Adobe ( NASDAQ:ADBE) launched its Creative Cloud (CC)
subscription service last year to address the growing needs of the
creative software market. The creative software market includes
tools for website designing, printing and desktop publishing, video
editing and other multimedia needs. While competition from
companies such as Corel, Quark, Microsoft and Apple is intense,
Adobe's creative products continue to dominate the industry.
According to PWC, Adobe is amongst the top 100 software leaders in
the world. Adobe generates nearly 50% of its revenues from creative
software, and has an installed base of over 12.8 million creative
While the initial user backlash against the CC subscription
model seems to have subsided, the software has caught the fancy of
Creative suite users. As a result, its subscriber base has swelled
to over 1 million within one year. We expect that CC will continue
to gain traction in the coming years as more of creative
professionals adopt CC. In this article, we will explore factors
that will drive adoption of CC in the near future.
Check out our complete analysis of Adobe
Factors Driving Creative Cloud
Currently, Adobe has over 12.8 million licensees for its point
and suite software. While conversion from these licensees to CC
will fuel rapid adoption of the cloud platform, some of the other
factors that will contribute to the growth of CC user base are as
Proliferation of Internet and smart connected devices
: - Global Internet penetration is on the rise. First time users
in many countries are logging onto the Internet using smart
connected devices. According to eMarketer, the amount of time
people spend on a mobile device is growing 14 times faster than
desktop usage. This growth in web traffic is driving the demand
for creative software that can present visually rich information
to digital consumers, and thus improve user experience.
CC enables close collaboration
: - With the advent of technology, creative teams are spread out
over different geographies and time zones. These distributed
teams require close collaboration to deliver campaigns and
projects that match specifications and deadline. Creative cloud
subscription bundles all the necessary tools into one service,
and leverages cloud computing to drive collaboration. We believe
that this will fuel team and enterprise term licenses (ETLA) for
CC in the coming years.
Subscription service to increase individual license base
: - Adobe is pricing CC aggressively. While the complete CC
subscription is priced at $50 per month for a one year
commitment, individuals can also subscribe to single app plan for
$20. This price is substantially lower than the perpetual
licensing agreement that costs hundreds of dollars upfront, and
in software updates. With a subscription service upgrades are
free that reduces the total cost of ownership, and a user always
has access to latest creative software. We believe that this will
fuel individual subscription growth in the future.
Integration of CC with Marketing Cloud to drive adoption
: - Adobe recently integrated its Marketing Cloud with Creative
Cloud to offer complete digital asset management tool. This tool
offers a one stop shop for end-to-end integration for planning,
creating, distributing, testing, and optimizing digital assets.
This tool not only improves the workflow management but also the
collaboration between marketers and creative professionals.
According to Ovum, Adobe's digital marketing platform currently
leads the race to become the enterprise digital marketing
platform provider of choice. As Adobe's digital marketing
platform gains traction among marketers, we expect enterprise
wide adoption of CC to gain momentum.
Creative Cloud To Bolster Adobe's Revenues
With a license based model, Adobe received bursts of income
every two-three years, when the latest Creative Suite was released.
However, with the subscription fee structure, Adobe will have
recurring stable revenue over the period of the software's use.
Moreover, since some users tend to use software over a longer
period of time without upgrading, Adobe will now be able to
monetize these users over the extended period of usage.
Additionally, pirated copies of latest Adobe products are easily
available across multiple file sharing services, which affects
Adobe's bottom line as no revenue is reported for these copies.
According to the BSA, a steadily expanding marketplace in the
developing world drove the commercial value of software theft to
$63 billion in 2011. With the subscription services, Adobe can curb
the use of illegal serial numbers as users now have to go online
each month to validate their licenses. Moreover, since most of the
upgrades and enhancements will be available as a push service from
cloud instead of downloadable service packs, this will further curb
Adobe expects to reach 4 million paid subscriptions by the end
of 2015. This translates into recurring revenues close to $2
billion, and a cash flow of $700 million per year. Adobe has over
12.8 million point and suite software licenses, and we expect many
of these licensees to adopt CC in the future. Therefore, we believe
that Creative Cloud will drive revenue growth at Adobe going
We are in the process of updating our Adobe model. At present,
we have a
Trefis price estimate for Adobe
, which is 20% below its market price.
a Company's Products Impact its Stock Price at Trefis