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Summary:

Google (GOOG) should buy Adobe (ADBE), but not for the reasons you might think. Google would acquire some great software in Acrobat, Photoshop and their desktop run-time environment (now called Adobe Integrated Runtime, or AIR). But while these are good software assets that could be integrated […]

Google (GOOG) should buy Adobe (ADBE), but not for the reasons you might think. Google would acquire some great software in Acrobat, Photoshop and their desktop run-time environment (now called Adobe Integrated Runtime, or AIR). But while these are good software assets that could be integrated nicely into Google Docs, Picasa and other desktop applications, what Google needs Adobe for is video. For this is the next frontier for Internet advertising revenues, and without a strong presence, it could get away from them.

The most compelling asset in the Adobe arsenal is Flash. Google needs to own Flash because, as anyone who has used YouTube knows, this software is currently the prevalent method for playing and authoring Internet video. The Google monetization of video is beginning, and this represents a large, untapped market that has the keen interest of many advertisers. Put simply: The ability to serve user-targeted and relevant advertising embedded within a Flash video on YouTube represents a marketing opportunity that few advertisers could resist. Besides, Google already owns YouTube.

The other reason Google needs Adobe is to stay ahead of Microsoft (MSFT). Microsoft has recently launched its own Internet video-authoring and production software, Silverlight. It will undoubtedly soon be present on every Windows desktop, competing with Adobe Flash on millions of computers without the need for either a download or browser plug-in.

The monetization of Internet video is a nascent market with enormous advertising revenue potential. Although Google clearly knows how to monetize Internet content, they’re not there yet with Internet video. Google: Buy Adobe and secure that future revenue stream.

  1. Just wondering…Google is converting the YouTube videos to standard H.264 for the iPhone. Standards are good, Flash is proprietary. Could Google in fact be moving away from Flash?
    You could probably argue that YouTube made Flash Video. Could it also kill it?

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  2. Not sure what the case is for Google to buy Adobe. Wouldnt Youtube be able to insert pre-roll and post-roll ads as part of the videos uploaded on youtube by themselves?

    Why do they need to own “Flash” technology?

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  3. Allan Leinwand Tuesday, August 14, 2007

    whatthecase – by owning Flash Google will be able to control their destiny around video advertising. While they can do ad insertion today, if they owned the technology they could make ad insertion easier and more relevant to the video. Not to mention that they could monitor the analytics of the users watching the video itself (start, stop, pause, fast-forward, etc) for advertisers.

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  4. I’m pretty sure that by buying Adobe just for Flash, they’d kill their bread and butter – Photoshop and all the other quality programs. The last thing that Adobe’s professional products need is Google’s touch.

    Allan, I see what you’re getting at, but it’s not a convincing argument.

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  5. It makes no sense at all to buy Adobe.

    1) Adobe market cap is 23.7 B
    too big to be easily digestible

    2) Flash is a tiny portion of what Adobe
    does and their most promising product
    is neither the Flash playr, nor the
    Flash editor. It’s actually FLEX,
    a compiler and developer environment
    that actually makes possible things
    like the one you describe.

    And guess what… FLEX will be open
    source later this year, when it’s
    finally released out of beta.

    No need to buy Adobe to get Flash !!
    You probably missed the press release

    Google -no doubt about it- is already
    working with Adobe to address the next
    advertising delivery wave on the
    Flash/Flex system.

    http://labs.adobe.com/wiki/index.php/Flex:Open_Source

    That’s on the content creation and application development side.
    On the Flash Player client side we also have good news:
    http://www.gnu.org/software/gnash/

    Gnash, even at its early stage of development is already capable of playing back Youtube content.

    So, that’s succintly why your article doesn’t make any sense at all.

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  6. Wesley Boland Tuesday, August 14, 2007

    Video will be part of HTML spec in the future… well maybe still in draft but we can hope.

    http://en.wikipedia.org/wiki/HTML5

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  7. This article really doesn’t make any sense. Google wouldn’t be able to make any proprietary strategic utilization of Flash without antitrust vultures swooping down. And the lack of owning Adobe isn’t what’s stopping them from doing pre/post roll ads anyway.

    @PXLated
    The only reason the iPhone uses H.264 is because it can’t handle Flash.

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  8. Allan Leinwand Tuesday, August 14, 2007

    vruz – you bring up good points, but if Flash/Flex is about to be open source (and subject to a GPL/GPLv3 or BSD-type license?) then it is likely that any attempts by Google to monetize video using this software could be open source as well. Seems unlikely that Google would want a mechanism for doing analytics and monetizing video in the open source. Just a thought…

    I believe that monetizing the video stream from Flash content is a key advertising segment for Google going forward. Since Silverlight from MSFT will be on the desktop soon there will be competition in this market.

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  9. Does anyone know how Adobe makes money from these various developer products such as Flash?

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  10. I guess Google is out to gobble up everything that gets in their way.

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  11. Allan- I think we come to a similar conclusions from a different direction. This merger would make a ton of sense to give Google the managed network, applications, developer, and client combination to finally take on Microsoft’s stranglehold on the desktop.

