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Adobe Acquires Macromedia

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Adobe recently announced a definitive agreement to acquire Macromedia

in an all-stock transaction valued at approximately $3.4 billion.

Bruce Chizen, Adobe CEO, said, "Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of content and applications--from documents and images, to audio and video. By combining our development, authoring and collaboration software--along with the complementary functionality of PDF and Flash--Adobe has the opportunity to bring this vision to life with an industry-defining technology platform."

Upon the close of the transaction, Macromedia stockholders will own approximately 18% of the combined company on a pro-forma basis. Chizen will be CEO of the combined company; Stephen Elop, president and CEO of Macromedia, will be president of worldwide field operations.

The acquisition is major news for the software industry, although not altogether surprising--Macromedia has regularly been seen as a prime candidate for acquisition. It makes good sense from both companies' perspectives, and the acquisition comes with the blessing of both boards.

Adobe has traditionally been strong in the offline graphical design business, particularly with respect to desktop publishing in the newspaper and magazine publishing world. The company has also made its PDF reader ubiquitous in the desktop space and has a strong enterprise offering.

Macromedia, on the other hand, has a much stronger presence in graphical user interfaces (GUIs) for the desktop with its Dreamweaver and Flash product set. Both companies have made forays into the wireless market with the promise of rich media applications and cross-platform access. However, Macromedia has made stronger inroads into that market, with recent deals with key operators and device manufacturers that will see Flash expanding its reach from the desktop environment to wireless platforms.

The deal itself is not without issues from a competition standpoint, because the resulting business will almost certainly hold a sizeable chunk of the GUI market, making conditions difficult for some smaller vendors. The companies have overlapping product sets and a product portfolio that goes in many different directions. That is both a positive and a negative, and will need to be addressed going forward.

But what of competitors? Both large and small players will be concerned, and there may be anti-competition claims. There can certainly be no doubt that the resulting company, if allowed to go ahead, will make it difficult for others to play and more importantly to acquire. Adobe's revenues are around $2 billion and Macromedia's are around $350 million to $400 million--the revenue potential of their combined market offering and future potential is substantial. The compelling offering of a cross-platform play that serves Microsoft's (microsoft.com) own environment will make it a formidable competitor for the Redmond giant, but we think it would have had trouble making its own bid for Macromedia on antitrust grounds.

Ultimately, Adobe and Macromedia both have superb cross-platform technologies, and if they can exploit the ubiquity of the PDF reader and Flash, and really emphasize the "any client, anywhere" theme, they will be in a formidable position to dictate the future direction of the industry.

Bola Rotibi is a senior analyst at Ovum, specializing in the latest software development technologies and market trends, e-mail brotibi@ovum.com.

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