Zeroing In on Macromedia

It's Friday, which means we're back to our continuing software saga here at the Rule Maker Portfolio. In the last episode, I used our Rule Maker statistical criteria to compare Adobe (Nasdaq: ADBE) to Macromedia (Nasdaq: MACR), a tough-looking contender for mastery of the Web design software space. While Adobe is bigger and much more profitable than Macromedia, the latter turned in 95% earnings growth last quarter, versus 27% for Adobe. Given the impressive growth, it's time to take a closer look at Macromedia.

Macromedia specializes in software products to help Web designers create engaging sites by adding rich graphics, sound, video, and interactive elements. Macromedia has three major product divisions: Web publishing software, learning solutions targeted at large enterprises and educational customers, and the company's new commercial entertainment business, shockwave.com.

Let's look at Macromedia's software lineup first.

Dreamweaver is high-end software used for professional website design and production, allowing developers to quickly build site maps and use templates for page production. According to PC Data, Dreamweaver has over 70% of the market for professional visual website development tools in North America.

Fireworks is Macromedia's Web graphics software product, which PC Magazine calls "the gold standard in Web graphics software." Fireworks provides a unified environment for creating, optimizing, and producing high-quality Web graphics.

Flash is Macromedia's website production software that integrates graphics, music, sound effects, and animation. Flash is the leading design tool for interactive vector graphics and animation on the Web. Flash pretty much dominates its segment, and accounts for about 20% of Macromedia's sales. Adobe's new LiveMotion product is Adobe's attempt to get a foothold on the strong franchise established by Flash, but for now, Macromedia is clearly the big dog in this neighborhood of the Web design market.

Director is Web authoring software for rich multimedia sites, combining graphics, sound, animation, text, and video. Director software is based upon movie production, allowing Web designers to manipulate their subjects, the music score, and control the stage elements of their multimedia presentation.

Freehand is Macromedia's print and Web graphics software package that competes head-to-head with Adobe's Illustrator.

The above products are aimed at Macromedia's traditional core market, which is the Web developer and graphic designer community. Macromedia's management has stated that a key strategic goal is to expand Macromedia's offerings outside the core Web designer market to the large business enterprise market on the one side and the general consumer mass market on the other.

One product targeted toward the enterprise market is Generator. Generator is a server solution for automating and personalizing website graphics. Generator is used to build such graphics as interactive banners, maps, calendars, charts, scoreboards, and portfolios, and allows the designer to update the data feeding the graphic from a database.

Macromedia's learning solutions represent another major initiative targeted to large enterprises and educational institutions. These products are designed to help enterprises develop and manage learning programs over the Web or corporate intranets. Given the large educational and corporate training markets, and the likelihood that a lot of this learning is going to be taking place via the Internet, I think this is a good move on the part of Macromedia.

The two products here are Authorware, which is a rich-media authoring tool for creating online learning applications, and Coursebuilder for Dreamweaver, which is an add-on module for Dreamweaver that provides a library of learning interactions designed to speed up the production of multimedia training presentations.

Finally, Macromedia is moving into e-business tools that corporations can use to build and manage websites and the assets represented by their online content. Macromedia commissioned consulting firm Hurwitz Group to produce a white paper (available on Macromedia's Corporate Info page), which describes the lifecycle of online content assets and Macromedia's approach to providing solutions to help business customers optimize their own online content lifecycle.

Macromedia has introduced three products for e-business markets.

Aria Enterprise is a website activity analysis software product that creates reports that track visitor information, visitor behavior, effectiveness of online promotions, user navigation analysis, and other information useful for businesses to determine their online effectiveness.

Likeminds personalization server uses individual customer profile data to determine the best content or commercial offers to make to each Web user based on that user's preferences.

Likeminds Email uses the customer information gathered with Likeminds personalization server in order to create direct marketing e-mails tailored to each customer.

If you're interested, a lot of great product information, including white papers and more, is available from the Macromedia's eBusiness Solutions site.

Macromedia also offers two media players that enable Web users to view Shockwave and Flash content. Shockwave is the Web standard for rich media playback, and Flash enables rich multimedia playback over a narrowband connection

Macromedia offers its two media players, Shockwave and Flash, free of charge to consumers in much the same way that Adobe distributes its Acrobat Reader software free to users. As I mentioned a few weeks ago when we were looking at Adobe's Web motion products, Shockwave is the default standard file format for multimedia Web graphics, much like Adobe's PDF is the default standard format for transmitting documents electronically. Macromedia reported that over 146 million units of Flash and Shockwave were downloaded in the fourth quarter, compared to 93 million in the previous quarter. That's 57% sequential quarterly growth -- very impressive.

Macromedia created a new consumer business in May of 1999 called shockwave.com, which, according to the company, "enables consumers to experience the best multimedia content on the Web." Here, Macromedia features a variety of Shockwave-enabled games, cartoons, and music entertainment, aggregated from a variety of providers. During the fourth quarter, shockwave.com announced several deals with well-known content providers for exclusive content to be featured on the site. Some of the bigger names include Batman film producer Tim Burton, screenwriter David Lynch, and Stan Lee of Spiderman comic fame. In addition, the company plans to sell a premium Shockwave multimedia player called the Shockmachine, which will allow users to store and organize content. The company expects to derive most of its initial revenue from advertising and sales of the Shockmachine.

According to the 1999 Macromedia annual report, shockwave.com has been created to "pioneer the business models that will result in more and more of the top creative talents in media and entertainment to focus their energies on the Internet. With a reach that extends to more than 100 million people, shockwave.com offers content providers an exciting new way to enhance the delivery of their services and capacities to an expanding audience spread all over the world."

In summary, there is more to Macromedia than I expected when we embarked on this little project. Not only does Macromedia appear to be a well-entrenched leader in the high-end Web design and production market that Adobe craves, but also the company is doing some interesting things in the Internet infrastructure and enterprise markets, plus the shockwave.com entertainment website aimed at the mass consumer market.

Next week, we'll continue our look at Macromedia, Adobe, and whatever else blips on our radar screen between now and then.

Have a great weekend!

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