How Much Does Adobe Need Apple?

How much does Apple (Nasdaq: AAPL  ) really mean to Adobe Systems (Nasdaq: ADBE  ) ?

Listening to Adobe's fourth-quarter earnings call last night, you might conclude that the answer to that question is, "Not much." In his prepared remarks, CEO Shantanu Narayen posited that developers are working around the lack of Adobe's Flash software on Apple's iPhones and iPads, and they're using Adobe tools to do it. "We have not seen any impact on our revenue from Apple's choice," he said.

I think Narayen does his shareholders a disservice with comments like that. Adobe's fourth-quarter revenue was the first billion-dollar sales performance in company history, but that was despite weakening sequential results from the creative solutions division, where many tools for Flash authoring belong. Given the tremendous sales of and interest in iPhone 4 and iPad devices, with the concordant increase in applications development for those platforms, wouldn't you assume that Adobe's results would have been stronger with a direct tie-in to Apple's app store?

The market appears to think so. In September, when Apple announced relaxed rules for how you could develop apps for its coveted store, Adobe's stock price took a flying leap. The price boost didn't last beyond a disappointing third-quarter report with a weak forward outlook, but that jump gives a clear indication of how deeply investors care about Adobe riding Apple's coattails.

Adobe's guidance was stronger this time as management sees a stronger global economy emerging amid ubiquitous Flash installations on Google (Nasdaq: GOOG  ) Android and Research In Motion (Nasdaq: RIMM  ) BlackBerry devices. That's great, but I still think Adobe would gain a lot from having full Flash support on Apple's various mobile platforms. And Apple would instantly make a lot of Flash developers very happy. Downplaying that aspect of the business doesn't do any favors for Adobe or its owners.

Do you see Apple ever installing Flash on iPhones and iPads? Discuss in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Google is a Motley Fool Inside Value recommendation and a Motley Fool Rule Breakers selection. Apple and Adobe Systems are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Adobe Systems. The Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

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  • Report this Comment On December 21, 2010, at 2:41 PM, Oldfool103 wrote:

    I think Jobs has made his point, the rest is up to the developers and various websites. Assuming that the various news services want me to see their ads, they would do well to change their videos to HTML5, since I do much of my reading on my iPad. If not, I guess it is a lose-lose, especially given the lead that the iPad currently enjoys.

  • Report this Comment On December 21, 2010, at 2:57 PM, JHawkinTexas wrote:

    No point in Apple adding Flash support to its mobile devices. Why would I as a consumer want to add a 3rd party proprietary plug-in to consume the same media I could with HTML5? Also, Flash would consume more resources (including battery life) than would a native browser that supports HTML5. Finally, why would Apple (or any hardware vendor) want to depend on Adobe to provide support for new and innovative capabilities on their device? They wouldn't. The concept of "write once, run everywhere" is an INNOVATION KILLER from the perspective of the device manufacturers and, therefore, should not be desireable by consumers.

    For mobile devices, content providers need to wise up and provied HTML5 support.

  • Report this Comment On December 21, 2010, at 3:02 PM, hazelbrook wrote:

    If Job did not make that comment about Flash, Adobe would probably did not put any effort to push Flash onto Android and other platforms. You can see that Adobe has no vision about Flash vs smartphone about a year ago. They should send Job a Thank You note.

  • Report this Comment On December 21, 2010, at 4:36 PM, sk8ertor wrote:

    If you have Flash on Apple products, this would mean consumers are no longer locked down to Apple's ecosystem. Apple hates this. Apple does not want to open up the entire web, including Air applications in order to limit consumer choice. If you had an Air app that can be access on multiple platforms, then it would be easier for consumers who get sick of the iPhone to move to another platform without losing their apps. For this reason, you will not see Flash on Apple products any time soon. BlackBerry and Android are going to have an amazing choice of apps soon. Apple will still have the toilet paper roll app. How exciting to be an Apple consumer.

  • Report this Comment On December 21, 2010, at 5:35 PM, SkippyJohnJones wrote:

    @Sk8er - You're right that Apple wants to wall off its users. However, Apple is fully justified in its approach for two reasons. First, all of the reasons in Jobs' manifesto are valid. Once Apple caved on the issue of authoring/converting software, Adobe fans lost their only legitimate complaint. Second, and more importantly, the market doesn't care about the absence of Flash. Apple is selling all of its iOS devices faster than they can be manufactured.

