A Flashy New Adobe

In merging with Macromedia, the aim was to import its DNA as well as its product

A year ago, Stephen A. Elop had just become CEO of Macromedia Inc. and was getting ready for one of the most pivotal -- and clandestine -- dinner dates of his life. He was apprehensive as he drove down Highway 101 from the gourmand paradise of San Francisco to a cheesy Italian restaurant in San Jose -- one he says he'd never be caught dead in now. "It wasn't the Olive Garden, and no one was singing Happy Birthday at the next table, but we had to go someplace where we wouldn't be seen together," he says. His date? Adobe Systems Inc. (ADBE ) CEO Bruce R. Chizen. Only a few months after they began flirting, they were engaged to be merged, on Apr. 18, 2005. They tied the knot on Dec. 3 in a $3.4 billion deal, one of the largest in the rapidly consolidating software landscape.

Even before meeting Chizen, Elop knew a merger made strategic sense. Both companies make the bulk of their money selling to creative professionals. Their software -- in both cases widely used on personal computers worldwide -- was complementary. In terms of products they were more like twins separated at birth than competitors, with Adobe, pioneer of the PDF, more rooted in documents and Macromedia in the fast-growing world of Web design and mobile content. And Chizen's record spoke for itself. Since taking Adobe's helm in 2000, he'd built a steady, professional profit-maker: Revenues have leaped some 70%, to $2 billion, and the stock is up nearly 40%, landing Adobe at No. 28 on the BusinessWeek 50 list of top corporate performers.

Culturally, though, the companies were leagues apart. Macromedia's home is a slick, loft-like space in San Francisco. Adobe is based in two San Jose towers that some Macromedia staffers scoff "look like a bank." Creativity was prized at Macromedia, but its frenetic pace led to many late nights. Adobe execs had perhaps fewer moments of exhilaration but more dinners at home with their families.


After the merger announcement, the watercooler chatter at Macromedia turned anxious. Many employees worried that their company's unique culture would be wiped out. "We used to make fun of [Adobe's competing product] GoLive," recalls Erik Larson, director of product management for several Macromedia products. "We always said: 'Oh, they don't get it."' But early post-merger action has seen Chizen reward ex-Macromedia people with key positions -- part of an effort to imbue the new company with some of Macromedia's spark. "One of the things we were looking for in Macromedia [was its] great entrepreneurial spirit," says Chizen. "We wanted to get some of that into Adobe."

From the start, Chizen worked hard to ease any fears Elop might have about the merger. At that Italian dinner in San Jose, he articulated why he wanted to buy Macromedia -- and it wasn't just for Flash Player. In just six weeks since the merger's close, he's done more than anyone expected. Chizen not only kept Macromedia's digs -- now called Adobe San Francisco -- he took an office there himself, splitting his time between the two sites. And roughly half of the 700 people who were laid off came from Adobe. Most stunning and reassuring to Macromedia folks were the executive appointments: Elop took over the entire worldwide sales organization. Macromedia's former chief software architect, Kevin Lynch, assumed a similar role at Adobe for the Reader and the Flash player. And Macromedia execs were named to head Adobe's three fastest-growing units: Acrobat, enterprise software, and mobile applications.

Suddenly it was the Adobe rank and file who were nervous -- Macromedia appeared to be taking over. "I think it was a shock to Adobe employees and upsetting to many of them, [but] I get paid to make sure Adobe does well in the future," Chizen says. Even outsiders noticed the shift. Carl Bass, COO of Autodesk Inc. (ADSK ), a design software company just north of San Francisco, says the incoming résumés he has seen have switched from worried Macromedia employees to worried Adobe people. "That was wholly unexpected," he says. Making the changes more pronounced, several Adobe execs have left voluntarily since the deal closed, including Chief Financial Officer Murray J. Demo.


Chizen hopes to see the tough choices bear fruit soon. On Jan. 31, Adobe unveiled to analysts a strategy called "the engagement platform" -- marrying the Web language HTML, Adobe Reader, and Macromedia's Flash Player. For instance, someone looking to book a flight online, could, on the same screen, chat with travel companions about flight options, eyeing a snapshot of everyone's schedules on one calendar. They could print nicely formatted itineraries, using Acrobat, complete with a bar code, to scan at the airport or rental car counter. With a click they could even send travel information to their phones.

That's just using existing technology. Already a team of Adobe and Macromedia developers have started an innovative project to create a new version of Reader. Instead of just letting people view documents or fill out forms, it will run media-rich interactive Web applications thanks to the combination of Reader and Flash. The goal will be to install it on a majority of computers, just like Reader and Flash Player.

It's all about squeezing more revenue and profit out of the ubiquity of the two technologies. Plans are to build similar prevalence on phones and consumer devices. While deals have been announced with Nokia (NOK ), Samsung, and LG, Adobe has also closed deals with all of the world's six largest handset makers. This quarter 66 million phones will have Flash up 50% over last quarter. If Chizen has his way, the new Adobe will find itself smack in the middle of every sexy trend from Web 2.0 to mobile content. Not bad for a company once criticized for not getting the Web.

By Sarah Lacy

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