    Apologies, in advance for the long post:

    1) Google has basically had a competition-free (from MSFT/MSN (used Overture) and YHOO (Used Google then screwed Up Overture) ride in Internet advertising over the past several years. For whatever reason (Linux, Developers flocking to Open Source, DOJ, etc.) that MSFT has been distracted, Google has been able to sneak into a relatively nascent market (consider what that DCLK was a market leader pre-Google) and create a model that served all stakeholders to become the market leader. I doubt that MSFT really took Google that seriously until they saw the Public markets shower Google with adulation and a exorbitant market cap. I can still remember VCs thinking that Google was being extremely aggressive with its valuation when they offered to buy Friendster for $30M several years ago (if I recall they gave themselves a $3-5B valuation). It seems Microsoft finally seems to have woken up to a burgeoning and aggressive competitor and is starting to react the way it should- buying aQuantive for $6B, locking up Digg and Facebook ad deals, and turning its attention to the importance of advertising in general (which as you mentioned is still greenfield in so many ways). Does anyone really think that Microsoft is not preparing for a ad sponsored Silverlight-based productivity suite in the future? This is potentially an enormous problem for Google considering 98+% of its revenue is derived from advertising. Long story short, if MSFT gets serious about devoting resources to building up advertising (http://battellemedia.com/archives/003647.php), then low hanging fruit is gone for Google and they are exposed to a serious and very real ‘new’ competitor . Their reaction is naturally to…

    2) Go after MSFT bread and butter, the Office suite and all sorts of Desktop apps. To accomplish this they need three real things: 1) A desktop presence 2) A developer community 3) Luck. In a future filled with dynamically targeted managed services that interact seamlessly with desktop clients to form very rich applications targeted to the specific user, Google needs to have a desktop presence that has real ubiquity. Save MSFT, no one can match Adobe for desktop ubiquity with Flash and Acrobat. The whole promise of AIR is that the distributed infrastructure exists for AIR to take off. Secondly, as the web has become more standardized, the designer and developer communities have been forced to come closer and closer together (just look at what Silverlight is trying to do for designers- in effect making them developers). Google, for all its success, has no developer community to speak of- but Adobe does. I would not be the least bit surprised to see a future of Google managing (Amazon EC2+S3 style) a developer/design community that they are fostering built on the the best rich apps that Flash, Flex, AIR have to offer. In effect, they would be offsetting Microsoft’s biggest advantage- Desktop Client Distribution- by creating a massive managed application environment which runs from the cloud to the client- all operating harmoniously. In a sense, its the Facebook model for rich client apps (read: extremely profitable productivity apps), rather than for simple profile features (woohoo! iLike Challenge). As MSFT gets serious about advertising, Google’s push to the desktop is just beginning in earnest. My guess is that the model of picking off feature companies (Jotspot, Grandcentral, Upstartle, etc.) is not scalable for Google. They will need to find a way to create the operating platform for developers and designers to operate within. The natural advantage Google brings is in its ability to contextualize disparate data. This will only grow in a structured environment (in a similar way that Facebook can contextualize profiles in a structured environment). I believe that Amazon’s Developer Model and Facebook’s Open Application Model paint a pretty direct path for Google to follow.

    3) I think the War over the Desktop, where so much latent value resides, is really where we will see this market going. Will the value be derived from the Web on down (Google/Adobe Community) or from the Desktop on up (MSFT Desktop and its huge Developer Community). Time will tell I suppose, but I think the only way for Google to truly compete is to become a development environment where it can foster a “relatively” open movement vs. MSFT.

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  12. [...] Google: Buy Adobe for Video! Google (GOOG) should buy Adobe (ADBE), but not for the reasons you might think. Google would acquire some great […] [...]

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  13. Google buying Adobe? Whom are we kidding? To be a majority shareholder in ADBE, GOOG would have to drop in the neighborhood of $10B (and that’s at discount, ASSUMING there are enough outstanding shares). Do you propose ADBE dilute its stock to meet Google’s buyout terms? That would be the most ludicrous thing to do given Adobe’s overall direction these last two years (both in terms of their stock price and in terms of their product offerings). There’s a reason (at least one) why Adobe acquired Macromedia a few years back. They’ve poised themselves to become a HUGE player in the enterprise application server space in the very near future (5 years). Why in the world would Adobe sell out to Google? I rest my case.

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  14. [...] Google Should Buy Adobe, so it can own Flash, says GigaOM columnist Allan Leinwand. (GigaOM) [...]

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  15. Great post Allan and equally astute reply AP. I couldn’t agree more strongly with your analyses.

    Google would do well to acquire Adobe and, since it bears repeating, its strong community of developers if for no other reason than to further cement it as a major platform player. With Flex, AIR and Flash it’s clear that Adobe has an active community with the necessary tools to create interactive and interoperable RIAs and desktop apps from both the top down (Flash) and the bottom up (AIR). Moreover, with the recent release of the latest version of ActionScript (AS3), Adobe can lay claim to having a foothold (rather than an anchor) in the open source world insofar as AS3 and ECMAScript 4 are compatible (which they are, to a large degree).

