But I’m betting we haven’t heard the last of it.
Microsoft has mostly avoided big splashy acquisitions, preferring to buy smaller companies for their intellectual property or employees.
The few it’s made, like online advertising company aQuantive ($6 billion in 2007) and enterprise search company FAST Search and Transfer ($2 billion in 2008) haven’t had noticeable impact on the company’s earnings or technology portfolio, although they might have subtly shifted the competitive landscape in Microsoft’s favour.
But if Microsoft were to use some of its $35 billion cash hoard for a big acquisition, Adobe would have to be a top choice. Look at all the places where the two companies would fit together like puzzle pieces:
- People make documents with Microsoft and show them off with Adobe. Users most often create documents using Microsoft Word. But once those documents need to be stored in a fixed format for printing and official forms, they’re almost always converted to Adobe’s PDF format. The two companies have scrapped over this market repeatedly, and Microsoft’s competing XPS format has never really taken off. If Microsoft owned PDF and Adobe’s associated Acrobat tools, it would own document management all the way from creation to printing.
- Owning Flash would bring developers back to Microsoft. Macromedia’s platform for creating rich applications started off as a Web-only technology, and was often relegated to silly advertisements that irritated users. (The “dancing hippos” scenario.) But since Adobe acquired it five years ago, Flash has begun to spread onto the desktop (in the form of AIR), enterprise applications (Flex) and mobile applications. Like Java in the 1990s, Flash presents a threat to Microsoft’s Windows platform–instead of writing to the OS, developers can write to Flash. (This is also why Steve Jobs took his stand against Flash.) Here again, Microsoft’s competing Silverlight technology hasn’t gotten much traction, and internal buzz suggests that Microsoft is reconsidering that effort. Owning Flash would quickly end that discussion and help Microsoft gently guide developers back to its own platforms.
- Adobe would bolster Microsoft conferencing software. Adobe’s platform for online meetings, Connect, isn’t very widespread, but in my experience it’s actually quite good. Microsoft’s conferencing solutions, which include Live Meeting and Communications Server (recently renamed Lync) aren’t. They’re not particularly user friendly–Live Meeting can’t seem to remember that I’ve installed it already and always asks me to reinstall–and they’ve been in an almost continuous state of flux, with name changes and feature changes every couple of releases. For Microsoft, unified communications was supposed to be a huge business. It hasn’t worked out that way. Owning Connect could help Microsoft’s technology, or at least get one competitor out of the way so it could focus on its main competitor here, Cisco.
- Owning Adobe’s Creative Suite would drive Apple out of the enterprise. Photoshop, Illustrator, and the other design products in its Creative Suite make up more than 50% of Adobe’s revenue and have created a lot of loyalists. They’re also the primary reason why most large companies have some Macs in their design departments. If Microsoft bought Adobe, it would surely continue to update the Mac versions of these products…at least for a while. But over time, the Windows versions would improve more rapidly and would be updated first, just as Microsoft’s Office for Windows releases always precede Office for Mac by about a year. Taking Apple out of the enterprise isn’t worth $17 billion on its own, but it’s a nice side effect.
Of course, antitrust regulators would be aware of all these fits as well. That’s probably the biggest argument for not trying a full acquisition. But a deeper partnership could certainly make sense for Microsoft.