Why Adobe Wants You in the Cloud, Today.
Adobe’s move to a subscription only model for their market dominating Creative Suite software products (now Creative Cloud) has caused quite a bit of anger by long time Adobe customers. This article will address this major change, discuss some of the possible reasons for Adobe’s ending of perpetual licensing, and raise some serious concerns about the impact this move will have on the millions of content creators who rely on Adobe’s products.
Although they would never admit to it, Adobe has got to be quite disappointed with their subscription numbers. Adobe has claimed the demand for the cloud is incredibly high. They’re ending perpetual licensing because people flocking to the cloud. Their hard sell at NAB belies that assertion, as do the data – at least to the extent that data is available. Although Adobe doesn’t publish exactly on how many people subscribe to Creative Cloud vs. own perpetual licenses, looking through their financial reports is a bit enlightening.
(If you have better/new information please post it in the forums so this article can be updated.)
Let’s start with 2007’s numbers: In 2007, the year Adobe released CS3, Adobe had revenue of $3.2 billion. 60% of that ($1.9 billion) was from their Creative line of products. There’s no data on how much of that revenue was from upgrades vs. full licenses, but CS3 was a big ugrade and probably accounted for a majority of the revenue. For the sake of simplicity, let’s assume that the average price per license (averaging all upgrade, full, academic, volume) was $1000. That would amount to approximately 1,900,000 licenses. Keep in mind that many people updated CS suites every other cycle, so the number of licenses could have been far greater. Now look at FY2012, where Adobe had $3.343 billion in sales (creative and other – they didn’t break it down further) and $673 million in all subscriptions, of which $153 million was in Creative Cloud subscriptions. These are small subscription numbers against product sales.
A Mature Product
Adobe’s products are at the heart of the creation process for most of the incredible timelapse we feature hear on this site. Creative Suite 6 is a very stable and mature product which millions of people use each day to create a vast array of incredible work. Quite frankly, CS6 is probably the last version of Creative Suite most people will need for the next 5 years. That’s a major problem for Adobe, which needs to find a way to get the millions of customers they already have to upgrade as often as possible. Historically Adobe has done this by innovating and evolving the product just enough between versions to drive the upgrade cycle.
With a mature product like CS6 it becomes much harder to innovate. In fact for many users, the pace of innovation since CS3 has slowed to the point where they forgo upgrading to each new version and instead opt to upgrade every other version. From CS3 to CS5 to CS6 (skipping CS4 and the CS5.5). Rather than spend $600 to upgrade each year, people were spending $600 to upgrade every 2 to 4 years. It’s also notable that Adobe’s release window seemed to contract a bit with each release. The chart on the right show a typical upgrade schedule for many users (in bold).
This was not an ideal situation for Adobe and they set out to find a way to change this pattern. Enter Creative Cloud – a new product that not only promises endless updates to customers, but endless payments to Adobe, whether or not the upgraded features are worth it. Rather than collect $600 every two or three years from perpetually licensed users, they can now collect a full $600 per year from subscribers in perpetuity. They said just this in their March 2013 10Q (left).
“Current” doesn’t mean Adobe will keep you up to date with new features. It means means you will keep Adobe up to date with your payments. Once you’re on the subscription, you’re on it for the rest of your creative life. This isn’t cable tv, an internet connection, or a cell phone plan. It isn’t like most things in life where you have real alternatives you can choose. Adobe has a virtual monopoly on the tools for creating content. Sure there’s FCP and Avid and a few smaller choices for video. But photo editing and desktop publishing? They bought out their biggest competition in 2005 (Macromedia). With this move to subscription only, Adobe has taken away the choice to pay for an upgrade or not. No perpetual pay, no more play. With the perpetual license you were in control of when and if you wanted to pay more for new features. But that’s gone. For ever. Although it should be noted that in that March 2013 10Q Adobe wrote:
We continue to implement strategies that will accelerate the adoption of our Creative Cloud subscription model, causing our traditional perpetual license revenue to decline. We currently plan to continue to offer the perpetual licensing model as we transition our customers to this new subscription-based model.
Apparently they changed their minds. EDIT: They’ve taken it off the front page, they’ve removed it from their online catalog of products, but for the time being you can still find the CS6 perpetual license available for purchase (upgrade and full) on Adobe’s site.
Would you pay $960 to upgrade today?
Consider this…. In May 2012 Adobe announced CS6 with great new features that made it a fantastic upgrade from CS3 and CS4, and a great upgrade from CS5. And they announced the new Creative Cloud subscription model. If you made the move to the subscription for the $360/12 months introductory price, then it’s now time to pay $600 for another year. Of course you don’t have to pay. You can always go back to your old CS3, CS4, or CS5 perpetual license. If you upgraded to a CS6 Master Collection perpetual license ($525 from CS5MC or $895 from CS5 Design/Production) then today you can keep on using CS6 with nothing more to pay, although also notably without any new features.
So what about those new features? Suppose all Adobe still offered was a perpetual licenses and you were already on CS6. Would the updates they’ve announced and released be substantial enough to get you to upgrade to a hypothetical CS7 suite for $960 – the cost of the subscription for the first two years? Or would you skip this hypothetical CS7 release and wait for the next one? The chart on the right shows the cost of each model assuming most recent pricing.
Keep in mind that Adobe has traditionally been on a 2 year upgrade cycle for major releases. Since CS6 was one year ago, if they ever released a CS7 (they won’t) it would be slated for next year. From the underwhelming response on the web, many people do seem to feel the new features amount to more of a CS6.3 upgrade than CS7. So $960 for CS6.3? Next May when Adobe presumably holds their next MAX convention, they’ll announce more updates and features. It’s possible by that time they’ll have introduced enough new features beyond CS6 so people will look at everything and think, “Yeah, now this is about a CS7 upgrade level.” But then the question will be, is a theoretical CS7 upgrade worth $1560?
Adobe’s “Creative Monopoly”
As the dominant supplier of applications for creating content, Adobe’s “Creative Monopoly” now creates substantial risk to the millions of creative individuals who have little choice but to use Adobe’s products. Their dominance gives them the power to decide the cost of entry into the world of digital creativity, and the decision to eliminate the perpetual license will likely have a lasting and significantly harmful effect. It creates a foundation from which Adobe can very easily (albeit unintentionally) starve innovation from others and from within.
Adobe will continue to innovate, but at a much slower pace. They won’t need innovation to drive sales of upgrades or acquire new customers, and the costs of innovating on such mature products becomes more costly and yields fewer results. Eventually most people will migrate Adobe’s subscription model, most likely due to new technologies coming along that will break CS6. Things like new RAW formats on new cameras. Adobe will support them for subscribers but not for perpetual license holders.
For Adobe, much of the work of moving people to the subscription becomes an exercise in patience. Innovate in small ways, but mostly wait.
Adobe will scale back their massive R&D efforts to boost revenues while they patiently wait for the migration.
And it’s when they do that – when they stop updating and innovating – that we’re going wish we didn’t have to keep paying Adobe month after month, year after year for a product that’s basically complete.
