Should Apple Just Buy Adobe?

Adobe CEO Bruce Chizen made the threat last week, when he spoke to analysts after unveiling the company's disappointing sales figures for its most recent quarter:

(You can listen to a replay of Chizen's remarks at Adobe's investor relations web page.)

CRN's Stacy Cowley last week explored the latest antagonisms between Microsoft and Adobe. But there are other issues facing Adobe executives that are bubbling to the surface and they have nothing to do with Microsoft.

First of all, both Adobe executives and Apple executives have said their respective companies have been leaving money on the table, and seeing slower sales than hoped for, because Adobe hasn't been able to ship an update of its Creative Suite bundle that work very well with the new Intel-based Macintosh systems from Apple. Creative Suite includes elements like Photoshop, Acrobat and InDesign.

Chizen said last week that it hasn't been able to sell as much as it would like to its installed base on the Apple-platform:

Many of them are looking to move to Apple's new platform, or have moved to Apple's new platform, and our current set of products don't work very well on the Mac-tel environment. We are going to have to manage through that difficult period.

Adobe isn't set to ship its next version of Creative Suite until the second quarter of next year.

Problem Number 2 for Adobe: One of its more threatening competitors over the long term isn't Microsoft, it's GIMP and the open source community. The GNU Image Manipulation Program, GIMP, is free and works with Linux and Windows. And while it's functionality doesn't appeal to power users as much as Photoshop, the software is improving. I've been using GIMP for about two weeks to edit family photos and the like, and, quite frankly, it works. And, remember, it's free. Adobe list-prices Photoshop at $649.

The open source community is working on open source video and content development technology that could also compete with Adobe's proprietary products down the road.

Apple, in the meantime, can count on renewed competition from Dell's new Alienware unit in the higher-end desktop space for gamers and content producers.

And then, for both Adobe and Apple, consider balance sheet issues. Both companies have been reporting higher costs of doing business, even as Adobe finishes swallowing Macromedia. It's unlikely that the open source community will report higher costs of doing business, nor that Dell will back off its aggressive-pricing strategy to give Apple any kind of breathing room.

So is it time for Apple to seriously consider buying Adobe? The topic has been discussed before - but that was before the perfect storm of technology transition, open source maturity and the prospect of economic inflation were gathering on the horizon.

A deal could cost Apple - let's say - about $20 billion in cash and stock (Adobe's market cap is about $17.5 billion), and divert attention at a critical moment. But Adobe has proven technology that is critical to Apple - i.e. Photoshop - and getting both lines of technology in synchronization would only add to a combined companies' revenue stream. A combined company could streamline operational costs, leverage their solution provider channels and provide a unique value that neither Microsoft nor the open source community could match. At least not right away.

Mergers are tough, as Adobe is finding out trying to integrate Macromedia and its culture. But for Adobe, rolling the dice on antitrust allegations isn't always a winning strategy for a CEO. Just ask former CEOs Scott McNealy or Jim Barksdale.

Apple is in an important partnership with Adobe. But the question its executives might want to ask is whether its important partner is embarking on a winning strategy.