Rumor or No Rumor, Microsoft Should Buy Adobe This is how rumors get started. Microsoft (MSFT) CEO Steve Ballmer, entourage in tow, showed up recently at Adobe's (ADBE) offices in San Francisco for a secret meeting with its CEO Shantanu Narayen. Only the secret meeting turned out to be not so secret.

Reporter Nick Bilton spilled enough details on The New York Times site Thursday to send Adobe's stock rallying 12% to $28.69 by the end of regular trading hours. In after hours trading, the stock had held onto the gains. Bilton, citing employees and "consultants" to both companies involved in the discussion, noted that
"one of the main thrusts of the discussion was Apple and its control of the mobile phone market and how the two companies could team up in the battle against Apple. A possible acquisition of Adobe by Microsoft were among the options."
"Thrusts" may not be the most politic word to describe talks between companies contemplating a corporate marriage. But never mind that: These are two companies that belong together. The mobile Web is the future Web. And the mobile Web of the future will stream content either through:
  1. the native apps that already dominate Apple (AAPL) iPhones and Google's (GOOG) Android phones, or;
  2. a nascent generation of mobile browsers that employ features developed under the umbrella of HTML5.
In other words, at this point, the future is a raucous party to which neither Adobe's Flash nor Microsoft's Silverlight has been invited. iPhone apps and browsers with HTML5 features won't kill Flash or Silverlight, but they'll do something far more painful: make them irrelevant without killing them, forcing Microsoft and Adobe to invest heavily in those products in the vain hopes of getting into the party.

But taking the nearly ubiquitous chocolate of Flash and sticking it inside the much smoother peanut butter of Silverlight just might produce a tastier treat to bring to the table. That is to say, Flash might improve under Microsoft engineering. (It couldn't get worse). If that happened, it could spur competition in the race to develop a better way to deliver content over the Web. And that would be a good thing for Apple and Google, as well as consumers.

Office and Creative Suite: A Match Made in Hard Drive Heaven

This is one reason why Microsoft and Adobe need each other and why Ballmer was knocking on Narayen's door. But there's another reason that is perhaps just as strategically important to both companies.

Adobe's bread and butter has been its multimedia software, notably its Creative Suite applications that include Photoshop, Acrobat and others. Creative Suite is a logical complement to Microsoft's Office suite of productivity software.

Few are the companies -- large or small -- that rely on Office without also using a multimedia program like Photoshop, or vice versa. The merging of the Creative Suite into Office would instantly upgrade a stale software bundle that peaked around 2005 (and has since been matched by Google Apps and freeware apps like OpenOffice) into a package of programs that companies might pay a premium for.

Echoes of Microsoft's Monopoly Days

There are reasons why this deal may not happen, starting with a likely objection by the Justice Department on antitrust concerns. As The New York Times pointed out, Microsoft and Adobe discussed a merger a few years ago, but it went nowhere because Microsoft was worried such a deal might tangle it in yet another regulatory snarl.

But the environment has changed so much in the last couple of years that the thought of Microsoft buying Adobe is more likely to causes eyes to roll in cynicism than to widen in fear. Office users may recall Microsoft's past bullying tactics, but history has marched on. Today, Apple and Google appear the likelier monopoly threats, while Microsoft -- with or without Adobe -- is an outlier hoping to offer competition.

The stock market has seemed resigned to a Microsoft takeover of Adobe. For the past two years, ever since the banking crisis drove stocks down uniformly, the two stocks have traded in tandem -- until two weeks ago, when Adobe's guidance indicated its Creative Solutions business would grow weaker. The news caused Adobe's stock to fall 19% in one day, and just have may have left the stock cheap enough for Steve Ballmer to pick up the phone.

As long as Adobe's stock has a 12% premium from the merger rumors, you have to wonder who leaked this story out. It couldn't have come from Microsoft, since it would just have made a logical deal that much more expensive. It might have come from an Adobe shareholder, distressed about the stock's recent plunge. Or, much less likely but intriguing to consider, it could have come from "consultants" who also work with Apple or Google, companies that would benefit if this deal never happened.

But again, that's the thing about rumors, once they get started: They're usually so vague they inspire all kinds of what ifs. Maybe Adobe's share price will rise so high Microsoft will opt for some kind of joint venture instead of an outright acquisition, as it did with Yahoo,

That would be too bad for both companies and their shareholders. Unlike Yahoo, Adobe is an acquisition that would fit much more sensibly into Microsoft's plans for the next few years.

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Happy Face

I hope that Microsoft leaves Adobe alone, Adobe products work just fine. All my troubles have been with buggy Microsoft software, especially operating systems. Windows XP was good (although it took quite a while to get there), but I hate Windows 7. Internet Explorer IE. I'm so tired of seeing IE (Not Responding), and PC freezes up. This product has been out for many months now, and still no fix. I hate government control, but they (MS) should not be allowed to release software untill it is debugged. Faulty software impacts time and money for the users, not MS. Drugs must be approved by the FDA before release to the public, how about this?

October 09 2010 at 2:23 PM Report abuse +1 rate up rate down Reply
1 reply to Happy Face's comment
Jerry Jones

I am tired of the not responding crap also through AOL, type in AOL not reponding and it will take you to a link were it will give advice as to how to fix it, since I am under the free AOL I dont qualify for any technical support. Ive tried everything on the list and still get the not responding crap. I am about to delete AOL entirely and just go with roadrunner since they are my internet service provider.