    And the comment about the toilet paper app...really? Are you honestly suggesting that without Flash, iOS developers are relegated to immature garbage? So the security camera apps, AutoCAD, OnStar, Comcast, bar exam prep course, augmented reality translation software, etc. are all junk. And Android Marketplace is a beacon of high quality, bug free software.

    This is a painfully weak argument from someone who dislikes Apple. Their selection is 3X that of Android, despite rejecting thousands of useless or redundant apps (a screening process Google can't be bothered with). The iOS in-app purchase system is infinitely more robust than Android's, the support for dozens of country-specific stores is unique to iOS, and user satisfaction is significantly higher than the competition by any metric you use. But you're right, Apple will probably fold up camp next year and quit the business if they can't figure out how to get Flash running well on iOS.

  • Report this Comment On December 21, 2010, at 5:37 PM, honestbleeps wrote:

    Wow, some people really do drink the Apple kool-aid a bit too heavily.

    The HTML5 buzzword is just that, a buzzword. The reality of the situation is this: Until IE6, 7 and 8 all go away, we professionals in the web industry can't really use HTML5 without "graceful degradation" -- basically meaning we have to do everything TWICE now -- the HTML5 way, and a way that will work on older browsers.

    This means that web development costs more.

    IE isn't going away anytime soon thanks to big corporate behemoths. It's just not going to happen.

    Finally, as it pertains specifically to video, there are licensing issues with the H.264 codec that prevent the world's second most popular browser (Firefox) from using it. This means for us web developers to do "html5 video", we now have to encode every video in multiple codecs (since there isn't a universal one that all browser support), and at multiple bitrates (since the iPhone can't handle certain sizes)...

    Basically, it's making the entire process a lot more expensive and painful for the professionals in the industry - which means we have to pass those costs on to our clients. Frankly, it's not good for anybody.

    Unless some magic miracle erases IE6, 7 and 8 from the world's computers, Flash isn't going away. Even if that miracle comes, there are still a lot of things Flash does besides video streaming.

  • Report this Comment On December 21, 2010, at 6:22 PM, melegross wrote:

    Actually, this debate is forgetting one major thing. When Jobs announced the iPhone, 6 months before it came out, and was asked about Flash support, he stated quite clearly that it didn't perform well enough on a phone, and until it did, Apple wouldn't be using it. He left that up to Adobe. Adobe quickly announced that it would be easy, and that we'd see it in 6 months. That time passed, and Adobe said that it was harder than they thought.

    As the months passed into years, Apple obviously felt that it wouldn't work, and so began to back HTML 5. At that point, Flash seemed to be something we would never see, as Apple had given up on it.

    Even now, most mobile devices still don't have Flash, and the ones that do still perform poorly with it on, despite the much more powerful processors they have. It will take a year before most other phones get Flash, and then what?

    Most people only care about video. That was delivered about at a 75% level with Flash. The rest was over Qucktime, WMV and others.

    But HTML 5 video delivery was only 16% over 6 months ago. That rose to 54% a month ago. In the middle of next year, if not sooner, it will equal that of Flash, maybe even higher. Then what will the purpose of Flash be for most people?

    They don't care about Flash graphics. They certainly don't care about Flash Ads.

  • Report this Comment On December 21, 2010, at 6:52 PM, jamesjamesjames wrote:

    Wouldn't it be more "fool-ish" to focus on the long-term relationship between Apple & Adobe? Or even better, consider dueling predictions where Adobe & Apple either partner on tech or exist completely separately? This SHORT-term insight is strictly a 2010/2011 issue, and I read Motley Fool to track where stocks contribute to my long-term gain.

    Adobe will not die by the Apple, and Anders' assessment of Adobe's stock gain based on Apple's re-acceptance of 3rd party SDK's is short-sighted. What happened when Apple re-opened (I'm choking on that word) its platform to external development kits was a correction to the drop in Adobe's stock when Apple locked down its platform.

    Anders Bylund's reporting on Adobe is questionably pessimistic. He was cheering for Silverlight, now he's cheering for Adobe to not rebound from their current PR plight. The truth is that very few companies in the history of the PC market have turned billion dollar quarters. Instead of seeing that for what it is (and it's even more amazing knowing Adobe's embarrassingly unadventurous accounting practices), he chooses to cut a major milestone off at the knees and ignore facts as a means throw self-serving gas on a near-dead fire.

