CALIFORNIA: As we watch organizations like IBM, HP and EMC struggle to transform, Adobe is an interesting contrasting case. It went from selling boxed software to a cloud subscription model in shorter order, and judging from its financial report that came out last week, it’s done quite well making that leap.
First, let’s have a look at the numbers. Adobe reported a record $1.31 billion in revenue for the quarter, a 22 percent year over year increase. It disclosed record annual revenue of $4.8 billion. Mind you these are significant, but the big number to me is that recurring revenue from subscriptions now represents 74 percent of Adobe’s business. What’s more, just under $3 billion in revenue in 2015 came from digital media-related annual recurring revenue (ARR).
In fact, the company added $350 Million in recurring revenue in the fourth quarter alone. Adobe reports that this growth was driven by increasing enterprise adoption and the addition of 833,000 new individual and team Creative Cloud subscriptions.
All of this paints a picture of a company that has made a successful transition to a subscription model. While many companies struggle to change themselves, Adobe executed a clear plan well before its back was up against the wall.
As an organization founded way back in 1986, it wasn’t that long ago that Adobe sold boxed software. That all changed in May, 2013 when the company announced that it was launching Creative Cloud and discontinuing its centerpiece, Creative Suite boxed set. It was a shocking decision. As TechCrunch’s Frederic Lardinois wrote at the time:
Most Max attendees probably expected Adobe to reveal Creative Suite 7 today. Instead, the Creative Suite name is actually going away in favor of Creative Cloud, which won’t have traditional version numbers anymore. For Adobe, of course, this also means the company is now making the move to a new business model, where the focus will be squarely on subscriptions and not on selling boxed software, licenses and upgrades anymore.
It’s fairly remarkable that the company has been able to make such a rapid transformation just 2.5 years after initially announcing the plan to go subscription, but perhaps it was that willingness to go all in that has led to its success. It’s also somewhat surprising that their customer base went along with the change and didn’t rebel, but perhaps they gained something as well, something they didn’t even know they wanted.
