Adobe’s CS5 suite for converting Flash content for the iPhone — have exposed the San Jose software giant’s shortcomings in the mobile space.

Interestingly enough, these problems for Adobe didn’t pop up overnight or come about simply due to Apple changing their licensing language. Yet, because of Apple, it’s caused a lot of people to realize just how late to the mobile space Adobe has been.

Over the past few months, I’ve spent a lot of time talking to current and former Adobe executives off-the-record who have revealed to me details regarding plenty of red flags in Adobe’s mobile strategy which were brought to the company’s attention years earlier. Those I spoke with agreed that Adobe’s recent shift in management style and insistence on staying the course rather than adapting resulted in their shortcomings in the mobile market.

For many years, Adobe’s rise to the top of the software industry was the result of having a vision for its products, not just sales goals. Former Adobe engineers I spoke with attest to the “good old days” when co-founders John Warnock and Charles Geschke roamed the office halls, tested products first-hand, and chatted with team members who were developing the company’s industry standard software. This type of vested interest and on-the-ground awareness instilled a sense of camaraderie and motivated engineering teams to ship products that were the best, not just “good enough.” Adobe made software with a clear goal of fulfilling critical needs for their users, and the entire company — from the top-level execs to the engineers in the design labs — were in sync with this common objective.

But within the past few years, Adobe’s focus shifted from being at the top of its class solely to growing its bottom line. Cost-cutting became the company’s priority as each year brought no less than 10% in staff cuts. Naturally, the engineering teams became demoralized as they knew every Q4, after they shipped the product they were working on and after putting in long hours, their jobs could be shipped out as well. The executive team’s quality-killing concentration on profits started adversely affecting not only the products that made Adobe what it is today, but also its design strategy and adaptability to the changing industry.

By 2005, Adobe had its sights set on Macromedia and their Flash technology. Macromedia previously had created a $1 billion mobile Flash Lite content market in Japan by licensing Flash Lite through various Japanese mobile carriers. When Adobe acquired Macromedia in December 2005, they sought to replicate Macromedia’s Japan success in the European and American markets, but with one key difference. Along with licensing Flash Lite via a carrier, they would create a “Flash App Store” of sorts where users would pay to download supplemental Flash content for their phones, and Adobe would share in these profits.

Adobe decided on this strategy in 2006, after laying off all members of the original mobile business unit from Macromedia who had planned and spearheaded Flash Lite’s billion-dollar success in Japan. Adobe’s new mobile business unit bet all of its chips on feature phones while completely ignoring the looming smartphone market – most notably, the iPhone. The strategy backfired.

The version of Flash Lite that Adobe built specifically for feature phones failed to cultivate an ecosystem among developers because its content was not cross-compatible with the version of Flash Lite for more advanced phones (pre-iPhone) Still, the management in the mobile business unit would not budge. They insisted that feature phones were the way to go since, at the time, feature phones were outselling smartphones shortly after the iPhone’s release. Yet, ironically enough, I’m told that half the members of the mobile business unit were personally using iPhones at this point.

Despite recommendations from members within the mobile business unit to overhaul Flash for the iPhone, Adobe decided not to invest in revamping Flash, perhaps the most detrimental consequence of its new focus on cost-cutting. By the time the first iPhone SDK was released by Apple, Adobe’s mobile business unit was terminated. All of its remaining team members were deployed to other product teams; its most knowledgeable mobile engineers had already left the company or were in the process of leaving and Adobe had inadvertently committed self-sabotage by driving away all of its mobile engineering brainpower.

Adobe’s ineptitude at responding to the changing industry is a byproduct of its increasingly multi-tiered management structure. Former Adobe employees complain of an excessively bureaucratic management process where progress is rendered minimal by an insistence on decisions by committee. Rather than entrusting important decisions to knowledgeable team managers, Adobe now relies on an elaborate web of middle managers who don’t always have a close understanding of the matters they decide upon. Even worse, some of those managers have never even used the products that they are assigned to oversee, and their decisions are made not for the sake of the product but for the sake of keeping their own job in the face of Adobe’s regular outsourcing of engineering positions.

