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April 25, 2005  Adobe and Macromedia

Some people have asked my opinion about the $3.4B acquisition of Macromedia by Adobe (humorous translation by John Gruber). I left Adobe at the end of February, so I have more flexibility in what I can say than if I were still employed there. Here is my opinion, point by point.

1. "Who cares?"

Surprisingly the direct result of the news was a backlash against the two companies.

Dave Winer, one of the pioneers of web infrastructure like the RSS specification, commented: "Off the top of my head, who cares? At one time both companies had some mojo, to borrow a term from Yahoo, but those days are long-gone." Om Malik, senior staff write for Business 2.0, wrote something similar: "These two companies have not developed killer apps for either broadband or wireless enabled comm-puting. They missed the whole blogging thing, and have not produced a must have killer app in recent times. They are becoming increasingly irrelevant in digital worlds where free programs like iPhoto and Picasa are setting the tone on the desktop."

Pot, kettle, black. In the same way these Web 2.0 advocates are claiming Adobe and Macromedia are falling behind for not understanding the "new" world of blogging and consumer photo apps whose valuations are three to four orders of magnitude smaller than the platforms developed by Adobe and Macromedia, they are falling in to the trap of thinking that that world of social software is the only thing that matters. Get over it. It's not.

Saying the "biggest ever deal in the content creation and Web development sector" (ZDNet) doesn't matter is a little self-serving. Macromedia Flash Player and Adobe Reader are on virtually every web connected computer on the planet. That sort of platform is not something that you can build overnight, and building platforms is not as sexy as releasing funky consumer applications, but it is much more rewarding financially.

Another critique came from David Beisel, who wrote that Adobe "'innovates' around a new tweak in the next Photoshop release, not around new product lines or business models." I would disagree. Adobe innovates around platforms: PostScript, PDF, Photoshop. Macromedia does that same thing. Flash isn't just a file format. It's a platform.

2. The merger will help customers

Kevin Lynch, Chief Software Architect at Macromedia, points out how each of the four markets served by the companies will benefit: "creative professionals and web developers already use our products together, and we will be able to provide an even more efficient authoring"; "in the rapidly growing mobile devices area, we are able to provide a very strong set of products for developers, content providers, and operators to create and deliver rich mobile content"; "for enterprise developers, we can provide a wider set of development tools and solutions that help connect people and business systems"; "for mainstream business users, we provide a more complete environment for dynamic, engaging collaboration over the internet that enables both on-line and off-line work."

This optimism runs counter to much of the reaction from designers, who are more worried that the lack of competition will stagnate the market or that their beloved product may be left in the software scrap yard.

The fact is, this isn't going to help or hurt people across the board--some things will improve, others will get worse. Also, as with any acquisition it will take a lot of time for the changes to ripple through (Compaq Presario Notebook anyone?).

3. It's all about Microsoft

Ovum senior analyst Bola Rotibi said "What makes it more poignant for MS is that having those two companies together makes it a harder play for Microsoft in these areas. Microsoft should be worried." News.com reported: "What's taking shape is the ultimate battle for the browser," said Paul Colton, CEO of Xamlon, a company that provides tools for creating applications that run in Microsoft's .Net framework.

It would seem obvious: for both Adobe and Macromedia, Microsoft presents the most significant risk to future growth. Microsoft has a market capitalization of near $275B and could swallow both Adobe and Macromedia and not even notice the $2B/year revenue growth amidst the $36B that it pulled in last year. Microsoft is not an 800 lb. gorilla. It is a 275B lb. gorilla.

And yet, John Dvorak still has the short-sightedness to say that Adobe is over-reacting to the Microsoft threat: "OK, so with this dingbat bogeyman-fear mindset Adobe grabs Macromedia in a big $3.4 billion dollar deal this week. There is no real evidence that mean old Microsoft was thinking about Macromedia, but there has been a lot of chatter about Microsoft getting more serious about the online content development game."

Microsoft not thinking about Macromedia? Absurd. Have you not been tracking XAML + Avalon + Sparkle? Microsoft's vision for the future of Windows is all about multimedia, all about rich interactivity, separation of the presentation layer from the data layer... and you don't think that falls squarely within the world of Macromedia?

