What's Adobe Up to This Time?

TheStreet.com

NEW YORK (TheStreet) -- With all of the recent mergers and acquisition activity that has occurred within the software sector from the likes of Oracle and Salesforce.com , it probably should have come as no shocker that Adobe felt it had to do something.

The company recently announced a $600 million all-cash deal to acquire Neolane, a privately held company headquartered in Paris, France, that specializes in cross-channel campaigns. While this deal makes some sense for Adobe given Neolane's capabilities in online and offline marketing, the timing seems a bit off, given Adobe's current situation.

Over the past couple of years, Adobe has been working to convert its business from the traditional software sold in a box to a cloud/subscription-based model. While the company's recent second-quarter results suggests that things are moving according to management's plan, I do question if this is not a case of biting off more than you can chew.

What's more, given Neolane's annual revenue of $60 million, which is just 1% of Adobe's $4.4 billion for 2012, I don't see what Adobe hopes to accomplish in this deal -- although a case can be made that Neolane sales are growing at a 40% rate. Even so, will it be enough to consider Adobe an immediate enterprise threat against Oracle or Salesforce.com? Management seems to think so.

There's no question that Adobe's focus has been on its marketing capabilities, especially in the areas of digital and cloud. I've written at length about Salesforce.com's aggressiveness in this area after paying $2.5 billion for ExactTarget , which amounts to a 53% premium. I don't believe that Adobe overspent. But with minimal details, I'm left to speculating what management hopes to get in return.

Brad Rencher, Adobe's senior vice president and general manager of the Digital Marketing business, said Neolane will bring "critical cross-channel campaign management capabilities to the Adobe Marketing Cloud." And I think that's the key. Adobe already has strong capabilities in areas like Media Optimizer offerings, Social, Analytics, etc.

The company feels that it can leverage more services by adding Neolane, which would become Adobe's sixth area of strength to go along with Marketing Cloud and Experience Manager. It also seems that Adobe is entering some very critical and highly competitive markets where rivals like SAP and IBM have already planted flags.

Plus, when you consider that Google is already a leader in this space, it doesn't bode well for optimism that Adobe can successfully establish a niche for itself. It's also possible that management may not entirely care about securing market share.

Given how well the company's cloud/subscription business is evolving, Adobe may also be looking at this for the long term -- building up its capabilities to be able to offer bundled services. From that standpoint, it's an excellent move, especially if published reports are correct, which suggest that this market can reach $12 billion.

I've also raised this point in the past: Digital cloud/marketing is an area that Apple has always shown plenty of interest. I believe this is one of the reasons why earlier this year, Apple hired Kevin Lynch, who recently left Adobe where he was chief technology officer. Apple has begun to proclaim that it is a software/services company. How else can it substantiate this claim if not by buying Adobe?

Apple has competed with Adobe in several multimedia applications. But Apple's capabilities in this area pales in comparison to Adobe's to the respect level that Adobe has established with professional users of its Creative Suite.

Now, with advanced capabilities in Digital Cloud, Marketing, Analytics, Target etc., this new deal for Neolane also makes Adobe more interesting not only from and competitive standpoint, but also an a buyout candidate. I believe Apple as a buyer makes plenty of sense. I'm not saying that this is what Adobe's management is thinking. But if I were in their shoes these scenarios would certainly be in my thought process.

At the time of publication, the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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