Adobe buys Omniture : What are they thinking?

To think that they could have announced this Friday at X Change…big missed opportunity…and I would love to have heard the ensuing discussion!

This was a shocker and it certainly electrified our afternoon. I got the word about 10 minutes after the news hit the wire with a call from an analyst. I will admit to being deeply surprised with the fact of an acquisition and, even more so, with the acquirer.

I talk to investor analysts following our community regularly and so, of course, I often hear speculation about Omniture as a potential acquisition target. Certainly Omniture is, in many respects, a very plausible acquisition candidate. But while I had heard companies like Oracle, Microsoft, Google and IBM all mentioned, no one had ever surfaced Adobe. And if they had, I probably would have expressed deep doubt.

But I don’t mean that one should take my “What are they thinking?” headline in the caustic, disbelieving sense that I might apply it to a congressional debate or an Oakland Raiders draft choice. I really mean to suggest the sense of a genuine question – “what are they thinking?”

Of all the acquisition candidates touted for Omniture, I favored IBM, though I doubted them all. Omniture has always felt like a company where there is still plenty of room to grow, the management team seemed intensely engaged in that process, and they seemed unlikely to give up control of that process for anything less than an exorbitant premium.

Nevertheless, I favored IBM if there was a candidate because I saw Omniture as a classic enterprise software play. Omniture has a solution with a heavy services component, deep penetration at the high-end enterprise level, and they are a company that might benefit from the infrastructure, internationalization and services side of IBM’s business.

At first glance Adobe seems like a stretch.

Yes, there are some obvious synergies. As a multifaceted international software company, Adobe brings a certain amount of infrastructure and international markets to the table. But a deal like this isn’t about cost-cutting or internationalization and, in any case, Omniture’s big costs are focused around capital expenditures to support the SaaS model – not something that Adobe is hugely involved in.

One tends to think of Adobe as primarily a design-oriented software company and that looks like a problem because measurement and design aren’t simply different they are generally armed opposing camps. So you wouldn’t expect Adobe’s brand champions to be very measurement focused and, in my opinion, they aren’t.

On the other hand, there has been a big fight brewing for years now about who will control the web application environment. It’s a war being fought at both ends and by many of the same players. At the browser level, it’s a war to see who will own the window into the internet that consumers use and the advantages that come along with that. But on the producer side, it’s increasingly become a war to see who will own the applications that drive the web.

It’s taking a long time, but HTML is dying. I heard that someone at X Change predicted that in five years, javascript tagging will dead. I’m not sure about the context, but if the increasingly applications-driven web we see our clients deploying is representative, it makes perfect sense. When you’re building apps not web sites, the measurement will be embedded directly into the application. Many of the same observations hold true in the online ad market as well. Ad units are becoming more like miniature applications than roadside signs.

Adobe has long owned the design space, but they are just starting to seriously penetrate the development space and with these two disciplines merging, it seems like it's an open playing field.

Adobe is a major player in this development/design space. But it’s hardly uncontested. Owning the application space for the web is a very big business and, like most design and software development systems, there are strong tendencies toward monopoly.

Developers and designers tend to gravitate toward the winning solution (for simple career reasons) and then deployment must inevitably follow the expertise.

It’s in this space that having an integrated measurement solution would be a substantial win vis-à-vis the competition. Tagging Flex applications for example – tagging any application really – is a mess right now. And with Omniture essentially owning the enterprise analytics desktop, it would be difficult for competitors like Microsoft to counter an integrated measurement system by just rolling their own measurement solution.

Plus I suspect that elements of the culture – at last on the product side – are fairly congenial. Adobe, like Omniture, is deeply focused in the online world and its development.

I suppose that it’s the synergy in this area that probably drove the acquisition. Like most synergies, it seems attractive but it’s hardly risk free. After all, Omniture’s real community is marketing folks. They aren’t entrenched with the folks who actually run, design or build the web in the way that Adobe is. So the two companies target a somewhat different corporate audience. I think that’s a significant challenge.