4. Fear the worst?

Despite recommendations to the contrary there still seems to be a nervousness among graphic designers that I've talked to about the merger. The fact of the matter is that this is common. Remember the $500M acquisition of Aldus by Adobe back in 1994? Adobe picked up PageMaker, FrameMaker and some software that they later killed (anyone still crying over the death of Aldus Hitchcock?) because it overlapped with superior Adobe applications. Adobe to this day still sells PageMaker and FrameMaker even though it has also build InDesign. Three page layout applications from the same company? Why not? Each serves its own niche. I suspect the same will happen with the Macromedia merger. If people really love Fireworks, it will be around, even if the overlap with Photoshop causes confusion in the minds of new customers.

5. Adobe paid too much

Adobe paid a 25% premium of the last closing price of Macromedia (and with the typical dip in the stock price of the purchasing company, this number went past 30%). Many people have said that this is too much to pay, and I have to agree. Macromedia has been struggling. Their growth rate is only at 10% compared to Adobe's 30%, and their P/E is at 50 which is okay for a company like Yahoo! who's seeing a growth rate of 120% on revenues of around $4B, but not for a company with the financial performance of Macromedia.

Being that I worked at Adobe, the one thing I regret is that I was hoping to see Macromedia crushed, not consumed.

My favorite quote about this entire ordeal is from a Seybold Report:
"The combined company will be a giant within the publishing market. No one else will be able to approach it in size, name recognition, customer support and breadth of product line... From the Adobe side, at least, the real driving motivation behind this deal has less to do with products and product positioning than it does with creating a certain kind of company for the future." By the way, this Seybold Report was written in 1996 and it was about the merger of Aldus and Adobe.

Posted by johnnie at 12:44 AM | Comments (1)

April 18, 2005  Web 2.0: Bottom-up and Self-Organizing

When I was working on the first release of Photoshop Album, one of the biggest areas of contention was around tags. It was clear that there was a benefit to building an organizational model around tags, but it was unclear whether or not building the product around such a feature would make mainstream adoption difficult. At that point in time (2001) this was a new model, for better or worse. In the end we did go out the gate with the feature as the core organizational model of the application, and the drag-and-drop tag approach was fairly well received by the users and the press. In retrospect, however, one area where we blew it completely was around collaboration. We didn't aggressively go after collaborative tagging, and I believe that was one of the most fundamental mistakes we made.

Earlier last week there was a buzz around Del.icio.us, a social bookmarking tool that allows you to store your Internet bookmarks on the web (instead of in your web browser), and associate tags with these bookmarks. The tags are public, so other people can search for, say taxonomies and find the sites bookmarked with that tag.

The reason for the buzz was that Del.icio.us, up to this point, was privately funded by the founder, Joshua Schachter. He recently accepted $2M in funding from some of the web's most famous names: Amazon.com, Marc Andreessen, BV Capital, Tim O'Reilly, and many others.

Del.icio.us

The term that people have started using to describe the type of organizational model created by Del.icio.us is "Folksonomies". Over the last year, it has picked up traction and changed the nature of the web: of how people find information. As Mr Schachter noted: "The top tags for Wikipedia are free and reference, which are not words that appear on Wikipedia's home page, so people are thinking about you differently than you are."

This is the crux of Web 2.0. In a system that is bottom-up and self-organizing, the act of consuming content changes the fundamental nature of the content itself. Because organizational systems evolve from the network that are bottom-up and self-organizing, a new set of complexities and possibilities is created.

It is not to say that collaborative tagging will replace alternative systems of organization, such as the directory and navigational structures created by the content providers, but it is a complementary system that cannot be overlooked or underestimated.

There are a host of companies building businesses around this idea. There is a controversial open-source Del.icio.us copy-cat called Delirious, another Amazon venture called 43 things, our old friend who was just recently snatched up by Yahoo! called Flickr, a video version of Flickr called Vimeo, and many more. (This PDF provides an overview of many other social bookmarking services.)

