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Morningstar | Creative Software Leader Adobe Well-Positioned Competitively

Adobe has transitioned from an on-premises business model to become a software-as-a-service heavyweight and is the leader in creative software—its Creative Cloud is the gold standard for web designers, app developers, photographers, animators, videographers, and others. Creative Cloud, in Adobe’s digital media segment, has benefited the firm by offering more attractive prices, locking in customers for longer periods, curbing piracy, and providing management with more visibility into future revenue. Customers can increasingly pick applications to suit their needs, and a subscription model removes the large, up-front costs that existed with Creative Cloud’s predecessor. Through acquisitions, such as Macromedia in 2005, Adobe has built the most comprehensive suite of creative software, and we believe the segment is supported by switching costs and a network effect.Great software companies have more than one act, and act two for Adobe has centered around its analytics and digital marketing initiatives, which are housed in its digital experience segment. Adobe’s prowess in creative content has allowed it to nab synergies in the digital marketing space, cross-selling to enterprise chief marketing officers who already use Adobe’s software. The product, now dubbed Experience Cloud, operates in a nascent and growing market that spans marketing, advertising, and analytics, to name a few, but Adobe’s end-to-end functionality, built internally and through acquisitions such as Omniture, TubeMogul, Magento, and Marketo, has meant that it is largely regarded as the industry leader. As companies look to create targeted omnichannel ad campaigns, Adobe’s marketing software has become mission-critical for major brands and enterprises.Adobe’s digital media (Creative Cloud and Document Cloud) and digital experience (Experience Cloud) segments are multibillion-dollar businesses. Experience Cloud competes with the likes of Salesforce.com and Oracle, which compete in the broader customer relationship management space, but we think a rising tide can lift multiple boats, and Adobe can cement itself as a digital experience leader.