October 09 2010 at 6:36 PM Report abuse rate up rate down Reply

MSFT has $36 billion in cash. ADBE has a market cap of $14 billion. If you pay attention only to the financials and the respective product portfolios (and that's how the mergers & acquisitions guys think), the deal writes itself. Would it be good for customers? Employees? Shareholders? Innovation? Sadly those aren't always considered. The two firms have been major players in the personal computer era (c.1980 - 2015?) and are most likely in their mature/decline phase with little prospects for having a vital role in the semantic/mobile web era (c. 2005 - ?).

October 09 2010 at 10:07 AM Report abuse rate up rate down Reply

You mean we may no longer be afflicted with flash or PDF?

October 09 2010 at 6:46 AM Report abuse rate up rate down Reply

Rumor or no rumor Microsoft shoiuld just drop back & punt !!!!!!!!!!

October 08 2010 at 10:04 PM Report abuse rate up rate down Reply

If Microsoft were to buy Adobe in it's 3 decade long attempt to make Apple irrelevant, the big question would have to be, "Who will replace Adobe in the computer graphics world?" If Adobe, on the other hand, were to become suddenly wise and in touch with the needs of the NET, it would string Microsoft along for a few quarters while slipping Apple an invitation to buy into Adobe. The result - Creative suite and Flash and all the bells and whistles, put right in the front row of Apple's growing superiority in the Graphics AND Scientific AND Educational AND smart phone world. Gee, Seems like Adobe didn't get the sticky-note. When Microsoft wants you, it wants to eliminate you.

October 08 2010 at 8:43 PM Report abuse +1 rate up rate down Reply

Please don't let Micrsoft buy Adobe. Think you have problems now wait till Microsoft gets in there and starts doing the programming.

October 08 2010 at 6:54 PM Report abuse +2 rate up rate down Reply

I have used both Photoshop, Illustrator, and Windows for years. I would hate to see Photoshop and Illustrator ruined by the planned obsolenscence strategy of Microsoft.

October 08 2010 at 3:26 PM Report abuse +2 rate up rate down Reply
1 reply to gary's comment
Jerry Jones

I had problems uploading pictures to Ebay using Adobe, I had to save them in my document's before they changed to jpg. from Adobe pdf.Time consuming, but I am not having that problem now using microsoft photo gallery, allready built in windows vista.

October 09 2010 at 7:01 PM Report abuse rate up rate down Reply

If tThey want Adobe products to be subject to massive price increases, multiple versions that aren't backwards compatible, and so many bugs and crashes as to make the products unusable they should sell out to microsoft. If not sell to a competent company or (gasp) take input from users. I agree with you ammgar62 that adobe photoshop is overpriced, but there is NO other product that does everything I need it to except photoshop. All other alternatives simply don't do what I need them to. The product is good, the price is not.

October 08 2010 at 3:23 PM Report abuse +3 rate up rate down Reply

Microsoft would be crazy to buy Adobe. Photoshop is overpriced and is being challenged by lower priced easy-to-use adequate products from multiple vendors.

October 08 2010 at 2:41 PM Report abuse -1 rate up rate down Reply
2 replies to aamgar62's comment

Photoshop is not being challenged by anything, Photoshop and Illustrator is the leading and almost only go to applications in the industry. hobby users may try "alternatives" but professional stick with the adobe suite.

October 09 2010 at 7:35 AM Report abuse +2 rate up rate down Reply

I downloaded Adobe's Creative Suite the other day and uninstalled it a few days later since "it was too complicated;" someone else replied that Adobe's software is "the gold standard" but, in my world, that means nothing; on the other, it's understandable that universities would teach it because it lets them jack up tuition, etc... On the other hand, I've decided that Flash is easier to use than Silverlight; but, that said, HTML5 will be the only standard that matters. I say this because OS X ( apple's operating system ) implements PDF within it's graphic's pipeline and HTML5 is going to let Apple put vector graphics into that pipeline instead of rasterized graphics! Thus, graphics will look sharp and be resolution independent! So Microsoft has to court Adobe because Microsoft has to rewrite their graphic's pipeline! i.e. I recently wrote an application for Windows ( a WPF application ) and it was impossible to render things to PDF; I think that I could have rendered my stuff to Microsoft's XPS format but, from what I could tell, Microsoft's Office Suite can't consume it! Without a doubt, that situation becomes a "deal killer" since Apple's iWork lets me copy and paste PDF fragments into my Pages (Word) documents and my Keynote (Powerpoint) presentations with ease; I can also export Keynote presentations to Flash and, if you can believe it, iWork costs less than $100! ;-) So, in general, I'm thinking that Apple rightfully snubbed Adobe since Adobe walked away from Apple during hard times! The interesting thing: the Preview application that ships with OS X is a MUCH better PDF viewer than Adobe's Acrobat Reader by a mile! So perhaps Adobe learned some lessons from Apple and Adobe will bring those lessons to Microsoft! At this point, I don't really want to buy Windows or Windows' apps ever again! because Apple's engineering is simply too good right now! and I expect that Microsoft will keep giving us hacks!

October 10 2010 at 12:13 AM Report abuse rate up rate down Reply
Dick Clark

The best way to insure high prices for software is to let Bill Gates and company control the software. Look at the lousy operating system Windows which we have to buy over and over and over each time at a new higher price. More choices and competition is what we need to keep costs low and quality high. Mergers suck for consumers, period.

October 08 2010 at 2:37 PM Report abuse +1 rate up rate down Reply