Why Adobe shouldn't give a $&*# about Apple

May 14, 2010: 3:00 AM ET

Despite Apple's public denouncement of Flash, its creator is about to have a banner year

By JP Mangalindan, reporter

Steve Jobs may have written his paean to the public, explaining why he feels it's time to leave Adobe's Flash to the dustbin of history, but the relegation seems premature. In fact, the record shows that consumers have been overlooking the lack of Flash support on Apple's mobile device for years. One need look no further than the widespread adoption of the iPhone for proof of that.

And yet the absence of Flash hasn't exactly made what we'd call a dent in Adobe's fortunes. What is true is that the iPad's launch is bringing the issue to a head, exacerbating the ongoing feud and public chatter between Adobe (ADBE) and Apple (AAPL).

Adobe's software tools, mainly the recently updated Creative Suite 5, are commonly used by developers for cross-platform development of all stripes. Adobe is pointedly arguing that the conflict boils down to opposing ideologies: open source (theirs) versus closed (Apple's). It's a sly reversal of the established thinking on the two companies' offerings, and challenges Steve Jobs's assertion that it's the other way around: Flash is the closed system whereas the iPad supports the open-standard HTML5.

Jobs backed up his argument with a 1,600-word missive extolling the virtues of HTML5 -- it's the future, y'all! -- and blasted Flash as a bug-riddled, battery-sucking platform that all but has one foot in the discount shareware bin.

Microsoft piles on Adobe

The software giant's stock dropped 2% the day Jobs speaketh, and to add insult to injury, Microsoft supported many of Apple's assertions with its own carefully worded blog post, admitting Flash had issues around reliability, security and performance. The escalating he-said, she-said melodrama spurred Adobe to strike back: the company allegedly filed an FTC/Department of Justice complaint that could lead to an anti-trust probe of Apple. And at the Web 2.0 Expo in San Francisco, CTO Kevin Lynch took the opportunity to expound upon the situation:

"It's a false assumption that if we try to make things available across a wide variety of devices, that they'll be less effective," Lynch told the audience, dismissing Jobs' claim that letting a third-party layer of software such as Adobe come between the platform and the developer can only lead to sub-par apps and slow the progress of innovation.

Adobe: Hate the sin, love the Apple (and PC) installed user base?

Adobe also launched a new cross-media advertising campaign yesterday with the tagline, "We love Apple," but sticking readers with the message that its closed approach is wrong. "What we don't love is anybody taking away your freedom to choose what you create, how you create it, and what you experience on the web," the ads conclude.

Despite public perception, and its somewhat defensive stance -- Adobe was evasive when asked by Fortune to comment on the flap -- Adobe is hardly a company under siege. Flash is estimated to be on more than 90% of computers hooked up to the web; more than 250 million visitors used Flash-based services YouTube, Hulu, and Farmville in March; and company revenue for the first quarter topped estimates, climbing 9% to $858.7 million.

Michael Olson, a senior research analyst at Piper Jaffray, thinks the bark is a lot louder than bite. In other words, don't expect the spat to have much effect on Adobe's actual numbers moving forward. "Adobe has a huge monopoly on both print and web development," he says. "There have been other competitors who have tried to take some share -- take Microsoft with their Expression Studio products -- that have been largely unsuccessful, the reason being Adobe's entrenched user base."

Creative Suite 5 will play a big role in analysts' bullish outlook. Patrick Walravens, analyst from JMP Securities, estimates second-quarter revenue will climb to $906 million and revenue for the fiscal year will reach $3.88 billion, versus analysts' consensus of $3.72 billion.

"Despite all the back-and forth, I think they're going to generate more revenue and more earnings than people expect, and this in turn will make the stock go up," predicts Walravens.

While Apple faithful are usually easily persuaded to Jobs's vision, Adobe's core demographic of creative pros are unlikely to rapidly switch over to a new, relatively untested suite of development tools, particularly when the ones they're using now are still effective for the greatest variety of platforms. Apple's is also facing its own uphill battle: full Flash 10.1 support is coming to more than 8 million Android phones in June. And, Fortune recently reported that Android phones have eclipsed Apple's in sales for the last quarter—by a healthy margin.

Where Adobe could lose: in the long run

What Adobe is now concerning itself with is building a long-term game plan. HTML5, the next generation of the web's basic language, is quickly gaining traction with developers, and got a significant nudge forward with the iPad's adoption of the standard. Web sites like Fortune.com now feature videos coded in HTML5 for video playback on Apple's mobile devices. Sites like YouTube and Hulu are rapidly moving towards the new standard as well.

Ian Hickson, editor of the HTML5 specification, has given an extremely conservative final release date of 2022 – yes, 2022 – but that date has far more to do with standards boards and plenary sessions than the already rapid adoption of a working transitional standard: speculation is that HTML5 could achieve widespread adoption in as little as two years.

If that were to happen -- and that would be a worst-case, but increasingly likely scenario for Adobe -- Flash couldn't help but lose some of its edge to the open-standard format. In anticipation, Adobe pledged at the recent Web 2.0 Expo to develop the best set of HTML5 tools available.

Though the web may come to be dominated by HTML5, Adobe could still remain a major player in the online interactive game – if it can get used to giving up its home field advantage and just play ball.

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About This Author
Paul Smalera
Paul Smalera

Paul Smalera is a senior editor for Fortune.com, guiding the website's coverage of tech, finance, investing and the economy. He has written about a wide variety of topics -- from the inner workings of the Google search engine, to the biodiversity protecting Svalbard Global Seed Vault, to the economics behind online dating websites and the impact of the Fed's policies on the national and global economy. A true generalist, Smalera believes every story is a business story if you follow the money.

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