Adobe's announcement regarding its commitment to the SaaS based Creative Cloud over its packaged Creative Suite software has created a big fuss online and elsewhere. Over 10,000 customers have signed a Change.org petition insisting that Adobe continue to offer packaged software. Adobe's decision and ongoing challenge as it relates to software development and sustainable business model is one that many other software companies are facing. The changes being proposed were not made in isolation or without consideration for customer need.  They are not decision made lightly.

Any company offering cloud-based software, infrastructure or services must determine a business model that is acceptable to their customer base, while ensuring that the cloud offer provides a more than acceptable quality of service. Software companies benefit from low variable costs when developing their product. An established company, like Adobe, has solid customer base who anticipate new products as well as product updates and upgrades. Any investment in product development is recouped through a combination of software licenses and maintenance fees. Software has typically been a relatively high margin business with high, defined fixed costs and low variable costs.

When shifting to a SaaS model, Adobe not only continues its fixed costs related to software development, but picks up the variable costs related to infrastructure (e.g., servers, network, security, HVAC). There must be a “leap” to a new, predictable revenue stream. It is a massive shift in business model, where the recurring revenue from a client subscriptions must cover ALL costs.  The benefit for new customers is a less costly manner to gain access to robust creative tools. However, existing clients can only see the large investments made over many years and the loss of control over their creative environment. Their is concern in paying for access to more applications than they need or want; AND losing access to files if they are late making a monthly payment.  I read a great blog by Eric Hansen with his perspective on the pros and cons.

I honestly don't see that there is any way for leading software vendors to avoid a shift to the cloud. The challenge will be how they implement it. Will it be a cloud only option, a hybrid offer or will there be a transition period (something Adobe might have considered). From a completely different perspective, it's interesting to note that Harmonic is offering transcoding in the cloud via private cloud, managed service or Amazon Web Services. This provides options for all types of users from large to  small and for those that need frequent access to transcoding services or those who are addressing infrequent spikes in demand for transcoding.

Advancements in technology are great, but they really do challenge known business models. In every case there are pros and cons. Education is a key element to helping vendors and customers manage the transitions. I anticipate we will see further communication from Adobe about the benefits of Creative Cloud. Hopefully we also see a model for helping existing Creative Suite users migrate to Creative Cloud.

What's your perspective?