Microsoft buying Adobe would fix both companies' Apple problem

By Peter Bright | Ars Technica

The New York Times is reporting that Microsoft CEO Steve Ballmer has recently been at a secret meeting with Adobe CEO Shantanu Narayen to discuss topics including the two companies' mutual competitor, Apple.

The Times says that the companies were investigating ways to partner in order to do battle with Apple. One option was for Microsoft to acquire Adobe, a claim that has seen Adobe's stock price surge by more than 10 percent.

Microsoft is thought to have investigated buying Adobe some years ago, but abandoned the idea with the expectation of running into new antitrust problems. With Apple and Google now such strong competitors, such a purchase may now be a viable option. Regardless of the legal difficulties, a partnership—and, indeed, a Microsoft purchase—makes sense.

The common enemy

Apple's increasing importance in the mobile space with its trio of  iOS devices: the iPhone, iPod touch, and iPad, is a growing threat to both companies. Adobe and Apple butt heads in a number of markets. The two companies have competing software (Adobe's Lightroom and Premiere go up against Apple's Aperture and Final Cut Studio, for example), and more significantly, Apple is attacking a key Adobe product: Flash.

iOS devices have no Flash support in their browsers, so can't run Flash ads or any other Flash content on webpages. Apple has been advocating the use of HTML5, with its video and interactivity capabilities, as an alternative. Given the dominance of Flash in advertising, this is a big blow to Adobe. Apple then stepped up the pressure on Adobe with the launch earlier this year of iAds—rich, Flash-like ads built using HTML5.

Microsoft's difficulties in the mobile space—both phones and tablets—are well-known. The tablet problem is probably more serious; though Microsoft would like to have a piece of the smartphone market, it is tablets that threaten PC sales, and hence Windows. There is already some suggestion that iPad sales are denting netbook sales, and this is a trend that Microsoft could be badly hurt by. At the very least, it would substantially diminish home PC sales; ultimately, it could threaten corporate computer purchases too.

Apple's anti-Flash stance also indirectly threatens Microsoft. Redmond's relationship with HTML5 is a difficult one. On the one hand, the Internet Explorer team is making a considerable effort to make Internet Explorer 9 a modern browser with good support for new Web technology. That team, at least, is serious about HTML5.

On the other hand, Microsoft is also investing in its own Flash competitor, Silverlight, which it introduced in 2007 with great fanfare. Like Flash, Silverlight is a browser plugin that allows the creation of rich, interactive Web applications, and like Flash, it includes a range of media features not available to HTML5, such as DRM-protection of video streams. HTML5 threatens Silverlight in much the same way as it threatens Flash.

HTML5 also raises Microsoft's long-standing fear about the Web: that it would become a platform in its own right and displace the Windows PC. It is this fear that led to the development of Internet Explorer and the first browser war; Microsoft doesn't want the Web to be a platform, but if it must be one, it should be a Microsoft-powered Web accessed through a Microsoft browser on a Microsoft operating system.

Microsoft and Adobe do compete on a number of fronts. Silverlight and Flash, and ASP.NET and ColdFusion, are the two main areas of opposition. However, in practice, even in these competitive areas, the companies' respective products have carved out their own niches, and neither is threatening to completely demolish the other. Apple's stance towards Flash—get rid of it, use HTML5—is far more dangerous to Flash, and far more vigorously pursued, than Microsoft's stance—use this other browser plugin instead.

Collaboration and cooperation

Having a common enemy isn't enough to justify working together, of course. There needs to be some practical benefit to cooperation: something that strengthens both Microsoft and Adobe against the Apple threat.

The most obvious, immediate thing that the two companies can do is to get Flash ported to Windows Phone 7. Early signs are that Windows Phone 7's Web browser is surprisingly fast and capable, but one thing it isn't is HTML5-aware. If the phone operating system is successful, there will be a substantial growth in smartphones that are, at least for the time being, not HTML5-capable.

Such phones are crying out for Flash compatibility. There are certainly hurdles to achieving this—not least of which is the current requirement that all Windows Phone 7 software be written using .NET code—but they are by no means insurmountable. For example, Microsoft could simply bundle Flash with the phone operating system, and in so doing obviate the need for Flash to be written in C#.

