Adobe Creative Cloud: End of the Upgrade Roller Coaster?

by James Cook on November 14, 2011

See also:  Adobe Creative Cloud announcement leaves users in a fog and Single Adobe Creative Cloud license will allow use of Creative Suite apps on Mac and Windows

Adobe recently announced Creative Cloud, which represents a shift in focus from software sales to a subscription model. For $49.99 per month subscribers will have access to the full range of Creative Suite programs as well as additional online services and community resources (additional price points for suites of fewer apps will be announced later). This article is the first of two where I explore the reasons behind Adobe’s recently announced shift from Creative Suite to Creative Cloud and its implications for the company and the users of its products.

Adobe Creative Cloud Roller Coaster cartoon

It’s been a wild ride lately for Adobe: layoffs, restructurings, acquisitions, and dropped development of the mobile Flash Player. The announcements have been the source of a lot of speculation, frustration and anger within the Adobe community. An online petition calling for Adobe CEO, Shantanu Narayen, to step down takes the anger to an extreme but it’s indicative of the turmoil within the Adobe community.

Lost amid the sound and fury is what, to my mind, is one of the most important developments in Adobe’s history, the announcement of the Creative Cloud service set to launch in 2012. In fact, all of the other recent developments are best understood when viewed as part of this bet-the-company initiative.

So, what’s going on?

To understand Creative Cloud, you have to understand an important fact about Adobe. People tend to believe that Adobe is in the business of selling software. Given that the Creative Solutions division accounts for approximately 50% of the company’s value (the Knowledge Worker division - better known as Acrobat - accounts for another 15%) that seems reasonable but it obscures an uncomfortable truth: After years of dominating its market space, Adobe is actually in the business of selling software upgrades.

Adobe’s profits (and its stock price) have become increasingly dependent upon the success of each Creative Suite upgrade. This presents Adobe with a number of challenges:

Adobe Revenue by Division

  • Failed upgrades: A poorly received upgrade - whether due to a poor product or a poor economy - is a major blow to Adobe’s bottom line.
  • Lengthy upgrade cycles: As the length of the upgrade cycle grows, Adobe’s revenue injections become less frequent.
  • Poor deployment of resources: The Creative Suite currently consists of nineteen individual products. Upgrading them all at the same time requires Adobe to spread its development teams over a large number of projects and results in a lack of coordination between the program developers, duplication of efforts and the lack of a unified user experience across the Suite.

Ancient history (April 2011)

With the release of Creative Suite CS5.5 earlier this year, Adobe attempted to address those challenges in two ways.

  • New upgrade cycle: Along with the release of CS5.5, Adobe announced a new upgrade cycle. The upgrade cycle for major, “dot zero” releases (CS6, CS7, etc.) was extended from 18 months to two years with “dot five” releases (CS5.5, CS6.5, etc.) occurring in the years between major releases. It’s worth noting that while there has been no official announcement, speculation in the community is that this plan has already been scrapped.
  • Subscription sales: As an alternative to buying programs (more accurately, purchasing a perpetual license to use the program), Adobe began offering subscription pricing which allows users to “rent” a program or the whole suite on a monthly basis. Subscription users will be migrated to Creative Cloud when it launches but no details have been announced.

Those changes represented a major shift in the way Adobe does business but, in just nine months, Adobe has acknowledged that they were insufficient (a less generous analysis is that the changes were timid, ill conceived and poorly implemented) and they are being replaced with Creative Cloud.

Creative Cloud

One thing that cannot be said about the Creative Cloud initiative is that it is timid. It’s hard to look at it as anything other than an all-in, bet-the-company gamble. Whether it turns out to be well conceived and properly implemented remains to be seen.

According to the press release, Creative Cloud includes:

  • Applications: The Adobe Creative Suite, Adobe Touch Apps (for mobile devices) and the recently introduced Muse and Edge applications.
  • Services: A variety of digital and web publishing services along with TypeKit web fonts.
  • Community: According to Adobe, Creative Cloud “will become a focal point for anyone creative.”

Unfortunately, the Creative Cloud announcement came in the midst of Adobe’s self-inflicted public relations disaster over the Flash announcement. To make matters worse the announcement was long on hype and short on details so we’re left to speculate about what this means for Adobe and its users going forward.

Cloud Nine for Adobe…

Adobe is facing a challenge unparalleled in its history. Its market dominating programs are under siege from competitors and emerging technologies. Adobe really had no choice but to make a major strategic shift.

