Microsoft-Adobe Merger Makes No Sense; Partnership, However

Rob Enderle

Today the market is awash with rumors that Adobe and Microsoft are going to merge. But to merge, Microsoft would have to come up with a massive amount of cash and the result would add complexity to company that arguably is already too complex. Adobe would have to give up its identity and would gain the extra overhead and bureaucracy of a corporate division. Against Apple, Microsoft already has the tools it needs to compete, short of hardware. Adobe doesn't bring hardware to the table, and Microsoft doesn't want to be a hardware company anyway.


So merged, particularly with Apple as the target, the result likely would be worse than what exists today. But partnered, with Google as the target, a potentially more successful outcome can be inferred.


The Google Threat


The threat that Google represents to both companies is one of revenue source and software model. Both companies largely live off software sales and services, like subscriptions. Google's model is connected to advertising revenue and applications increasingly are hosted by Google's cloud services. In effect, Google sells its users to its customers and by doing so, can bring increasingly complex products to market without charge.


Adobe is not a power in hosting and its leading Web product, Flash, is under siege. Interestingly Flash has as one of its ancestors a product called Chrome, no relation to Google Chrome. The original Chrome was created as a joint project between Intel and Microsoft and killed due to the kind of political bungling that goes on in large companies.


Microsoft has a variety of competitive cloud platforms, but it needs major brands on the platform to make it appear more viable than Google's so it can justify what it charges. Otherwise, despite the privacy and security concerns surrounding Google's offerings, Google is likely to critically damage Microsoft's revenue streams.


Partnership Advantages


Partnered, Adobe gains access to Microsoft's resources and backing to strengthen (or create) a hosted model for many, if not most, of its client-side critical applications like Photoshop and create better Web-based entry programs for them. Microsoft gains a major brand for its Azure platform, which it can use to drive revenue and show as a counterpoint to Google's gains. If Microsoft were to purchase Adobe and do the same thing, the lack of independence would largely invalidate the perception that Adobe did this by choice, and Microsoft would lose much of the benefit.


The problem is Flash, and this will likely be a sticking point because Microsoft has a competing technology in Silverlight. But with people forecasting HTML5 will kill both, the reasons to cooperate may now exceed the reasons to compete. And since Flash has as an ancestor, Microsoft Chrome, there is some little-known common ground.


Wrapping Up: Partnership More Likely


While in a market like this, anything is possible, an unusually tight partnership would appear to give Microsoft and Adobe, most if not all, of what they seek without the extreme costs in cash, identity and complexity a merger would create. Both companies have a mixed history with tight partnerships, however, so it doesn't make either the partnership or the success of the likely partnership certain. Microsoft Chrome partially failed because the Intel/Microsoft partnership stumbled and that, too, needs to be factored in.

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