The two companies could even go for something more exotic: make it possible to create Windows Phone 7 programs directly in Flash. The latest Flash version, CS 5, has the ability to produce iPhone applications. Apple originally planned to ban such applications, but has since relented. A similar capability could be readily built to produce Windows Phone 7 software.

Microsoft is already doing its best to court developers to attract them to its phone platform, with high-quality development tools that leverage the .NET technology that's already familiar to many. Flash development would similarly open the platform up to a large number of developers, letting them use technology they're already familiar and comfortable with.

There are technical things that the companies can work on, too, to improve the use of plugins in the desktop browsers. Google and Adobe are already cooperating to produce a better plugin interface to enable greater performance and stability for Flash in Chrome, and Chrome now bundles Flash. Taking a similar tack with Internet Explorer would further strengthen Flash's position on the desktop, again countering the forces of HTML5.

Or an outright purchase

Microsoft could afford Adobe, no doubt about that. Hell, Microsoft could afford to buy Adobe with petty cash; we're only talking $15 billion here. The relative size of the two companies means that the offer doesn't even have to appeal to Adobe, particularly: Microsoft can buy the company whether it likes it or not; as such, the question is not what Microsoft has to offer Adobe, only what Adobe has to offer Microsoft. Such a purchase would significantly strengthen Microsoft's software line-up. Redmond has virtually no creative/artistic software; though the company has dabbled in this area in the past, its only real creative software is the Expression Design vector graphics package.

The corporate cultures of the two companies are likely to be radically different, a product of their vastly different target audiences. As such, it's hard to see Adobe being anything other than a wholly-owned subsidiary, at least initially. Attempting to integrate it into the broader Microsoft organization would likely be no more successful than Microsoft's Danger purchase.

Software...

Apple has had a lot of success with its creative software, both at the high end (Final Cut Studio, Aperture, Logic Studio) and the low end (iMovie, iPhoto, GarageBand). An Adobe purchase would let Microsoft tackle these markets in the same way; Adobe's technology would provide a substantial upgrade to programs like Windows Live Photo Gallery and Windows Live Movie Maker, as well as opening up the possibility of upsells to the full products like Lightroom and Premiere. A hypothetical "Windows Live Photoshop Elements" would be a great addition to the line-up, too.

Bolstering the Windows Live line-up makes Windows a much nicer platform. The iLife suite is a tough act to follow, and though Windows Live Essentials is trying to compete in this area, the iLife applications are quite a bit more polished. Buying Adobe would let Microsoft simultaneously broaden the appeal of the Essentials with new programs, and raise the quality bar.

Software with more of an overlap with existing products may be a little more difficult to deal with. Adobe's Dreamweaver Web authoring software is on balance better than Expression Web, so it would seem natural to replace the latter with the former. ColdFusion would be tricky, and it's hard to see how it would survive such an acquisition; though it has its fans, and offers features that ASP.NET does not, it's probably too similar to justify continuing to develop and support both products; one can imagine it would be cut loose in such a purchase.

Though the same would in some senses be true of Flash (and related technologies, Flex and AIR)—it has massive overlap with Silverlight—it's too important to be let go in this way. Instead, consolidation—allowing the Flash software to produce applications that will run on Silverlight or Windows Phone 7—would be the way to go.

It would also be good to see Microsoft's secure coding practices applied to Adobe's software. If nothing else, the teams developing Reader and Flash need a bit of help.

... and Style

Beyond the software, Adobe would bring a very different kind of customer to Microsoft. Adobe has strong links with the creative and design communities, communities that have, frankly, reviled Microsoft for decades. I would argue that the current generation of Adobe software shows a stronger sense of aesthetics than is generally true of Microsoft's output, and that's in no small part down to the community that Adobe serves—giving designers a suite of ugly, clunky software is not a winning move. It would be nice for this sense of aesthetics to permeate Microsoft.