If they can execute that strategy and successfully transition from the Creative Suite to Creative Cloud model, it will accomplish three very important corporate goals:

  • Dependable and predictable revenue: Hopping off the upgrade revenue rollercoaster will make the financial analysts happy.
  • Breaking the upgrade cycle: The opportunity to deploy development resources based upon the demands of the market place rather than an artificial upgrade calendar will make Adobe more nimble and efficient.
  • Wider usage of new Adobe programs and services: By rolling new products like Muse and Edge and services such as TypeKit into Cloud, Adobe will jumpstart their usage and also make life more difficult for competitors to successfully introduce competing products.

…Or a Dark Cloud?

Unfortunately for Adobe, transitioning from software sales to subscriptions is a major challenge. Some companies, such as Intuit, have succeeded but more have failed and there is no obvious model for what Adobe is trying to accomplish. They’ll need to overcome a number of obstacles to succeed.

  • Lost revenue: Even a well-executed transition from sales to subscriptions generally results in lost revenue for a period equal to at least one of the previous upgrade cycles. Adobe has already adjusted its forecast for 2012 downward. A botched or delayed launch of Cloud could extend that into 2013 and beyond.
  • Lost upgrade revenue:Adobe has announced they will not offer upgrade pricing for users who aren’t already using at least version CS5. Users of earlier versions have the following options:
    • Pay for an upgrade to CS5.5 now and pay again to upgrade to CS6 in a few months.
    • Pay full price for CS6.
    • Hop on the Cloud and write off their previous investment in Adobe software.

Given those options, many users may choose “none of the above” and simply decide to live with their current software as long as possible.

  • Consumer backlash: In the past Adobe has endured frequent complaints over its upgrade pricing and policies. In addition some upgrades have been plagued with bugs and over-hyped features that prove to be of little value to the vast majority of users. A misstep launching Cloud could severely damage the Adobe brand.
  • Takeover: Even prior to the Cloud announcement and subsequent eight percent drop in its stock price, Adobe was being mentioned as a possible takeover target. Any additional drop in the stock price due to the Cloud transition could make Adobe an even bigger target.

The Bottom Line

The next six months may be the most critical in the company’s history. Adobe’s customers, competitors and the stock market will be watching closely and any major stumbles will have very serious repercussions for Adobe’s bottom line and its future as an independent company.

Up next: What Adobe’s Cloud gamble means for the consumer

{ 13 comments… read them below or add one }

Cow May 8, 2013 at 6:30 pm

Petition is here:

http://www.change.org/petitions/adobe-systems-incorporated-eliminate-the-mandatory-creative-cloud-subscription-model

It’s getting huge already, but it’ll need to be colossal before Adobe takes notice.

Reply

Noel November 23, 2011 at 1:44 pm

Hm. I tried to search through these replies but didn’t really see this one. Based on Adobe’s CS Subscription pricing, the Design Premium Suite is $95/mo for a yearly plan. That’s $2,280 every 2 years. Assuming a 24 month major release, that is quite a bit more than the initial purchase investment +upgrade fees every two years. So I’ll roughly be paying more than twice with a subscription than what I am now with upgrade fees? Someone please tell me what I’m missing in this! =)

thx.

Reply

dwcourse November 23, 2011 at 1:53 pm

@Noel,

The first thing you are missing is that Creative Cloud pricing which will include all the apps currently in the Master Collection will be price at $49.99/month so $1200 for two years versus $1899 for Design Premium or $1299 for Design Standard so the pricing doesn’t look nearly as bad as your calculations. Secondly Adobe has indicated that subscription pricing will be adjusted downward when Creative Cloud is officially launched to be inline with the announce Creative Cloud pricing. What that means isn’t clear but hopefully it means smaller subsets of the Creative Suite or single programs packaged with the Creative Suite online service for less than $50/month.

Unfortunately Adobe has done little to clarify the situation since its original announcement.

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John Codrington November 18, 2011 at 3:11 pm

Ok, the software will still be installed on your computer system/s and all the clould will be to ensure that any upgrades are added automatically under the subscription program, and as long as the subscription is up todate the program/s continue to to be active. What about if you are an infrequent user of DW and only use it to update your own web-site and make the occassional changes? This makes it rather expensive option unless you are full time web-site building? Is there going to be a lower user rate for infrequent users, otherwise I can see Adobe customers leaving in droves and searching for alternative web creation software! I already consider the cost of having to purchase the Creative Suite package enormously expensive and will not upgrade for that purpose. Adobe have and are pricing themselves out of the market, particulalry given the current global financial crisis and with another crunch looming on the horizon early next year many people are making do with what they have until the financial storm has passed!

All I can say is Adobe Management need to be looking at this very closely, otherwise their business and what is obstensively a good software tool will collapse. It would appear that Macromedia got out at the right time!

