Analysts fear for Adobe deal

Adobe’s proposed acquisition of Macromedia could lead to a major shake-up of the entire software industry, according to analysts, with Microsoft most likely to feel the heat. However, some market commentators have expressed concerns that the deal may yet fall foul of anti-competition law.

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By  Peter Branton Published  May 1, 2005

Adobe’s proposed acquisition of Macromedia could lead to a major shake-up of the entire software industry, according to analysts, with Microsoft most likely to feel the heat. However, some market commentators have expressed concerns that the deal may yet fall foul of anti-competition law. Adobe announced its intention to buy Macromedia, which it has long competed with, on April 18 (see IT Weekly, 23-29 April 2005). The US$3.4 billion deal is scheduled to close in the third quarter of this year. While hardly a record-breaking deal for the software industry, it could still prove to be important as it will bring together the two major desktop formats used in creative content development: Adobe’s Portable Document Format (PDF) and Macromedia’s Flash. “This makes good sense from both companies’ perspectives,” said Bola Rotibi, senior analyst at research house Ovum. While Adobe’s strength has traditionally been in the graphic design market, it “has also made its PDF reader ubiquitous in the desktop space and has a strong enterprise offering,” she added. This would fit well with Macromedia’s strength in the global graphical user interface (GUI) market, with its Flash product, she claimed. “The deal itself is not without issues from a competition standpoint, since the resulting business will almost certainly hold a sizable chunk of the GUI market, making conditions difficult for some smaller vendors,” Rotibi warned. “Both large and small players will be concerned and there may be anti-competition claims. There can certainly be no doubt that the resulting company, if allowed to go ahead, will make it very difficult for others to play and more importantly, acquire.” The deal will allow Adobe to compete better with Microsoft in the emerging market for online application development platforms. Longhorn, Microsoft’s long-hyped next-generation of its Windows operating system, will support graphics-rich applications and is expected to have presentation capabilities which will be able to do much of what Adobe’s Acrobat and Flash software can do now, analysts point out. The merger could head off this threat for Adobe, as well as open new markets for it. “The deal will help push Adobe products onto every desktop in a revenue generating form — a goal that both companies have struggled to attain for years,” analyst firm Garnter said in an online advisory. “Ultimately, Adobe and Macromedia both have superb cross-platform technologies, and if they can exploit the ubiquity of the PDF reader and Flash and really emphasise the ‘any client, anywhere’ theme they will be in a formidable position to dictate the entire future direction of the industry,” Rotibi warned.

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