InfoWorld recently announced that it was going to move its keyword engine over to use Del.icio.us. Matt McAlister explains: "What I like most in this new architecture is that the related links are now driven by del.icio.us. Our edit team is tagging content in del.icio.us. The engineers are pulling down the del.icio.us RSS feeds. And then we create matching logic based on the common tags. We also link back out to del.icio.us pages via the tags for the article on display."

The content provider is now not only not alone in providing structure, but is also collaborating with the readers themselves.

As David Weinberger explains: "The old way provides the vocabulary we are to use. The new way lets us use our own words. The old way puts the control of the classification system in that hands of the owners of information classifying it. The new way gives control to the users of information. The old way creates a tree. The new rakes leaves together."

The part about all this that appeals to me is the simplicity of it all. It's so simple that it's easy to write off, but that is why it's so important.

It's the simple idea. There's no magic. Just a community.

Posted by johnnie at 09:11 PM | Comments (1) | TrackBack

April 10, 2005  The Fragmented Consumer Photography Space

Original Post: 10 April 2005
Update: 15 April 2005

I came across the new website for Layers Magazine recently. It's focused on tips and tricks for Adobe's professional products and features an overview of Vanishing Point that's worth checking out.

What does this have to do with fragmentation in the photography space? The world of magazines for design and technology is highly fragmented. There is no de facto standard (at least none that I've been informed of). In fact, when people ask me to recommend design magazines, no single magazine comes to mind as the "right" place to start. At this point the magazines I subscribe to are more related to world events and business than they are to design.

Now back to consumer photography software... Robert Scoble kicked off a debate about whether or not the HeyPix acquisition by CNET this last week was more notable than the acquisition of Flickr by Yahoo!. CNET currently owns Webshots, a photo sharing web service, which has shifted the debate to Webshots vs. Flickr.

Some disagree with Scoble's analysis, while it has also been pointed out that Webshots has been around much longer, and has a much larger user-base.

I've spent some time working in this space. Which do I prefer?

I don't use either. The real question in my mind is not which is better, but if any can be so much better than any other that it becomes a serious player, dominating the market. The consumer photography space in the United States is so fragmented at this point that I would argue that it is actually impossible to achieve a dominant position.

What do I mean by dominant position? If I were to ask you who has the dominant position in desktop operating systems, you could tell me the answer. Or if I were to ask you about online auctions, or a way to e-mail someone money, or the place to buy a book on the Internet... these industries had a company come in early and dominate from the start, preventing fragmentation. That never happened in the United States in the consumer photo space (I mention the US specifically because it did in Japan).

What does this mean for the entrepreneur looking to build a business in the consumer photography software space? Good news and bad news.

First the bad news: You will not build a monopoly here. In fiscal terms that means that if you do build a business that you can monetize either through channel distribution or through a typical subscription/advertising model, you cannot expect to have the kind of market capitalization that PayPal, Amazon, or E-Bay were able to achieve. (I also believe that had Google been started a couple years earlier I could say the same for it, with respect to Internet search... but that's a debate for another time.)

So what's the good news? Well, if you're not looking to start a company with a market capitalization of $5B, $10B, or $50B, then you may not be disappointed. The fragmentation has lead to an M&A flood, with anyone and everyone having a shot at getting snatched up. Because of the fragmentation in the space, no company feels locked out from having a stake. Everyone from imaging giants like Kodak and HP to companies with no direct business in imaging like CNET are looking to buy, not build, software to help them out.

Let's look at some recent activity (the numbers below are estimates):

The small user-bases of these companies is what I was referring to when I talked about the fragmentation of the market. The amount of money is also a direct result. Are all well under $99M, and significantly less than the amount paid for, say, MySimon, or even offered for Pointcast, by at least one order of magnitude if not two or three.

Of course, as with the HeyPix acquisition, if two guys can build a .Net app and sell it to CNET after four months, maybe we all should take this summer off, make a photo website, and laugh all the way to the bank.