Along with regular staff cuts has come an apprehension among employees to take responsibility for new ideas. Team members now are afraid to go against the bureaucratic grain by suggesting new ideas lest they get let go at the end of the year. The overly complicated decision-making process also is discouraging to team members hoping to see their ideas for the company come to fruition. Sometimes, a cut-throat attitude takes over as managers might shoot down a great idea from a team member only to turn around and present it as their own to the executives, which only further fragments the spirit of teamwork that traditionally enabled Adobe’s engineers to create trailblazing products.

While some of these “jockeying for position” problems exist at all large companies, no one can debate that Adobe’s been late to the game in the mobile market. The focus for Adobe has always been the desktop and only recently have they really stepped up their efforts in the mobile space. I believe that part of the problem, like the employees I spoke with, is a lack of vision by some in management. In 2008, Adobe’s CEO went on record to say that Adobe has beat Microsoft in the video format space and that Microsoft could not catch up. As I wrote in a post entitled, “Adobe’s CEO Underestimating Microsoft’s Ability To Compete With Flash“, that’s a dangerous assumption to make. And as I pointed out in the post, the mobile space was an area that Adobe didn’t have a big penetration in and wasn’t exactly talking a lot about in 2008. Now, once again, we’ve seen that some at Adobe have underestimated another company in the space, this time Apple.

I learned a long time ago that’s it’s always better to talk about what you do well, as opposed to what your competition does poorly. Instead of Adobe dismissing Apple and shifting the focus of the discussion right away to a larger opportunity in the market, like Android, some executives at Adobe seemed to continue to want to fuel the fire with Apple. Android is a much larger opportunity in the long run for Adobe and it’s good to see that today, Adobe has finally said it will stop any additional investments in CS5′s iPhone feature to focus on platforms like Android.

For Adobe, it’s the right move, but one that took them too long to make. From the beginning Adobe should have played down Apple’s decision and at least turned the tables to show that supporting Flash on Apple devices was not a “technology” problem. Yet, I didn’t see Adobe present any third party data to show Apple’s real reason was a business decision and not a technology one. StreamingMedia.com did some testing and found that “Test Results Published Show Flash Is Not a “CPU Hog” Like Apple Claims” but Adobe should have been spearheading these efforts and decided that their overall mobile strategy is more important than just one device. That should have been their message from day one.

Today, Adobe is saying that, “the iPhone isn’t the only game in town”, but now it has to convince us that they really believe it. Clearly management though the iPhone was a big enough deal to their business that they felt compelled to file an 10Q saying how their business might suffer if Apple kept Flash off their devices. While Adobe has made some progress in that regard by having both Flash Player 10.1 and Adobe AIR 2.0 for Android available in beta for pre-release testing, we have to wait to see how Adobe executes in the market.

The mobile battle is not lost for Adobe as the market is really just starting to heat up. But one has to wonder how much further along Adobe would be right now if their vision had been better, if management encouraged smart thinking and if the culture was to change from that of a company that has a legacy of making box software, to one that can be quick and nimble to deploy web-based platforms. Only time will tell if Adobe can truly change the culture within the company but I think by the end of this year we’re going to have a pretty good idea if Adobe is executing successfully in the mobile space. A lot of growth is coming to the mobile space and it’s going to be fun to watch.

Dan Rayburn is executive vice president at StreamingMedia.com and principal analyst at Frost & Sullivan. This post originally appeared at his blog and was republished with permission.

More from Dan Rayburn’s Business of Online Video blog:

• MLB.TV Failing Big Time On Opening Day, Website Down, Video Quality Terrible
• Brightcove Raises $12M In Funding, Interview With CEO Jeremy Allaire
• My UPS Driver, “I Feel Like I Work For Apple Today”

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See Also:

• Adobe Needs To Stop Whining And Adapt
• Many Of Apple’s Supposed List Of "iPad Ready" Sites Don’t Work On The iPad
• Akamai Loses Some Hulu Traffic To Level 3 And Limelight Networks

There’s a reason we keep publishing posts from Hunch cofounder Chris Dixon. 

