Adobe has achieved near-monopoly status in the world of graphic/web design through the massive adoption of its Creative Suite product set. Far too often customers are focusing on the subscription price when there is much more value to be obtained through optimizing product selection and proactive management of end-users’ software usage.
Adobe Then and Now
Around 2011 Adobe first launched its new subscription model for the Creative Cloud Suite, which is a bundled set of design applications heavily used by graphic and web design professionals. This fundamental shift from the perpetual license + support model was met with heavy skepticism in both the end-user and financial communities. Adobe’s stock price took a significant hit as this new distribution model was revealed. Wall Street analysts and financial pros had not yet cracked the code on how the accounting impacts would ultimately fare under this new recurring revenue model.
Historically organizations could purchase an on-premises license for single applications or the full Creative Cloud Suite for a one-time price. Additionally, most companies eschewed support as the end users generally did not require it, and the IT function did not play a substantial role in the administration of the software post-install. To make matters worse for Adobe, the purchase model allowed for upgrades to new versions at a significantly lower price than a full license purchase. This enabled Adobe to become the de-facto software solution for creative design, bar none.
In 2013 Adobe finally banished the perpetual license model from its repertoire, announcing that all new releases would be under the subscription model only. By this time the stock price had rebounded from the lows experienced when the new license model was announced, and it was at all-time highs of ~$ '30s per share. Customers could still survive on the last major perpetual license release, CS6, and they did for a few years.
How Adobe Keeps Score
Why does all this history matter? Because eventually the innovative cloud applications and incremental functionality improvements made CS6 obsolete. And this unleashed a tsunami of customers migrating to the subscription model. Customers should take note that Adobe keeps score via its stock price, not customer feedback or satisfaction levels when it comes to pricing its products.
Don’t believe me? Take a look at the five-year stock chart for Adobe below:
Already well above the historic highs of the $ '30s, at just under $100/share in 2015, Adobe’s stock has risen to almost $300/share over the past five years, fueled by the subscription tsunami.
Let’s look at market share in the Graphics & Photo Editing product category. Enlyft pegs Adobe’s total market share across its creative cloud products at over 80%, with Microsoft Visio at ~5% and the remainder as an oddball assortment of "Other." This data is based on over 500k companies that use Graphics & Photo Editing software! Adobe has created a wide moat due to the high switching costs and massive network effect of its install base.
How has Adobe achieved such a level of market dominance? One would be hard pressed to find a higher education institution where graphic design students are not being plied in the art of Adobe as their primary toolset.
Case in point is this analyst commentary from Morningstar:
“The high switching costs moat source is the primary driver of the wide moat surrounding Creative Cloud. While there is a wide variety of competitive products, Adobe Creative Cloud is so pervasive within the creative world and the educational system that replacing it would be an insurmountable barrier, in our view. Further, because nearly all creative professionals use it, it makes it so all other creative professionals must use it. While the Creative Cloud has its issues, particularly premium pricing, and any single organization or freelance professional might be willing to switch, they would find it difficult to work with anybody else. Similarly, it helps ensure that when Adobe releases a related new solution, it too becomes widely adopted.”
The graphic design industry settled on Adobe as the tool of choice for this profession, and it has been this way for well over a decade. So, each year schools churn out tens of thousands of newly trained Adobe end-users. Do you think you can convince them to adopt Corel Painter instead of Adobe Photoshop? I didn’t think so.
In spite of Adobe’s market dominance in the graphic design space, there are measures you can take to optimize your investment in Adobe's Creative Cloud products. Actions taken in the areas of license optimization and product selection are critical to ensuring you are not overbuying Adobe product that will go underutilized. Let’s break this down by key areas below.
Most organizations will spend 80% of their time focusing on their pricing, whereas this is the area where customers universally have the least amount of influence over Adobe. Of course, price is important. Nobody wants to pay list price when you could get a 20% discount or higher. Please take note, Adobe has firm limits on its discount floors and enforces a highly disciplined commercial structure around these limits. In short, you are unlikely to be the “special” case that gets an outsized discount, no matter how great of a negotiator you may be. Schedule a call with one of our analysts to help you streamline this part of your analysis so you can focus on the more essential aspects of the deal.
Adobe offers several ways to purchase its products. Most transactions occur through either an Enterprise License Agreement (ELA) or a VIP Team volume purchase program. The primary differences between the two plans are that the ELA offers full enterprise support (which we already know is of minimal value), Single Sign-On capabilities, and an enhanced portal for license management.
It is not uncommon to see ELA prices up to ~20%+ as compared to the corresponding VIP Team plans. The reality here is that Adobe has realized that many IT teams demand SSO for their SaaS applications and will mandate the adoption of a subscription plan that includes SSO capabilities if it is available. This lever is often the only reason organizations adopt the ELA. If possible, steer clear of the over-priced ELA; you don’t need it.
Another standard error that we see regularly is for organizations to choose the “easy” path of purchasing the Creative Cloud – All Apps package for their end users. This product SKU includes access to all of the Creative Cloud applications, which is comprised of ~39 apps and seven cloud services. This is overkill for most end users who may regularly use one to two applications daily with little to no use of other applications required.
And the price keeps rising! Adobe has just implemented a price increase. For the Adobe Teams All Apps plan, the price has increased from $69.99 PUPM to $79.99 PUPM or a whopping 20%! The Single App plan is priced at $33.99 PUPM. The breakeven point for an end user is at 3+ applications used regularly to justify the more expensive All Apps plan. Additionally, organizations should consider building a pool of Single App licenses that can be assigned to users with a sporadic need for particular applications. Taking this step alone can vastly reduce your cost as you will purchase fewer All App plans.
Deploy a proactive SAM process that includes license use metering to ensure your licenses are being utilized to the maximum allowable entitlement. It is a regular occurrence for enterprises to receive license requests from the line of business (LOB) and to make additional license purchases without verifying if excess capacity exists within the current environment! By deploying a regular metering process, underutilized licenses can be quickly identified and reassigned to others within the organization or to fulfill net new demand. Combined with a dynamic product selection process, as noted above, organizations can ensure they have an optimized license footprint with Adobe.
Where we see that many SaaS vendors are moving away from the software bundle towards an al-a-carte model, enabling the “granularization and monetization” of their customer base, Adobe can double-down on the bundle model. Due to the high switching costs and network effect of its unique offering, Adobe continues to add more functionality to the Creative Cloud suite and layering across-the-board price increases to its customer base, regardless of whether or not the new functionality is universally required.