Can Adobe see its way through Creative Cloud?

Adobe Creative Suite 6 totems

Software giant Adobe has officially taken the wraps of Creative Suite 6, its latest collection of media design, production, and workflow applications targeting creative professionals — and more than a few ambitious amateurs. If you read a magazine, watch TV, surf the Web, or run apps (whether on computers or mobile devices), it’s almost impossible to avoid material that’s been processed (often heavily) with Adobe software. Tools like Adobe Photoshop literally set the standard for digital media creation — “Photoshop” became a verb long ago — and Adobe CS6 looks to extend the company’s dominance in parts of the media creation market. And perhaps Adobe’s most ambitious play with CS6 is Creative Cloud, a subscription-based offering that lets users tap into everything in the entire range of Creative Suite 6 — and more — for prices as low as $50 a month.

Has Adobe hit on a winning formula that will help stabilize its revenues between monolithic releases of its flagship applications? Or will the Creative Cloud actually wind up hurting Adobe’s revenues — and perhaps frustrating its long-term customers?

What’s in Creative Suite 6?

Adobe Photoshop CS6 boxCreative Suit is an enormous set of discrete products lumped together under one banner. Of course, the problem with product bundles is that not everybody needs every product all the time. Some Adobe customers are only interested in one particular thing — say, Photoshop or Acrobat Pro — while others might want a set of applications geared toward print production (say, InDesign, Photoshop, Acrobat, and Illustrator) and have no interest in apps made for video, audio, or Web production. So the Creative Suite name has always been a little misleading: Adobe has always offered individual apps, as well as subsets of the full Creative Suite pantheon aimed at particular uses or industries.

So what’s in Creative Suite 6? All the high-end, industry-standard apps people have come to expect from Adobe: Photoshop (and Photoshop Extended), Illustrator, InDesign, Acrobat X Pro, Flash Professional, Dreamweaver, Fireworks, Premier, After Effects, Audition, and Encore, along with the helper services Bridge and Media Encoder. Most of these applications are so mature — and so complex — that thick books are published about every release to help users get the most out of them. They’re not beginner-friendly and sport complex interfaces designed to let pros move quickly, but create a steep learning curve. Plus, there’s the sheer number of programs, many of which have overlapping functions — if you don’t know whether you need Premiere or After Effects to finish up your video, you probably aren’t in Adobe’s target market.

Adobe has thrown two new apps into Creative Suite 6: Prelude (basically a tool to rapidly bring heaps of files, like stills and videos, into a workflow with logging, tagging, and metadata); and Speedgrade, which enables video editors to apply the Lumetri Deep Color engine to video, as well as many other color grading features.

Show me the money

Adobe InDesign CS6 alternate layoutMany consumers these days are used to paying $1.99 for apps — or, in Mac users’ case, $39.99 for a whole operating system. In comparison, Adobe charges dinosaur prices for its programs. The Standard edition of Photoshop CS6 a whopping $699 (upgrades are $199); InDesign also runs $699 by itself, with upgrades priced at a eye-blinking $399. Illustrator is $599 on its own, with $199 upgrades. Acrobat X Pro is practically a bargain at $449, with a $199 upgrade. Buying into Adobe’s pro-level applications quickly gets into four figures.

So, Adobe offers Creative Suite 6 in four bundles. The Design Standard bundle includes Photoshop, InDesign, Illustrator, and Acrobat Pro X for $1,299 — and upgrades from previous versions at a mere $299. You see the pattern: the buy-in is expensive, but cheaper than all the apps individually and the “savings” comes in upgrades, where upgrading a bundle cam be cheaper than upgrading an individual program in that bundle.

Similarly, there’s a Design and Web Premium bundle, which includes Photoshop Extended, Illustrator, InDesign, Flash Professional, Fireworks, Dreamweaver, and Acrobat Pro ($1,899, upgrades $399). Compare that to individual prices for apps: Photoshop CS6 Extended is $999 ($349 upgrade), Flash Professional is $649 ($119 upgrade), Fireworks is $299 (with $149 upgrades), and Dreamweaver is $399 ($119 upgrade). This collection essentially replaces the separate Web Premium group Adobe offered with CS5.

Overwhelmed yet? There’s more. Consider the Production Premium bundle, aimed at video producers: Premiere Pro, After Effects, Audition, Flash Professional, Illustrator, Photoshop Extended plus those two new apps Prelude and Speedgrade. It’s also $1,899 up-front, but upgrades are $179. Compare that to the price of the apps: Premiere Pro is $799 (upgrades $179) and Audition is $349 (upgrades $99). Prelude and Speedgrade are new, so there’s no upgrade pricing: folks who want those on their own will be paying $399 and $999, respectively.

And how much for the whole megillah? That’s $2,599 up front, with upgrades for $525. The CS6 Master Collection includes all the suite components (except the standard Photoshop; you get Photoshop Extended) plus tools like Flash Builder 4 that are only available in Master Collection or on a separate subscription.

What’s missing? Adobe has nuked Flash Catalyst and Contribute: both were part of Creative Suite 5. Flash Catalyst has been retired now that Adobe has backed way from Flash on mobile (meaning that making rich Internet apps via Flash is now a thing of the past), while the Web site management tool Contribute has been shelved in favor of Adobe’s new Muse product line — which you’ll note isn’t part of the even the Master Collection. Also, Flash Builder 4 and Acrobat X will look awfully familiar to users of Adobe CS5: they haven’t changed. Adobe says they’ll receive updates later.