Nor is it obvious to me that superior baked-in measurement will be easy to attain. There really aren’t good paradigms for application measurement in the marketplace right now. And if it is easy to attain, will it be sustainable as an advantage? And what about the vast non-enterprise Adobe audience that would probably much prefer measurement integrated with Google Analytics?

I’m always skeptical of acquisitions – especially one’s without an obvious cost-cutting component. It’s incredibly challenging to merge two big companies, two different cultures, and two different types of products into a coherent whole. So they’ll probably need to be both good AND lucky to make this deal work.

Adobe has more expertise than most in this game, and it’s gratifying to see measurement make such a big splash. Our little industry is growing up fast. That’s mostly to the good; but though I won’t miss those green drinks at the Omniture Summit (I guess they can make them red now), it just won’t be quite the same will it?

Comments

[Adam Greco]

It is truly the end of an era...

[Chris Goward]

Excellent on-the-fly analysis, Gary. I scratched my head for a while on this one today too.

Adobe has a wide audience range with high representation in the SMB and even consumer end of the market where Omniture is irrelevant.

On the other hand, as we've seen with Adobe's Connect web conferencing tool, they are interested in the SaaS model and yet have a lot to learn about it. I was surprised to see Adobe Connect too (especially with its shaky instability) and I wouldn't be surprised if one of the benefits of this acquisition is to bring experience to support a stronger Adobe push into new SaaS offerings. Omniture certainly knows how to deliver an Enterprise SaaS experience, which Adobe would benefit from.

[Aman Sandhu]

I hope that the two entities exist separately and continue to grow while as suggested-learn from each other. An integrated entity seems like the coming together of two different target segments. Watching this space.

[David]

This surely has to be a massive setback for Google Analytics and its moves towards Event Tracking of flash elements. Omniture can now gain access to some IP previously not open and im sure we can see some wonderful and potentially free flash tracking apps in the next few months.

The amount of data now available to Adobe on how people are using their web products will rival Google and can hopefully lead to some wonderful products.

http://www.thelostagency.com

[twitter.com/agray]

Nice analysis, Gary. Thanks for sharing your thoughts. I tend to be in agreement with you - this is going to be a difficult assimilation. If Adobe intends to create a cohesive whole, and not just operate a separate unit, it's not not just Omniture that Adobe will have to integrate into that whole, but the handful of companies Omniture has acquired over the last few years that still have not been integrated into a cohesive whole within Omniture.

This feels a bit like the NetIQ acquisition of Webtrends in 2001. That is - based on a strategy that depends on one *possible* vision of the future. If the synergies turn out not to be as strong as envisioned (as happened with NetIQ/Webtrends) and Adobe loses interest in the business unit, this could be disastrous for Omniture.

Ultimately, I think this is just the beginning. There are some very interesting plays to be made in web analytics, and they're based on visions of the future that are different from the one possessed by Adobe and Omniture.

http://www.greaterreturns.me

[Michael]

I first tweetted that "tagging will go away in less than 5 years"...roughly a month ago, I can't believe someone said the same thing in Xchange

[Kamal]

That's a really good analysis Gary. I was wondering about the possibilities of how it would work as well. I agree that the main advantage that Adobe would have would be in being able to push the integration of a measurement tool such as Omniture with their RIAs.
This will only help push analytics to the forefront by making it an integral part of design. That would be my guess on the first step of how to use Omniture's tools within their current line of design and development products. It would definitely make a really good add-on as well as being an additional revenue source that's less prone to piracy.
Now we'll just have to wait for Microsoft to buy Webtrends to integrate measurement with Silverlight! :)

[Olivier Silvestre]

I enjoyed reading your analysis Gary. It's well thought out and there isn't much I disagree with. I think the comment about HTML and JavaScript being dead in 5 years is definitively an interesting one that would grant further discussion; it's definitively an interesting topic. As for a full integration of WA into Web Applications, sure it's great from a technical standpoint, but still, web analytic is about measuring user experience, engagement behavior, goal achievements, etc, and that is not something you can just be technically standardized and programmed. Each application (like many web sites) are different and their own measurement framework are driven by business/marketing inputs, because ultimately, Web Analytics is a marketing and business tool, not a development or design tool.
An exciting new chapter in our industry is unfolding...to be continued.