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.