Yesterday, Adobe announced that it had agreed to buy analytics firm Omniture for $1.8 billion in cash, or $21.50 a share. This purchase is a major and rather unexpected diversification for Adobe with a move into the high-growth SaaS market on which Omniture focuses. According to Adobe’s CEO Narayan, their customers wanted to integrate Adobe’s online products like Flash with services like those offered by Omniture, hence the deal.
Yeah, right! And Disney bought Marvel because they wanted to have a Spiderman/Mickey Mouse teamup. Here’s what probably happened…
Lack of synergy fit :
So, an Adobe customer uses Adobe CS4 to create and design cool things. That makes that customer segment consist of designers and programmers. Omniture is a SaaS offering to marketing analysts. The fit is hard to see here as both customer clusters seem to be mutually exclusive with different business models. content creation and analysis management are two different functions altogether. How will buying Omniture build Adobe’s content creation and management businesses? Is Adobe thinking of empowering designers to be able to track how they’re creations are performing?
Secondly, Macromedia’s capbilities have helped Ajax and Flash programs become more trackable though the validity of the data is always questioned and so is the implementation. The big question : what new features will Adobe incorporate into its rich media offerings for the future?
Last year, Omniture’s share price tanked after it was downgraded by a Wall Street analyst who found that companies consider web analytics to be a discretionary cost. At the same time, Yahoo! Web Analytics, the solution based on IndexTools, yet another company that Yahoo had acquired was launched. Yahoo! Web Analytics was a no-cost solution that was geared to web analysts who wanted to do behavioral segmentation on unaggregated data. The initial rollout was limited to Yahoo! Small Business’ 13,000 hosted e-commerce customers, advertisers and third-party application developers who build widgets and other mini-apps for Yahoo! users via the Yahoo developer network. In any case, Yahoo did need to have an Analytics add-on so that acquisition made sense.
In any case, getting back to Omniture. In a market, where the trends both in pricing and fuinctionality has been dictated by Google, it was pretty hard for Omniture or any other paid analytics competitor to sustain growth or even think of newer functionality that it could add on to its existing suite given that Google was way ahead in the thinking for the next wave analytics tools. Also, given that Omniture had no other products that presented a reasonable diversification option, they were pretty much flat in terms of growth options.
And, Adobe has cash in the bank and went out and bought ‘em. Or maybe Omniture made one hell of a presentation to the Adobe leadership and they bit.
Oh, well, time will tell how this will perform. Perhaps, Adobe will do a Google and include Omniture’s suite as part of CS7 for free. In any case, I wouldn’t put my money on this being a major revenue stream for Adobe over the long term.
Updated on December 30, 2010:
I stand corrected so far. A strong sales force combined with an aggressive up-selling campaign may have resulted in Omniture working out for Adobe so far. But, the fact remains that Omniture hasn’t tanked in the hands of Adobe – so far, the first rule of M&A integration is to ensure that your acquired asset maintains its pace of revenue generation and operational capabilities; Adobe has done that and and they will continue to seek ways to monetize their investment. Time will tell about the long-term success of this venture. I’ll update this as more information comes along. See the comment below detailing Adobe’s description of Omniture’s performance during their Q2 2010 earnings report call.
Some comments from Adobe’s CEO Shatanu Narayen at Adobe’s Q2, 2010 Financial earnings discussion:
- Our Omniture business had another solid quarter in Q2 with strong bookings and the addition of more than 100 net new customers. Awareness of the strategic value Adobe can provide across an entire workflow involving creation, delivery and optimization is resonating with our big enterprise customers. In fact, we booked a significant multi-year enterprise win for more than $6 million that spanned all major Adobe products from creative tools to LiveCycle and Omniture solutions.
- In our Omniture segment, we achieved $83.5 million in reported revenue, which is down sequentially when compared to Q1 as expected due to Q1 having an extra week in the quarter. Excluding the accounting write-down of $8.7 million in deferred revenue in Q2, reported revenue would have been $92.2 million.
Omniture transactions grew to $1.26 trillion in Q2, up from $1.23 trillion in Q1, and up by more than 12% on a year-over-year basis for the equivalent period of time last year. Revenue from our optimization products grew to 43% of Omniture revenue, demonstrating the value proposition of the entire online marketing suite is resonating with customers.
- We have demonstrated with our successful acquisitions of Macromedia, Scene7 and Omniture that we can expand our market opportunity and drive incremental growth, while enhancing our strategic relationship with a broad set of customers.
- So if you look at the heads that we did add it’s primarily in sales and marketing where we’re trying to drive revenue, adding more sales capacity in Omniture, adding more R&D headcount where it makes sense.
- Omniture is the clear market leader already in that particular market. And every marketing professional that we talk to, wants the ability to start from the creative process and embed intelligence in it that they allow to be analyzed later on. What we have done with Creative Suite 5, is to start to show the vision of when you do the creative process, being able to embed the intelligence, so that you can automatically then analyze the data when it moves online.
- So let me take the first question which was around Omniture. When we look at the Omniture business, we look at it actually by even more segments, and we look at it as, what are the strategic customer accounts, what are the key customer accounts, what are major and what are the mid-market. And when we think about the key and the strategic, and a lot of this is driven frankly by what the annual contract value is for each of these customers.
At the key and strategic, we are closer to 100% retention rate for the enterprise segment; in fact it was a 100% retention rate. Where we have seen a slight tick down is actually in the mid-market and the small and medium business. But in the larger enterprise, the business continues to be very strong.
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