As I wrote in my blog yesterday, The Adobe War Against Microsoft, “I continue to marvel at Adobe’s ‘Mouse That Roared’ approach to the battle: its market cap is slightly less than 10% of Microsoft’s.” I also referred to the “battle between the emerging Adobe and the great Goliath.”
Of course market capitalization, $26 billion for Adobe versus $280 billion for Microsoft, tells only a small part of the story. Adobe’s stock is on a tear. Its price has risen more than 350% in the past five years, against the Dow Jones software industry average of 84%, and against Microsoft’s shall we say more modest 29%.
But other financial indicators reveal the two companies performing quite competitively. While Adobe enjoys more than 13% higher gross margins than Microsoft, its pretax margins differ by less than half of one percent. Adobe has seen some 3.5% higher revenue growth than Microsoft in the last five years, but Microsoft’s earnings per share are nearly 10% higher than Adobe’s. Microsoft has significantly higher revenue per employee and income per employee, which few would suspect considering that sales and income per employee traditionally tend to favor the smaller (though mature) players.
Nonetheless, the blogosphere is rife with criticism of Microsoft (as it so often is). Dave Winer’s October 1st posting is titled “The end of the road for Office?” He’s pretty upset, accusing Microsoft of deliberating avoiding enabling writing capabilities in Internet Explorer to protect its Word (and Office) franchise. If “Microsoft had embraced the web, and with it the shift in their product line and economics, in 1995, we’d have a much richer writing environment today,” he writes. “Blogging would have happened sooner, in a bigger way. It’s hard to imagine how much the sins of Microsoft cost all of us.”
He caps his lament with: “I won’t shed a tear for Office. Good riddance, I say.”
On ZDNet Phil Wainewright paints a more nuanced picture of the conflict, and also provides some excellent insight into the features of Buzzword, the application that Adobe acquired when it bought Virtual Ubiquity.
Robert Scoble, always a good read, titles his blog entry “Adobe joins rest of industry in going for Microsoft’s throat.” He comments however: “Now, is Microsoft in trouble? No. Office is going to sell well for quite a few years still. But there is blood in the water.”
How much blood is in the water remains to be analyzed by CSI’s forensic team.
As noted in Monday’s Wall Street Journal report on the transaction, the trend towards online use of Microsoft’s traditional Office-style tools “has yet to fully take off, said Michael Mace, a principal at technology-consulting firm Rubicon Consulting Inc. In a survey of more than 2,000 adults who have a computer at home, conducted this past summer, Rubicon found that while 34% of computer owners have used Web-based email services and 20% have played games online, Web-based services for word processing and spreadsheets have been used by just 5% and 3% of computer users, respectively.
But there’s clearly a change afoot. How it plays out will make excellent sport for all technology watchers.