Microsoft traditionally has been very good at producing software for developers, but its efforts to appeal to designers have been less effective. It has started making moves in the right direction with Expression Blend, but it's still in many ways a developer-oriented company. The Expression range of software does have some interoperability with Adobe software (Expression Blend can open Adobe Photoshop mockups, for example), as an acknowledgement of the importance of Adobe's software in the design world.

By bringing this design-oriented, creative software in-house, Redmond would be able to offer an end-to-end solution for designing great-looking applications, from Illustrator and Photoshop mock-ups, to Expression Blend or Expression Web/Dreamweaver designs, to Visual Studio application development. If the company could make this kind of workflow work better—without alienating designers—it could prove to be extremely attractive to both Web and phone developers.

Microsoft hasn't cared too much about design in the past, but that's no longer the case with Windows Phone 7. Strong design is key to the new platform; it ties it together to make it feel like a coherent whole, in a way that simply doesn't happen on desktop Windows. Appealing to designers hasn't mattered in the past. These days, it does.

Stumbling blocks

An Adobe purchase does pose quite a few issues. Antitrust is the obvious biggest problem. Regulators might not like to give Microsoft control over Flash, and would be certainly be concerned about what such a takeover would mean for Adobe's Apple software. Microsoft does develop Office for Mac, but this is a bastard product that's not actually a version of Office for Mac OS X, but rather a completely separate set of software that happens to share the same file formats as the Windows software. It looks different, it works differently, it does different things, it is written by different people, and it is released on a different schedule.

This allows Microsoft to continue to "support" Apple's platform, while still keeping it at a disadvantage relative to Windows. The company gets the best of both worlds; Office for Mac is believed to be profitable in its own right, Microsoft gets to say to regulators "See? We do care about other platforms!" and yet, simultaneously, Microsoft manages to keep Mac OS X inferior to Windows in a manner that's important to corporations. It has Office, but it's not the real Office—so companies are going to stick with Windows.

This is not the case with Adobe's software; Photoshop for Mac OS X is a first-class citizen, on an equal footing with the Windows version. Any work done to improve Photoshop strengthens Microsoft's rival just as much as it does Windows. As such, killing the Mac OS X versions would plainly hold some appeal to Redmond. If Photoshop and related products were not so dominant on Mac OS X then it might not matter, but the fact is that it would kneecap Macs. Those creative sales are still important to Apple, and their loss would be quite a blow to the Mac platform, if not Apple as a whole. Until Apple comes out with its own Photoshop competitor, this is a situation unlikely to change.

The close work between Adobe and Google over Flash likely wouldn't withstand such a purchase, either. Adobe and Google don't compete, making it easy for the two to cooperate, but Google and Microsoft are not so friendly with one another.

Adobe's other major technology, PDF, would be another sticky issue. Microsoft has devised its own PDF alternative, XPS, and though this has not set the world on fire, it's sufficiently integrated into Windows now that the company is stuck with it. PDF, obviously, is enormously entrenched. There would be a concern that Microsoft might favor XPS over PDF, to the detriment of everyone not using XPS (which is to say, everyone). Countering that is the fact that various versions of PDF are ISO standards anyway; Adobe has ceded absolute control over the specification, so there may not be too much that Microsoft could do to hurt it.

Partnership, yes. Purchase, doubtful

Microsoft partnering with Adobe is something of a no-brainer. In spite of the differences between the two companies, working together, especially on Windows Phone 7, will be valuable to both. Bringing Flash to Windows Phone 7, both in the browser and as an application development tool, would be win-win, and I would be surprised if this did not happen eventually.

As for buying Adobe? I think a good case can be made. It rounds out Microsoft's software offerings, giving the company access to a market that it currently virtually ignores, and though it wouldn't happen overnight, gradual integration of the two companies' product lines would enhance Windows and Windows Phone in many ways. Microsoft is not the dominant monopoly it once was, but regulators might well be reluctant to let the company buy the dominant producer of painting, drawing, and desktop publishing software, especially when so many of its customers don't use Windows.

And it's these monopoly concerns that I think will be enough to prevent the companies from even trying to engineer a takeover. The purchase would make sense for Microsoft, but the chances of it ever being approved are slim to none.