Forget Photoshop. Adobe Is a Marketing Company Now

(Bloomberg Businessweek) -- In a dreary meeting room in a San Jose office tower, a couple dozen wonks from Adobe Inc. convened in September to plot the future of the company. The researchers and data scientists presented pitches that weren’t about helping smartphone users airbrush photos or developing a new way to make digital art. Instead, their ideas centered on ways Adobe could use artificial intelligence, based on huge collections of consumer data, to make ads more persuasive.

Adobe’s enduring reputation as the Photoshop company hasn’t caught up to what it’s become: an important conduit in the network of businesses trading and stitching together data about ordinary people to drive more consumption. The biggest problem with that, the Adobe team agreed at their fall research and development meeting, was they weren’t moving fast enough. Chris Challis, a manager of data science at Adobe Experience Cloud, told his colleagues about a plan to speed up things by handing off prototype software to corporate customers for testing. “We have the supersmart people that are creating the next thing,” Challis says. “It’s just a matter of getting it in front of people and proving it in a market setting to see what’s really going to take off.”

Adobe’s urgency comes from the newfound competition it faces in marketing and e-commerce software. For 37 years the company has shrewdly reinvented itself to match the moment, but it isn’t used to fighting on unsettled ground against the likes of IBM, Oracle, SAP, and Salesforce.com. It became a big name because of products that practically monopolized their categories: image editor Photoshop, document reader Acrobat, and, for a time, graphics software Flash. Things aren’t so simple in the marketing business. “It’s not a clear-cut win for them,” says Anurag Rana, a software analyst at Bloomberg Intelligence. “They’re going to have to fight for every dollar against Salesforce and SAP.”

Like it did with Photoshop and Flash, Adobe has been trying to buy its way into a dominant position in marketing and analytics, where Salesforce.com Inc. is a principal repository for customer lists and SAP SE benefits from customers’ accounting records. Adobe bought e-commerce company Magento for $1.7 billion in May and a few months later paid $4.8 billion for Marketo, a—yes—marketing firm that mostly targets other businesses. The Marketo acquisition was Adobe’s largest ever and more than double what Marketo sold for just two years earlier. Adobe said on March 26 that it plans to build a central hub for all of a given customer’s consumer data and that it will partner with other software makers to make sure the system is compatible with their data stores.

Factor it all in, and Chief Executive Officer Shantanu Narayen has upended Adobe’s business model and quietly transformed it into that of a marketing company. Adobe has been working full crank to track every interaction a consumer has with a brand: tallying her visits to a brick-and-mortar store and what she buys; using cookies to monitor her web activity and figure out how many devices she has; analyzing her interest in emails about sales or promotions; and incorporating social media monitoring to see what she says about a brand. Adobe can combine all of this with other companies’ data about a person’s income and demographics to try to predict the triggers that would make her buy a new phone or pair of shoes. In essence, Adobe is trying to know a consumer’s decision-making process better than she may know it herself.

This can’t help but sound tone-deaf at a time when the technology industry generates privacy scandals on a near-daily basis. Adobe says it’s helping create better customer experiences, so customers see ads and receive offers that are more interesting to them. It also says customers have ways to opt out of its targeting programs. But that’s making quite a leap, says Jen King, the director of consumer privacy at Stanford’s Center for Internet and Society. “I would be shocked if the general public knew about this in any meaningful way,” King says. “This is the Oz behind the curtain.”

Chief Technology Officer Abhay Parasnis says the company’s marketing efforts are a natural evolution in its history of “pushing the limits of creative expression and storytelling,” dating to the advent of the PDF, which Adobe invented. “If you treat the world as if it is going to be full of competitors who are going to do a better job than you, it pushes you to out-invent them,” he says. The company says it’s mindful of privacy concerns and that it only processes data for its customers, never taking control of or monetizing it. “Last year has been a wakeup call for the tech industry,” an Adobe spokesman said in a statement. “While companies need to do much more to build (or even regain) trust, a key part is understanding that many consumers do not understand their rights and how their data is being used.”

Adobe doesn’t seem likely to change its strategy. Over the seven years it’s spent reorienting its business model around subscriptions and augmenting its marketing capabilities, its stock has been the ninth-best performer in the S&P 500, ranking it in the same zone as Amazon.com Inc. and Netflix Inc. Byron Deeter, a partner at Bessemer Venture Partners who invests in cloud companies, says, “People don’t appreciate how innovative that company has grown to be in a sleepy San Jose wrapper.” Given the increasing attention being paid to privacy concerns online, Adobe may want to keep looking sleepy.

To contact the editor responsible for this story: Jeff Muskus at jmuskus@bloomberg.net

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