    The future indeed lies with dynamic apps and RIAs that encroach on desktop turf without compromising quality or functionality and one need only look at an open community like Sapodesk (from Sapotek, the creators of Desktoptwo) to see a community of developers and designers that is working with an open source backend (Solaris/LAMP) and a properetary yet open standard frontend (Adobe Flash and AIR) to create desktop-like, open source web applications (and, with AIR, hybrid desktop apps).

    The type of community embodied by Sapodesk has all the makings of a full blown SOA and is precisely the reason why a Google purchase of Adobe makes perfect sense.

    Moreover, as Mr. Ballmer has been quick to point out in the past few months, Google is a “one-trick pony” while MSFT is multi-tiered with an emphasis on “advertising” (his words).

    Anyone who doesn’t see the oncoming MSFT onslaught and therefore the compelling reasons behind a Google acquisition of Adobe simply doesn’t understand where IT is headed… into the cloud!

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  16. I echo other comments here when I say your reasoning does not make much sense. I think you jumped too hastily to “Google should buy X” mantra. Flash for online video is an interesting technology which has some life left but that’s not a qualification for instant monetization. Flash is a technology not a distribution platform. Online videos distribution channel is the web itself. You don’t need to own flash to serve ads in videos. No more than you need to own GIFs to serve banner ads. Google wants as much stake as they can own in distribution network and part of that strategy includes some technology investments in spectrums and backbones but I fail to see how that applies to their need to own flash.

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  17. flash needs to get a refresh of better quality before google goes after it for that.

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  18. Instead of acquiring Adobe for Flash, why not build their own? They’ve come out with Google Gears, which is taking on some aspects of AIR and Silverlight…Now just for the rest.

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  19. [...] Google: Buy Adobe for Video! Google (GOOG) should buy Adobe (ADBE), but not for the reasons you might think. Google would acquire some great […] [...]

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  20. [...] Google: Buy Adobe for Video! Google (GOOG) should buy Adobe (ADBE), but not for the reasons you might think. Google would acquire some great […] [...]

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  21. Allan:

    1) The content you create, and applications you develop using open source software, don’t become open source themselves unless you explicitly licence them that way.

    2) Flex will be open sourced under the MPL (Mozilla Public License) which is the same licence of the Firefox browser and other products.

    3) Gnash is under the GNU GPL

    4) Google already uses open source software massively. Linux, Java, Apache, Mysql, Python are among the core technologies they use, which gave them an edge to build the company from efficient cheap parts, without any licencing overhead.

    For Google, using something other than open source would be the rare case.

    I’d go as far as to say that, for any realistic plan to exploit flash-related technology for advertising, Google needs the general public to be able to access content creation tools for free, just like they were able to create HTML, the more pages out there, the better, more eyeballs, more advertising space to be filled equals more advertising revenue for Google.

    Google doesn’t need to own neither Adobe nor Flash to accomplish this.

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  22. I will jump off the tallest building before I allow Google to touch Adobe. Adobe is doing just fine without Google.

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  23. AIR is over hyped- a technology that closed cannot succeed to a broad degree in today’s market.

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  24. “…[Silverlight] will soon be present on every Windows desktop, competing with Adobe Flash on millions of computers without the need for either a download or browser plug-in..”

    I would like to state that surprisingly Adobe’s install base outnumbers that of Microsoft and Apple combined. Check my blog for more details. The blog quotes a Wall Street Journal article on Adobe’s install base and revenue breakdown. http://ashishkprasad.blogspot.com/2007/04/acrobat-reader-and-flash-player.html

    I think besides the flash platform, Adobe’s upcoming AIR technology is equally impressive. Contrast to AIR, Google’s Gears is a far cry from providing the rich feature-set and ease of development AIR offers. Adobe definitely has a diverse product base, not everything is needed by Google though. But who knows, are we going to see web-based Photoshop from Google?

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  25. [...] GigaOM Google: Buy Adobe for Video! « (tags: google adobe flash m&a video) [...]

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  26. [...] would be a smart acquisition target for Google? Allan Leinward of Panorama Capital, a guest at GigaOm believes so, and here are his [...]

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  27. [...] A sugestão partiu de Allan Leinwand, do blog GigaOM – mas fiquei sabendo somente depois do toque do Comandoli: o Google deveria comprar a Adobe. Razão: [...]

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  28. [...] na área de Internet. Ele considerou ser plausível a análise de Allan Leinwand, do site GigaOm, de que a Adobe poderia ser adquirida pela [...]

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  29. links for 2007-08-15

    GigaOM Google: Buy Adobe for Video! I was saying this on the ODM Podcast a few weeks ago — “Google needs to own Flash because, as anyone who has used YouTube knows, this software is currently the prevalent method…

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  30. [...] GigaOM で Allan Leinwand氏 が書いたエントリー、Google: Buy Adobe for Video! を読んでの勝手な考察。 [...]

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  31. [...] na área de Internet. Ele considerou ser plausível a análise de Allan Leinwand, do site GigaOm, de que a Adobe poderia ser adquirida pela [...]

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