Adobe Acquires Omniture: It's All About the Revenue Model

Written by Steven Walling / September 16, 2009 10:40 AM / 12 Comments

Adobe is looking to stall falling sales and profit by entering into a new market: analytics. But rather looking to R&D, Adobe is instead coughing up $1.8 billion for analytics leader Omniture. This is the largest acquisition by Adobe since the purchase of Macromedia for $3 billion in 2005.

The acquisition has puzzled many, since Adobe and Omniture products really have no natural cooperation. There have been comments about the measurement capabilities that Omniture will give to content built with Adobe products. But in the end the entire deal revolves around two words: recurring revenue. Adobe's quarterly earnings have fallen due to declining sales of software licenses, and the SaaS model of Omniture will bring the company a recurring stream of revenue.

Omniture is a top dog in analytics. But even though it competes with just about everyone, including Google, in the measurement market, some industry analysts have pointed out that it's really run out of new ideas. In trying to explain the acquisition during an earnings call, Adobe CEO Shantanu Narayen asserted that buying Omniture was meeting customer needs.

What we found is that as we've been talking to our customers, it's clear that they would like us to do a lot more. For example, the chief digital officers that we talk to at media companies have been telling us that they want to understand which content was performing the best so that they could feature it more prominently and increase their ad revenue.
Advertisers and agencies were using Flash to produce rich ads but they were telling us that they really wanted to understand what the click-through rates of those ads were in real time, to be able to take more advantage of it.

But few analysts have agreed that adding measurement power to content is really the core of this deal. Adobe announced the acquisition alongside a decrease in quarterly earnings. Even if Omniture is no longer at the forefront of innovation in analytics, its steady stream of revenue from SaaS subscriptions is a cash cow that Adobe can't afford to pass up right now.

Comments

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Cash cow? Omniture has a 5 year money-losing streak. They lost around $40,000,000 each of the past two years.

Posted by: Huh? | September 16, 2009 12:10 PM

I agree with... well "huh?" :)

While it has an awesome product, Omniture is completely over-priced for what it actually delivers.

We switched from our $80k /yr Omniture contract to Google analytics earlier this year.

We have missed a few reports - specifically the customizable report builder tool - The other options are simply not enough to justify the gianormis cost difference.

I really do hope Adobe has something else up their sleeves with this.

Posted by: Troy Peterson | September 16, 2009 12:20 PM

It's nothing short of brilliant. The one thing holding off major adoption of online content is the inability for advertisers to interactively get their products to market. Face it, online advertising is so last generation. Adobe has the opportunity to build an advertising platform capable of creating a standard for measuring the new media consumption. Once this "last mile" is complete the advertisers content will be more engaging and entertaining than the multi-media content we went online to view. Imagine watching Monday night Football online and being able to design you own sports gear, get seats to the next game, or attend the next personal appearance of your favorite Football quarterback all while watching the game. This is a win-win. It's coming and Adobe may be bringing it to a screen near you....:)

Posted by: michael duley | September 16, 2009 1:18 PM

huh?

Posted by: Peter | September 16, 2009 1:25 PM

I am not very convinced by the stream of revenue. Omniture has been loosing money again and again, they've spent a lot of money in sales and marketing.
Maybe Adobe is interested in the army of consultancy, and sales that omniture has.
They may also want to build a closer relation with their clients, being at the heart of their on-line business.

Posted by: Sunny | September 16, 2009 1:27 PM

Okay, so maybe cash cow was hyperbole. But I think my analysis still holds water. The fact remains that Adobe wouldn't be buying Omniture if it didn't have subscription revenue coming in.

Posted by: Steven Walling | September 16, 2009 1:31 PM

First Macromedia now this....whats next Adobe? Google then the world?

Posted by: Constant Gina | September 16, 2009 2:20 PM

I don't see quite see how Omniture compliments Adobe and their product portfolio. But maybe it's just Adobe trying to branch out into new businesses.

Posted by: Brendan | September 16, 2009 2:42 PM

Adobe MIGHT have a good reason for buying Omniture (although I'm not sure what it is. I'm pretty sure direct revenue isn't it.) Real, mature, publicly traded companies are judged on earnings, not revenue, so increasing revenue but lowering earnings by buying a money losing business is bad for a publicy traded company. Hence Adobe getting clobbered today- people have discounted Adobe's future earnings against the expected losses on the omniture side. And there will be losses, Omniture hasn't made money since 2003.

Posted by: rob | September 16, 2009 5:51 PM

I think the basic premise of this post is correct. Adobe has to show SaaS style recurring revenue. That is what investors want and for very good reasons. The fact that Adobe revenues are declining puts a fire under them. I also think that the synergies are light. That is window dressing IMO.

But the SaaS model is a cash-burner not a cash-generator until you hit the right scale. Those who pointed out that Omniture was burning cash might be incorrect factually (as one can see from yahoo Finance quarterly cash flow report, that takes about 30 seconds). But even if burning cash, SaaS can be a really great biz when you tip over the scale where the operating leverage is great.

SaaS companies can sell for a premium and the old legacy model companies will have to pay that premium. Here in startup land we like that story!

Posted by: Bernard Lunn | September 19, 2009 6:55 AM

The ability to measure the consmption of the content completes Adobe's Concept to Consumption workflow.
Probably thia s was one of the hindrance in the success of Adobe Media Player.

Posted by: MilindB | September 20, 2009 8:31 AM

It's a fact that "Omniture has been loosing money again and again, they've spent a lot of money in sales and marketing." and Adobe can't deny with it. So if Adobe going to buying Omniture it would be a LOSS.

Posted by: Data Entry India | November 19, 2009 5:18 AM