First, there’s his track record.

As an angel investor, Chris put money in Skype, which was acquired by eBay, Postini, which was acquired by Google, Flarion, which was acquired by Qualcomm, Gracenote, which was acquired by Sony, and P.A. Semi, which was acquired by Apple. Successes like these are why BusinessWeek named Chris the top angel investor in tech.

But we also like Chris because he’s very opinionated — and he doesn’t keep to himself about it.

Of course, not all of Chris’s takes find their way into posts on SAI. Some of Chris’s best stuff comes out on Twitter.

So you don’t miss out on it, we’ve trolled through Chris’s Twitter account, @cdixon, found his best tweets of late, and asked him to elaborate on them in another 140 characters.

Chris elaborates: The social graph (Facebook) and push notification system (Twitter) should have been open protocols like SMTP, HTTP etc.

Chris elaborates: Surprising how often you see this. Actual accomplishments include building something interesting, recruiting a great team, landing a customer, etc.

Chris elaborates: Without asking me, Jigsaw lists my cell phone number that is on the donot call registry.  Even if I opt out it’s already spread around and I have to change my number.  Everyone in tech business knows opt out isBS since only 3% over do it.  (See recent FB privacy changes)

Chris elaborates: In a fast moving situation, lots of new offers coming in etc, it’s perfectly legitimate for an entrepreneur to take his/her time considering options.

Chris elaborates: Video game historians usually mark the turning point with the release
of the E.T. game.  Deeply terrible game.

Chris elaborates: Is it so wrong that Steve Jobs doesn’t allow porn in the Apple store? He’s not the government so it’s not a 1st amendment issue.

Chris elaborates: Apple is just such a special company, run by a true genius.

Chris elaborates: To me, it’s a reductio ad absurdum of our values/economy.

Chris elaborates: Display ads are the next huge battle between Google, MSFT, FB.  Just as GOOG used their anchor Google.com to build direct response advertiser base and then syndicated around the web via AdSense, so should FB with display ads.  Knowing that Jimmy is friends with Sarah and they both like Justin Beiber is extremely useful for targeting display ads.

Chris elaborates: Those seem like the ads that are most analogous to Promoted Tweets soa good place to look for comparables.

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“Harbinger cuts New York Times stake again. Looks like 20 percent cut this time — 11.68% down to 9.43%.” — via Reuters’ Robert MacMillan

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They’re the biggest generation in U.S. history, they have consistently high spending habits, and they’re setting the trends for older generations.

With all these traits, Generation Y — comprised of anyone born between roughly 1980 and 1999 — is a veritable goldmine for marketers.

But how to reach them?

In a post for OPEN Forum, social media expert Monica O’Brien suggests the best strategies for appealing to Gen Y.

From OPEN Forum:

Build a street team. Generation Y gets most of their information from trusted resources—their friends. Most companies are wary of letting non-employees represent them, but Generation Y is collaborative, technologically savvy, and well-networked. Gen Y wants to build a brand with you, so let them. Provide them with exclusive information, pictures, and video, give them sneak peeks at new products, and hook them up with goods they can talk about and share with their friends.

Tie-in with causes. Gen Y is known to be passionate about causes—world issues, politics, and the environment. According to Diversity Inc, Gen Y is “undeniably a big reason that America elected its first black president in U.S. history.” Companies like Tom’s Shoes are popular with Gen Y because they can easily give back as they consume. Gen Y also “enjoys giving as part of social events such as parties and athletic races” according to a study by Convio.

Advertise on mobile. Gen Y never leaves home without their cell phones. According to Ad Age, “one-quarter of Facebook’s 400 million users access the site through mobile devices; this set is twice as active than non-mobile users.” As geo-gaming applications like Foursquare and Gowalla take off, expect to see more opportunities to advertise to Gen Y on the go.

Read the entire post at OPEN Forum >

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See Also:

• 7 Insanely Useful Ways To Search Twitter For Marketing
• How To Pull Off A Guerrilla Marketing Campaign
• 10 Ways To Build Your Personal Brand