ADBE's move to cut off Creative Suite, and its consequences.

I've already written one post about how Adobe chose to abandon me; this post is about the future of Adobe, from my perspective.

What's been going on
Reading Adobe's Q1-2013 10-Q filing, there is a particular statement that drew my interest:

"We are also devoting significant resources to the development of technologies and service offerings in markets where our operating history is less extensive, including cloud-based computing and mobile device markets. These new offerings and markets require a considerable investment of technical, financial, compliance and sales resources, and a scalable organization."

I highlighted and underscored the portion that seems critical; since Q1-2010 Adobe has been spending more money on their subscriptions division than on products division, and as a result their subscription ROI has increased -- that's a smart move.

What's not so smart, was to cut off development of the Creative Suite boxed software.  While Gross Profits have been steadily growing, even with last quarter's bump, they represented just under 20% of total Gross Profits.  In Q1-2013, there is a noticeable dip in Gross Profits and the share of Gross Profits by the products division.  In my mindset, I was expecting Adobe to release CS6.5 in May, and I think others were thinking the same, hence the drop in Gross Profits.  The jump in share of the subscriptions division's Gross Profits to total Gross Profits therefore, is the inverse correlation of the expectation of a new Creative Suite release.

Things were growing, except MRQ.

In the MRQ, people were expecting CS 6.5.

So if you take a look at the MRQ, Adobe's EPS and total Gross Profits took a huge tumble.  If subscriptions were as profitable (Cost / Revenue = low), this plunge wouldn't have occurred in the transition to subscriptions.  This all bodes poorly, in my opinion, for Adobe's prospects.

Subs require much more investment than products.

Despite growth, subs still represent a small portion of Adobe's profits

In the near-term
Adobe's choice to cut off Creative Suite development will lead to an immediate drop off in income.  Even if everyone with CS software moved to Creative Cloud subscriptions -- and also taking into consideration first-time accounts -- it still wouldn't make up for the loss in revenue from CS sales, not by a long shot.

Just think about how people feel about Adobe's move to subscriptions, just two years after giving a 50% discount to Final Cut Pro X customers to buy Premiere Pro CS5.5.  That 50% discount was a waste of money, and it'll actually cost you more now ($240/year subscription for single-software, compared to, what was previously a $199 upgrade).

Adobe has created a lot of enmity within its own user base and that'll hurt.

In the long-term
Even Netflix survived, after a short-term turmoil.  I never quit Netflix, I just had to cut back to DVD-only, which ended up lowering my monthly bill.  Such is the case with Adobe.  If they do not bring back Creative Suite development, a few years from now, people who own their software will eventually return once their software becomes obsolete.

Except, there is one particular scenario which could result in a destruction of Adobe's dominance and software leasing plans: a tech gorilla invests in lesser competitors and spends heavily (more than Adobe could afford to) to make those alternatives into strong competitors.  For instance, if Apple, Microsoft or Google were to buy up Corel and / or Quark, they could conceivably and rather easily invest $500M into development and integration.  That's equal to the last four years of money Adobe has invested into products, but represents less than 2% of Google's annual Gross Profit, less than 1% of Apple's and Microsoft's annual Gross Profit.  For reference, $500M represents a 13% share of Adobe's trailing four quarter Gross Profits -- the market is ripe for a gorilla to bring the competition to Adobe.

Where I stand
My first preference would be to see Adobe change its mind and continue development of Creative Suite software.
My second preference, is for a gorilla to take on Adobe; without strong, direct competition, Adobe can do whatever it likes and turn out successful in the long-term, as Netflix has.
My third choice is to wait 12 - 18 months until my current software becomes a nuisance to collaborate with others, or at least by this point the market will signal any shift to some other alternative.
My last choice is to use open source graphics software, which so far, has proven to be underwhelming, but between now and a year from now things may change, such that open source is a truly viable option.