This week Adobe released their latest earnings data, and it was all good for the cloud software company, especially when it came to the Creative Cloud. Moving from boxed software to subscriptions was the best decision the company ever made.
Adobe began making the transition from boxed software to a cloud subscription approach in 2013. Prior to that, the company worked in a traditional software license model. They came out with a new version every couple of years, and charged a bundle for it, but many users chose not to upgrade because of the steep price (and if it wasn’t broken, why fix it?). When Adobe went to the subscription model, it guaranteed the company a steadier income stream, while ensuring users they would always have the most recent version of the software.
The approach has worked splendidly for them as this month’s earnings report showed. It was all record revenue all the time for Adobe, which seems to be a case study for the benefits of subscription revenue and diversification. While Adobe is probably best known for Photoshop and its suite of tools for creative professionals, there is of course much more going on there.
The company has to be thrilled with their third quarter numbers: earnings of $419 million on $1.84 billion in revenue. That’s a 26 percent increase over the same period last year when they pulled in $1.73 billion in revenue. The vast majority of that revenue came from Creative Cloud with over a billion in revenue for that part of the business alone in Q3.
It always could be better
While they were happy to cite their big growth numbers, they didn’t find everything was going the way they hoped, particularly Experience Cloud, which includes Adobe Marketing Cloud, Adobe Analytics Cloud, and Adobe Advertising Cloud — so many clouds. While that array of clouds pulled in over $500 million, it seems like it has the potential to generate so much more, and that point didn’t go unnoticed by Adobe CEO Shantanu Narayen.
“Despite this success with global enterprise customers, we were disappointed with our Experience Cloud bookings in Q3 but remain confident in our ability to execute against this large opportunity,” Narayen said in the earnings call.
He’s right, there is clearly a big opportunity in that part of the market that could give them a more diverse revenue stream. Not saying that a half a billion dollars should be scoffed at, but there is potential here for a lot more.
All that said, Adobe is several years removed from a pivot that many companies struggle with and they have made it smoothly and successfully. While there is always room to improve in every company, they have to be thrilled with the results so far.
Photo by sikeri on Flickr. Used under CC by 2.0 license.