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The story of Adobe as a shareholder in as an extremely interesting one. For 8 years from 2006-2013, there were 0 shareholder returns but the subsequent 7 years had a 12x return for the shareholder. What changed? The story goes back to the re-evolution of Adobe and what they did within the broad contours of the culture of the company. It’s interesting to look at why this transition was so hard to execute and what the company went through, from its origins.


1.  Adobe founders John Warnock and Chuck Geschke met while working as engineers at the Xerox Palo Alto Research Center. Their backgrounds were in personal computers and laser printing where they realised the need for accessible publishing and printing software. They realised that this was not something Xerox would focus on, which made them come out and start Adobe themselves. Their first product Postscript – allowed users to print from personal computers to external printers.


2.  John and Chuck, got their break when Steve Jobs decided to partner with them for their software on Apple’s hardware in 1983.


3.  The early success made them realize the market for desktop applications that allowed users to manipulate things visually rather than with code.


4.  1987:  Warnock taking his inspiration from his wife’s work on graphic design, started work on a drawing tool which resulted in the Illustrator


5.  1988:  Adobe released Photoshop adding to Illustrator as a photo-editing tool. At this point, it was revenue from Postscript that was subsidising all other products.


6.  1991:  Adobe went towards a multi-product enterprise creator with video editing software addressing the graphics software market.


7.  1993: Warnock went about creating a communication model between various computers and different systems through acrobat and coined the word Portable Document Format (PDF) for creating and editing various graphic documents.


8.  1994-06: Adobe’s growth in this period came from a series of acquisitions that added more products to Adobe’s suite. In 1995, with the adoption of the Internet, Adobe was not focused on building their products as web apps. This was an inflection point in the market but a bad prediction by the company.


9.  Adobe continued on its product-based acquisitions but did not focus on moving to the cloud yet. While their products became more consumer-focussed through piracy, this helped their brand to become more mainstream.


10.  2007 -17: Movement to the Cloud

Adobe had stayed a successful license-based company for over 2 decades They built a strong identity as a pro and consumer design tools brand that consumers were willing to pay as upfront licenses.


11.  Adobe was at a crossroads in– It was on the cusp of transforming its business from an 18-24 month product cycle company that sold its software through one-time customer purchases to a cloud-based software company releasing frequent innovations through an ongoing subscription model. This inherently weakened the lock-in Adobe previously had with their users.


12.  While the move to the cloud started in 2008 through acquisitions in the field of marketing analytics, esignatures, their turning point happened in 2013 when they released Creative Cloud to replace their enterprise version Creative Suite.


13.  This had an effect on the culture of the company too where the company had to reinvent its company culture. In the Adobe of old, performance review was a cumbersome process and time-consuming. Instead, the company introduced a regular “check-in” process that resulted in an ongoing dialogue between the manager and the employee.


It’s interesting to see where the value creation for shareholders happened, though innovation and product expansion happened pre-cloud era too. A lesson to shareholders around business adoption and growth is a function of value created, not just revenues.


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