Update:

I was talking to Ryan Blitstein, journalist at Red Herring, about this topic and he got me a copy of an article he wrote last year about it. (Sorry, this one didn't make it up on the web, so I don't have a link.) The line that I found most important was this: "More than a hundred companies have tried to monetize the online process of sharing photos with friends and family, but only a few outlasted the dotcom shakeout that swallowed their competitors."

In less than two years, Zing had burned through most of the $14M investment from Kleiner Perkins, with little to show.

I guess that's one thing to remember before we rush out to build the next Electric Shoebox, Picaboo or Qurio.

Posted by johnnie at 10:37 PM | Comments (0)

April 03, 2005  Web 2.0: Yahoo!360 vs. Imeem

I've been using two different services that fall in to a category I will describe as the Web 2.0 Swiss Army Knife. My previous post describes what I feel Web 2.0 is. The Swiss Army knife is the idea that if you build a crappy knife, crappy screwdriver, crappy toothpick, and crappy tweezers but bundle them together in a convenient form factor, you can build a something useful. Yahoo!360 and Imeem are the Web 2.0 Swiss Army Knife. They combine underpowered (crappy) blogging tools, social networking systems and file sharing in one place.

Yahoo!360

There's been a lot of buzz about Yahoo! recently. Is Yahoo! back? Has it topped Google's Mojo? What's next? Should Barry Diller be worried?

Yahoo!360

Yahoo! has many advantages, the biggest of which is the fact that they have an abundance of services that can be accessed by a single login. That is one area where Google has made a mess of things. Wired put it best when it wrote: "While Google was busy becoming what Yahoo! used to be, Yahoo! has become what AOL should have been."

Yahoo!360 fits perfectly within this model. It brings together different Yahoo! services in a way that is cohesive and easy to understand. The integration with My Yahoo! is painfully missing as is the ability to use RSS to bring all the data in and out, but the assumption is that that functionality is coming in the near future.

Despite the hoopla not everyone is impressed. Azeem Azhar put it this way: "Yahoo! 360 is 180 degrees off". His complaints are well founded. For something that's supposed to unify the various pieces of the puzzle in to a solidified whole, Yahoo! has produced something that's too ugly, too corporate and too underfeatured to be the definitive statement that it needs to be. But can you really be that critical of a 1.0?

Imeem

Imeem is a Windows client application. That means that people who use the Mac, Linux or other operating system are not invited to the party. It's great to be on the client. You can do things that are either impossible or a tremendous amount of work to pull off when you're stuck in a web browser. That said, this sends the wrong message. Web 2.0 is not Windows only. I know, I know, a Mac client is in the works. That's what everyone says. I'll believe it when I see it.

This mentality of a closed system has crept in to other areas. No RSS in, no RSS out. Again, I'm sure this is on the long list of things that will be built someday, but I find it prohibitive to using the system.

Conclusion

I have my problems with both Imeem and Yahoo!360. Both suffer from the 1.0 problem of having potential but not having the execution to make it worth using at this point in time.

Another problem with both of them is the approach. Despite being fundamentally about inclusiveness, both are invite only. As Dave wrote: "Everything about Yahoo 360 is for members only, and in the first few hours of its life in the blogosphere, most people couldn't get in. Now, after it's launched, there's no way to see anything other than a ghost town. Maybe that's all there is, maybe not. But for a service like this, the appearance of being a ghost town is just as bad as actually being one." Make You Go Hmmm weighs in: "It’s not Yahoo’s fault, really, they are just copying Google who pulled this with Gmail and the dead zone that is Orkut."

In the end, I'm left frustrated. As Michael Rollin pointed out to me a while back, it's underwhelming to work on a tool where you add your friends and write some stuff and post some pictures... not because it was inherently problematic but because there are a million things that do that. The right solution would be something that evolved organically and didn't try and work in to the system artificially. That's what Google did with search. The directory approach was flawed, and PageRank's backlink system was based on the inherent properties of the system. Web 2.0 is about the inherent properties of the system... of the network. Instead of making "things", you make that which allows the "things" to develop on their own in ways that could not happen prior to your intervention. It's the only way.

Posted by johnnie at 11:26 PM | Comments (3)