    Boo on you, Anders. Say what you will about the performance of Flash and Apple's walled garden mentality, but you can't make a billion dollar revenue mountain into a Steve Jobs chest-puff molehill. You're a fool, alright, but not in a good way.

  • Report this Comment On December 21, 2010, at 8:10 PM, ecobach wrote:

    With the release of the 10.2 version of the flash player, not sure the performance, cpu usage argument is valid anymore. Plus, once all the competition supports flash, Apple may realize they have no choice but to show the full web in iOS as well.

  • Report this Comment On December 22, 2010, at 3:58 AM, AQCon wrote:

    i am a lifetime apple girl. i thought not having flash, would be a negative on the ipad.

    on my macbook, i have click-to-flash, so the any flash-based content doesn't load unless i wish it to, then all i have to do is click on the flash graphic and it loads.

    80% of the time, it's just an ad. about 10% of the time, its a graphic linked to content i'm reading and less than 10% of the time it is something that is the main reason i'm on the webpage--like a short video or something. again, all i have to do is click the link, and all flash content shows up.

    on my home computer, i don't have click-to-flash installed, so flash automatically loads.

    so getting back to my ipad, i thought not having flash altogether would be a significant negative.

    truth is, i don't miss it at all; nothing anywhere near remotely critical to my web experience has been affected. in fact, i've never had the real need to have it on my ipad. i do have 'cloudbrowse' a shareware program that provides an easy work around to allow flash on my ipad but i NEVER feel the need to use it.

    all of the positives of not having flash (battery consumption, faster processing, no crashes, and no ANNOYING ADVERTISEMENTS, among others) more than make up for whatever (perceived, mainly) so-called benefits of having it.

    like some other poster said here, html5 has stepped up to the plate. it's the open standard that will soon pass up the proprietary and piggish flash.

    and mr msft up there, spouting off on how html5 will take forever to be widely adopted cuz of all the

    'pros' writing for I.E., you might want to take a look around you:

    last time i checked msft and its mobile platform was DEAD--and after all, we are talking about flash on mobile platforms ONLY (with mobile's smaller platforms, less robust OS's).

    you might have an argument when msft's new phones have a several million people userbase...

  • Report this Comment On December 22, 2010, at 2:49 PM, Brent2223 wrote:

    Mr. Jobs is smarter and, most importantly, more influential than me, so my money's behind whatever he's behind, and that obviously ain't flash. Wasn't beta superior to vhs? New technology succeeds in the court of popular opinion, and I think Apple is starting to steer that ship.

  • Report this Comment On December 22, 2010, at 10:47 PM, littlebob1 wrote:

    I too though that not having Flash on my iPhone 4g was not big deal and would save battery life, unitl I tried to play a html5 game online.

    My goodness it drained the battery and barely played. What was worse is that it worked perfectly fine on my wife's android handset.

    Can anyone get it to work on their iPad, because if it can't play there, then I'll have to buy a droid pad as the iPad does not handle the web very well.

    Game, pirateslovedaisies.com

  • Report this Comment On December 23, 2010, at 8:33 AM, kariku wrote:

    >> And Android Marketplace is a beacon of high quality, bug free software.

    Come again ?...

  • Report this Comment On March 17, 2011, at 4:27 PM, 1sconnelly wrote:

    @kariku

    It looks like it was stated in jest.

    I've dipped my feet in both waters and having done so, I really appreciate the iPhone.

    Also, enough from people making up s*it about how long your phone will last if it had Flash! Nonsense and purely speculative!

    I think some of you fail to realise that Flash is more than video and there are many web sites that use Flash for their content (it's not just ads). Finally HTML5 is not designed to do some of the thinks that Flash is best at. Like it or not, there is currently no replacement for Flash when you consider all its capabilities.

    Both Adobe and Apple would benefit by a Flash partnership. How?

    Adobe - Flash's reputation to losing to HTML5 would be cooled, more web developers would (re)embrace Flash content.

    Apple - Likely increased sales of the iPhone and iPads as opposed to Android. People sitting on the fence on what to buy, people currently not happy with the Android.

    Whether or not Flash improves your browsing experience is not relevant. What is most important is its perceived value... and most people believe that Flash is vital to their experience.

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