Microsoft Joins Apple in Bashing Flash

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Microsoft (Nasdaq: MSFT  ) just made the Apple (Nasdaq: AAPL  ) iPad better. Oh, and Adobe Systems (Nasdaq: ADBE  ) found another accidental enemy.

Wait, what?
By throwing its considerable heft behind the emerging HTML5 video playback standard, Mr. Softy validates Apple's stiff-necked vision of the future of online video. The upcoming Internet Explorer 9 browser, which will eventually become the default browser on the majority of Windows-based computers, supports HTML5 video extensions, as well as the exact same H.264 file format that threatens to displace Flash as the video playback standard.

This is a problem for Adobe, as the rise of HTML5 video content and the soon-to-be ubiquity of browsers supporting that standard pose a major threat to its Flash-rich media platform. Apple's Safari browser already supports the new combination of standards, as does the Google (Nasdaq: GOOG  ) Chrome browser. Mozilla's Firefox and the independent Opera browser stand apart in their refusals to license H.264 video decoding standards, clinging instead to the different standards.

That division of the HTML5 standard into camps divided by licensing technicalities may have slowed the adoption of the standard -- because nobody can say exactly what the standard is today. H.264 seems to be winning out thanks to wide browser support alongside adoption by leading video libraries like Google's YouTube, but the standard's licensing terms are set to change over time, which means that not every entity aboard the H.264 train today will stay there forever. That is one of Adobe's saving graces now, along with Flash pulling in help from video-crunching hardware to make its software run faster on some platforms.

Why the good times won't last
But both of Adobe's advantages may be ephemeral and short-lived. For one, Google acquired On2 Technologies in a piddling $106 million deal that puts a high-quality video format right at Google's fingertips -- and Big G intends to make On2's technology available royalty-free. If (when?) video sites and browser developers everywhere switch over to that standard instead of fighting over video quality versus license freedoms, that fragmented market goes bye-bye. Google's own YouTube will likely be first in line to make the switch, and that's a market-defining monster all its own.

For another, there's little to stop browser programmers from baking hardware acceleration into their own software to match Adobe's second advantage. Widely accepted standards like the OpenGL and OpenCL graphics frameworks expose your hardware's acceleration features to any programmer. It doesn't matter whether your graphics chip comes from Advanced Micro Devices (NYSE: AMD  ) , NVIDIA (Nasdaq: NVDA  ) , or Intel (Nasdaq: INTC  ) , or whether your system is a desktop, laptop, or even a smartphone: There will be many ways to hook into specialized hardware to speed up your software. Adobe is doing it for Flash, and others could easily follow suit.

What it all boils down to
So Microsoft just lent credence to the iPad browsing experience and put fresh pressure on Adobe. Flash still has a few unique selling points, but they are evaporating fast. Given these challenges to an important product line that was the keystone of a $3.4 billion deal, Adobe looks richly priced at 16 times forward earnings. Photoshop and the rest of the Creative Suite are doing well for Adobe, but stacked up against Google and its comparable forward valuation, I'd bet on Big G's growth prospects over Adobe's.

Apple can't kill Adobe on its own, no matter how hard Steve Jobs wishes he could. But with powerful allies like Microsoft and Google -- whether accidental or intentional, the dagger in Adobe's back hurts just the same -- Apple is helping to make the future of Flash look rather grim from where I sit. Eventually, somebody will look to figure out how to play games in standard HTML code, too, and Adobe's prized possession will become nothing but a rather large footnote in the annals of Internet history.

Do you agree? Disagree vehemently, perhaps? Either way, vent your spleen in the comments below.

Fool contributor Anders Bylund owns shares in AMD and Google, but he holds no other position in any of the companies discussed here. Intel and Microsoft are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple, Adobe Systems, and NVIDIA are Motley Fool Stock Advisor picks. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (5) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 04, 2010, at 5:42 PM, Henry3Dogg wrote:

    In an immediate sense I think that Adobe will be far more concerned about Microsoft's confirmation of Flash's

    "… issues, particularly around reliability, security, and performance…." even on the WIndows platform.

    This has caused immeasurable damage to any attempt by Adobe to represent Apple's comments as a smoke screen.

    As for your comment that "Apple can't kill Adobe on its own…", I've only seen Apple attacking Flash - you seem to be trying to broaden the conflict.

    But If anyone is trying to kill Adobe it would appear to be Adobe. And I'm pretty sure that they can do it on their own.

  • Report this Comment On May 04, 2010, at 6:58 PM, LaChupacabra wrote:

    HTML5/CSS3 is not a standard as of yet. While it is emerging it has not been finalized. The standard is scheduled for late 2010, with browsers that fully implement the standard in 2011. In technology time that's a very long time away.

    While some home users may upgrade hardware and software often, that does not relate to the rest of the world. Most corporate structures upgrade well behind the cutting edge. Developing countries as well. Obviously those that sell hardware and software encourage constant upgrades.

    Video is being held up, and in my opinion hyped, when it is a small piece of a complex market. Rich media, and specifically corporate built applications, are much more important. The Flash Player is free, the IDE is where Adobe makes money. While Flash games may be a market for small developers and advertisers, they don't have the hold that large applications have.

    There are many examples of rich media applications utilizing Flash technology as a corporate product or corporate tool. These applications can be retooled using different technology, but that is costly and risky based on a yet unproven standard in most cases.

    Technology concerns aside, the bottom line here is money. Adobe's concern is content creation. HTML5/CSS3 may be the technology, but without an IDE development will be much more costly and time consuming. IDE's are where Adobe makes money. Whether it's graphics, video, HTML, or Flash. They lead the market in vector graphics and have experience in SVG (the backbone of HTML5 rich media). If Flash is "killed", which I don't see as very likely for at least several years, then one should expect for Adobe to make even more money in sales of Dreamweaver or other IDE to accommodate HTML5.

    Supporting new standards and increasing technology is always a good thing. Phasing out old technology when it becomes unused is also good. Attempting to phase out technology that is in high use without a standardized replacement is foolish. Not supporting Flash at all at this time is akin to stopping support of cassette tapes when the first compact disc was still a prototype.

  • Report this Comment On May 04, 2010, at 7:31 PM, RyanK76 wrote:

    Just a heads up... if using Flash for games is a major holdout for Flash's utility... The following version of Asteroids will work in any browser that supports HTML5 (ie, Firefox and Chrome).

    It may look an awful lot like Flash, but its is all Javascript and the new features of HTML5.

    When I first saw this about a year ago... I knew that Flash's days were numbered. A very large number perhaps, but the death march is on!

  • Report this Comment On May 05, 2010, at 11:15 AM, lyesmith wrote:

    The release date for HTML5 is 2022. That is far away.

    Also there is a misconception about Flash. Flash is a powerful and expensive designer tool included in Adobe CS5 package. You can create scriptable vector/raster graphic animations with it. Flash Player is the free engine/plugin in the browser to display this animation. But that just a plugin nothing else. It is a trade off for Adobe, because there was no other way display the animations so they had to develop and maintain Flash Player.

    They make the money on the developer tool and not on the Flash player. And since HTML5 is supported now, you can export flash animation to HTML5 from Flash CS5. No loss for Adobe there.

  • Report this Comment On May 10, 2010, at 5:23 PM, sbukosky wrote:

    Ok, I'm confused now. I am understanding that Flash PLAYER is what's on the line but that it doesn't make any money for Adobe other than allowing the viewing of creations of FLASH itself. On the other hand, the new HTML code will allow things previously needing to use FLASH to be written using JAVA. So, is this to say Sun Micro is to gain and Adobe is to lose or and I really confused??

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