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dwcourse November 18, 2011 at 3:23 pm

John,

The $49.99/month is for Creative Cloud including the current Creative Suite Master Collection apps. The latest clarification from Adobe is there will be lower cost options available for users of fewer Adobe apps. For a Creative Suite Master Collection user who updates each cycle, $50/month is a good deal. I’d expect other sets of programs to be priced based upon the same model which would make Cloud an attractive proposition for other users as well. However it’s clear that if you are a user who skips upgrade cycles (which Adobe has said will no longer qualify for upgrade pricing) then moving to Cloud will probably be more expensive. Exactly how the numbers will play out for each individual user is impossible to say until Adobe provides additional pricing information for CS6 perpetual licenses/upgrades and other Creative Cloud packages.

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John Codrington November 19, 2011 at 5:11 pm

Jim,

If the $49.99 month is for the Master collection, and the rate will be proportionally less for say the Creative Suite then that will be OK. Will be good to see what the Creative Suite Rate will be once it is released. Are these prices for a single license or will they offer multi-licenses for a number of users working with the same organisation. For example, my Son is attending college doing Animation where he uses the Master Collection, whereas all I need is the Creative collection for just Web-Site construction. I really don’t want to have two seperate licenses if it can be brought under a corporate deal!

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dwcourse November 19, 2011 at 5:20 pm

John, the more I learn and the more Adobe clarifies, the more convinced I become that Cloud pricing will be attractive to most current users and certainly to new users.

As for your questions, Adobe really hasn’t clarified how the Cloud will affect educational users or purchasers of multi-seat licenses.

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James Ranka November 18, 2011 at 8:38 am

Thanks for that info, Jim.
Writing as one who has experienced MANY ups and downs (mostly downs) with Adobe, I see nothing but storm clouds ahead for the company and us consumers.
I now own CS5.5 and I depend on 4-5 programs within that suite to
conduct day-to-day business.
I become a bit spooked when I read a quote like:
their (Adobe’s) goal is “to drive 100% of our base to Creative Cloud.”

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rebecca November 16, 2011 at 3:56 pm

Thanks for the clarification. I still am opposed to renting my software, sounds like it will be very expensive. As a designer, I’m sort of a ‘captive’ customer until the entire industry decides they don’t like it either. Who knows if that would ever happen.

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rebecca November 16, 2011 at 1:06 pm

I am not in favor of this move because when the cloud and/or internet connections don’t work or are slow–I don’t work. I can’t get my work done when I am dependant on my internet connection because it doesn’t always work. It also means I don’t own anything. It makes my relationship more dependant with Adobe and I don’t like that. The monthly fees add up to more than the cost of the software over time and I can’t afford it. I can save up for the one time purchase, but budgeting monthly for it is a hardship. If I load a song on my ipod, at least I own a digital copy of the song–I’m not renting it.

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dwcourse November 16, 2011 at 1:34 pm

Rebecca, it’s a common misconception that use of the Creative Suite applications that will be part of Creative Cloud will require an Internet connection to operate. The truth is that the applications will continue to be installed and run on your local computer. An Internet connection will only be required to:

Download and install an app
Periodically (about once a month) verify that your Cloud subscription is current. If it’s not your apps will be deactivated.

Other parts of Creative Cloud (file storage, file synching, preview sharing and more) will truly be in the cloud and require a connection.

Making you more dependent is part of Adobe’s plan. They have decided that the current model is unsustainable. You can continue to use your existing software and, if you have version CS5 or CS5.5, you will be able to purchase an upgrade and use it for as long as you can. However Adobe has stated that it their goal is “to drive 100% of our base to Creative Cloud.” They haven’t given a timetable for that to happen and they have made no announcement about their plans for providing upgrades for customers who own their software beyond CS6.

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Goblue December 8, 2011 at 7:54 am

@dwcourse
The truth is that the applications will continue to be installed and run on your local computer. An Internet connection will only be required to verify uptodate subscription
Other parts of Creative Cloud (file storage, file synching, preview sharing and more) will truly be in the cloud and require a connection.

Should I understand from this that the optimal workflow would entail having at least two copies of each project; HD and the Cloud?

A very reasonable subscription rate would work for me with an option to discontinue payments when inactive and the ability to resume at anytime.

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dwcourse December 8, 2011 at 8:53 am

@GoBlue, you’ll want to work and save your documents locally due to performance issues of working saving to the cloud. Just what services Creative Cloud will offer for synching documents between multiple computers using the cloud hasn’t yet been announced. In any case I’d always want a local copy of any project.

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