Pauls Sloss wrote: Jao vdL wrote: You all should read Thom Hogan's very interesting May 21 analysis of the financials of this change as indicated by Adobe ( http://www.bythom.com (sorry his site is ancient and you can't direct link to articles) ). The numbers make it fairly clear that Adobe fully expects to lose loads of customers over this change - Millions of them in fact. And they expect this contraction to last for a long time. This means that any of our pleas are very likely to fall on deaf ears as we're not telling them anything they don't already know and fully expect.
There is a huge assumption here ... that Creative Cloud will continue to grow appreciably in the long term ie, Adobe will lose loyal customers, but gain new ones over the coming years. It makes me think that despite all their research, there is a bit of a leap of faith in their decision to go CC only right now, rather than waiting for the numbers to stabilise. It's only been one year, and I expect a large number of subscribers were lured by the all-you-can-eat business model, without considering the implications of what they will experience when they have to end their subscription. The indication of this has been in the discussions themselves. I think the price argument is distracting, because people will only buy what they can afford. I've seen very little discussion by the champions of CC about the impacts of ending your subscription ... it's all roses while you can pay, but when you can't seems to be a trivial matter. |
The cloud: the biggest gamble after the banking crisis.
Is creative cloud sales really so good or is it just a myth?
Looking at the numbers and projections that Adobe published about its revenue has raised quite some questions for me. Too many things don’t make sense. After thinking this through and eliminating the possibility that the CEO just wants to fuel his ego, my only logical conclusion is that he cloud sales is actually not doing so well as Adobe states.
Why would a company that apparent main goal is not to satisfy its customers, but to make as much money as possible, deliberately make about one billion dollar less over a span of 3 to 4 years? Adobe stated it believes that it will make more afterwards, but according to Adobe’s rosy predictions it takes about 4 years before Adobe expects to make a little bit more revenue with their Digital Media section than they made last year! Furthermore the lost 1 billion still needs to be recovered. So following Adobe’s projection it will take about 5 to 8 years to create a cumulative plus of the related revenue due to the move to subscription only. That makes no sense to me, especially if there was no need for it.
Yes, annual recurring revenue is a worthwhile goal for many reasons, but Adobe’s predictions are based on many risky assumptions. Why would you gamble with the revenue of your company and favor an all or nothing approach for which you estimate to waste 1 billion dollars? Under those expectations it seems that offering subscription and perpetual licenses would have created much bigger total revenue for the next years. If CC is really so successful why did Adobe need to kill perpetual licenses and press its customers to go for subscription? The concentration of the development is a false argument, because Adobe could have offered a year of free updates with a purchased perpetual license, which would have allowed Adobe to concentrate development and keep perpetual licenses.
Furthermore the prediction is based on a slight exponential growth of Creative Cloud. If you use the quite linear development that the Cloud subscription so far achieved it will only produce about 2 million instead of 4 million customers by the end of 2015. It looks like that Adobe needed to press its customers into the cloud, because the cloud did not execute as well as they have stated all the time. There has been a small ramp at the introduction of CC last year, but then the increase was just linear. You also need to take into account that the cloud has been mainly beneficial for the enthusiasts and visionaries, customers that did update every time, or for brand new customers due to the low entry price. Even print, web and video is becoming easier to be executed by the masses, Adobe won’t produce millions of new designers. So the basic problem in each market is that the group of the enthusiasts and visionaries is small compared to the mainstream and the skeptics (just think about gauss’ bell curve). The chasm to the mainstream is the main problem for Adobe in order to get the subscription model adopted. Therefore I think the reason that Adobe is pressing its customers into the cloud is because they know it will be really hard to get the mainstream to adopt the cloud and to keep the numbers increasing as they need them for Wall Street.
Just think that the predicted numbers of cloud subscriber are extremely low compared to the installed base of Adobe products and users. There are more than 4 million CS6 Creative Suite users and about the same number of CS3-CS5.5 Creative Suite users. Additionally Adobe states an installed base for single products that consists of almost 3 million CS6 products and about 1.5 million CS3-CS5.5 products. (I assume Adobe counted only sold and not pirated versions).
If you have an installation base of 10-12 million upgradable products why does Adobe only expect to have 4 million paying cloud subscribers by the end of 2015? Why did 5.5 million users move to CS6 in one year, but it will take an optimistic 3 years to make them upgrade to the new cloud versions? Adobe is targeting the 12 million user market. At the same time it expects that the perpetual license sales of CS6 will barely exist anymore by the end of 2015. So what is about those unaccounted 8 million?
I don’t think that Adobe really considers losing such a big part of its user base by its move to subscription only. I assume that they firmly believe that the main stream and the skeptics will continue to work with CS6 or older versions for the next couple of years and then will be pushed by the market demands, OS changes, or other technological changes to the new versions that are only available in the cloud. They need to believe that they will get them in a few years otherwise the subscription model would have failed already.
It is unlikely that users of versions before CS5 will purchase CS6, because Adobe killed their upgrade path and so they would need to purchase a new expensive full license of CS6. So their only choice again is to go for a subscription. The problem is, that especially this group doesn’t want to upgrade constantly or doesn’t has the money. Again, if you consider that the cloud is not doing so well, or Adobe know how hard it is to cross the chasm, Adobe’s move makes sense. I think Adobe still believes in the outdated homo oeconomicus and just misjudged the human factor. It didn’t expect the harsh reactions of many of its users. The problem is that Adobe gambled not only with its revenue, but violated the trust of its paying users. It is doubtful that especially this group wants to pay for their lifetime to access files. So those users most likely will stay with their current version or will move to different software. This I think was not really anticipated by Adobe, because it will shrink their potential customer base. Those users might have upgraded to CS6, but Adobe closed that path (maybe to make an extra quick buck to reach quarterly revenue goals). I therefore predict that if cloud is not going extremely strong until the end of the year at the latest they might need to open this path again.
For existing Adobe customers CC is 150 to 350% more expensive than the previous perpetual licenses. So if they don’t belong to the enthusiasts and visionaries group they will think twice to pay so much more if they don’t need to. If they can do their work with their actual tools they won’t change them.
This year will show if Adobe has more luck than brain or if it will fail big. On the one side Adobe glorifies the benefit of constant updates. Some customers on this forum even labeled only users as professional that always have the latest version. On the other side Adobe states to sell CS6 indefinitely and wants to support the next major OS updates. Again numbers paint the real picture. If only about 10% of Adobe’s customers are home users and more than 50% of the installed base is not working with the actual versions it means that about half of Adobe’s professional users are not up-to-date. This clearly contradicts the often heard statement that only hobbyists are not willing or able to pay for CC.
The big mystery to me is still why shareholders and Wall Street are not realizing that the predicted path is not as rosy at Adobe paints it. Probably subscriptions are just the actual hype to follow blindly. Maybe some of you remember the “Thin Clients” about 15 years ago. They were the hot thing and the death of the PC was announced by everyone. And also the banking crisis showed how many people followed the pied piper of Hamelin, because greed made them blind.
So what can you do if you would like to keep using Adobe products with a perpetual license? Just don’t purchase CC. CC seems to be a very fragile path for the company. Adobe surely won’t change anything before the revenue numbers and the shareholders will tell them to change their position. They put all on one card and need to bluff for a good while. If they need to change their path it will happen at the latest at the end of this year. It is not a long time to wait for. Just work with your actual version in the meanwhile, keep informing people about the truth with CC (no, it is not cheaper), bust Adobe’s marketing lies, and don’t stop complaining to Adobe. They are trying to sit this out, but this subscription move is not only about Adobe anymore, it is about how we will be able to use software in the future.
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