It should be noted these prices are full retail: qualifying educators and students can pick up the Design Standard collection for $449; the Design and Web Premium and Production Premium collections are $599, while the Master Collection runs $999.

Creative Cloud

Adobe Creative Cloud iconAdobe is taking its biggest change with Creative Suite 6 with Creative Cloud, which offers all the applications in the Creative Suite 6 Master Collection — plus a lot more — for a subscription fee: $75 a month straight-up, $50 a month if you’re willing to subscribe for a year, and as low as $30 a month for folks purchasing an upgrade from Creative Suite CS3 or later. There’s also a separate multi-user “team” subscription for $70 a month.

Adobe isn’t quite new to subscription software: it introduced Subscription Editions of selected CS5 and CS5.5 applications. And Adobe will continue to offer subscriptions to selected programs: folks who only want Photoshop can subscribe to Photoshop CS6 Extended for $30 per month (or $20 a month for an annual contract). At that price, a user would have to subscribe to Photoshop Extended for over four years before they paid the equivalent of an up-front perpetual license for the same software.

But Creative Cloud is offering a bunch more than the whole of the Master Collection on a subscription basis. It also includes access to a preview version of Adobe Edge, an HTML5-based animation program that Adobe hopes will take the place of Flash in developing rich Internet applications. Creative Cloud also includes access to Adobe Muse, a visually-oriented Web design application Adobe also debuted last summer. With Creative Cloud, Muse gets its official 1.0 release, and also gets a boost with Business Catalyst, a content management system and Web hosting platform that’s designed to work with Muse — Dreamweaver may find its days are numbered.

But that’s not all: Creative Cloud subscribers also get access to 20 GB of online storage, which enables users to sync projects and media across disperse workgroups and freelancers (via the Creative Cloud Connection sync tool); TypeKit Web fonts; plus, Adobe will eventually add Lightroom 4 to Creative Cloud. And, as a bonus, Creative Cloud users get Adobe’s full range of Photoshop Touch applications for tablets.

Just looking at the dollar signs, the message is clear: Adobe wants customers to stop buying monolithic, boxed (or downloaded) software with perpetual licenses and start subscribing to software on a month-to-month (or year-to-year) basis. Stop paying Adobe on time, and customers lose access to the software. But customers also don’t face Creative Suite’s up-front sticker shock — prices many consumers more closely associate with cars than software.

Hoping for a cloudy day

Adobe Photoshop CS6 screenshot

The fact that Adobe can literally charge thousands of dollars for licenses to its software speaks to the company’s role in professional media production: simply put, Adobe software has largely set the standard in many creative and production fields. Adobe it not exactly without its failures (like mobile Flash) and competition — Apple’s Final Cut Pro has made tremendous inroads in video and film production, and the pro audio and soundtrack world is still dominated by the likes of Pro Tools, Logic, and Digital Performer. But Adobe remains a major player.

The problem with making expansive, monolithic software is that revenue streams get very bumpy. Let’s say you’re a company like Adobe, and you can coordinate the release of more than a dozen complex applications at more-or-less the same time once every two years. (The “more-or-less” is directly applicable to CS6: some apps are available now, while others will be along in the next month.) The sales model means the company gets a surge of income when a new version is released, but revenue from new licenses trails off just when expenses for creating the next version really start to ramp up. A new release translates to a handful of tremendous quarters (and happy investors), followed by middling-to-lackluster revenue (and grumpy investors) for a long time while the next update is in the oven.

Adobe has tried to smooth out that process by getting into consumer products that sell more consistently throughout the year; after all, every camera and scanner that comes with programs like Adobe Photoshop Elements puts some money into Adobe’s pockets. Adobe also makes some money on software licenses: Postscript doesn’t dominate publishing like the old days, but Adobe’s proprietary PDF format has, for better or worse, become a de facto standard for document exchange and print production. But still: the revenue ups-and-downs of Adobe’s traditional application model — and the grumpy investors that go along with it — haven’t gone away.

With Creative Cloud, Adobe is aggressively trying to induce its high-end, big-spender customers — as well as educators — to switch to a pricing model that provides constant, consistent revenue to the company. The more professional customers Adobe can convert over to subscription pricing, the more it can smooth out the bumps in its revenue. And Adobe is dangling a lot of carrots in front of customers. Creative Cloud isn’t just access to the Master Collection without the shocking sticker price: it’s the Master Collection plus many other useful goodies.

However, the strategy will likely have some short-term cost. The Adobe CS6 Master Collection retails for $2,600. At annual rates, Adobe won’t earn that much money off a subscriber to Creative Cloud for more than four years. If Adobe were to release a Creative Suite update in the meantime, the conversion gets even more grim: over five years before Adobe recoups the cost of an initial sale an an upgrade.

In the long term, subscription pricing is very appealing to Adobe. Customers will be highly motivated to maintain their subscriptions because, if they don’t, they lose access to the Adobe apps. No more making do with an ancient version of Photoshop that still runs on that retired desktop system in the other room. And customers are pretty likely to subscribe to the entire Creative Cloud suite rather than just a single app.

The subscription software model has been successful in many business environments: payroll, inventory, customer management, inventory tracking, personnel management. And similar applications have been offered on a subscription basis for decades. However, with Creative Cloud, Adobe is taking a chance that creative professionals are ready to make the leap to subscription software. Folks who run their creative businesses like, well, businesses — ad firms, production houses, studios — probably won’t have many issues. For them, Creative Cloud represents up-front savings and similar long-term costs to Adobe’s current business model. But individual and small businesses may balk: few artists want to rent paintbrushes, only to have them taken away during a tough month.

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