Adobe profits double after shift from software sales to cloud-based subscriptions

“Reassuringly expensive software maker Adobe is laughing all the way to the bank after shunting more of its customers into the cloud – like they had any choice in the matter,” Paul Kunert reports for The Register.

“The company closed off fiscal ’15 ended 27 November with Q4 revenue of $1.31bn, up 22 per cent year-on-year, driven by a 44 per cent hike in subscriptions to $907.4m as products declined 13 per cent to $284.4m and services/ support dipped 1.7 per cent to $114.4m,” Kunert reports. “Digital Media annualised recurring revenues swelled to $2.99bn including an increase of $350m in the quarter. Creative ARR jumped $210m to $2.6bn, with 833k net new individual and team Creative Cloud subs added.”

“Pperating profit more than doubled to $290.4m from $124.5m in the prior year,” Kunert reports. “After tax and finance costs, net profit jumped to $222.7m from $88.13m.”

Read more in the full article here.

MacDailyNews Take: Color us old school, but we prefer to own our software outright. Thankfully, other quality image editors like Pixelmator exist that certainly can replace Photoshop for our needs.

55 Comments

  1. What this doesn’t show is how annoyed people are by this and how much effort they’ll maybe be putting into finding alternatives so they’re not spending as much. If they’re just gouging people for more they’re not getting new customers, so the loss of any is just going to have a bigger individual impact.

    1. Right, they’re in a position where they could’ve doubled or tripled the retail price and had profits soar even higher… initially, until the backlash opened doors for the competition.

      1. False equivalent. I can still use iTunes with my own ripped CD’s. I don’t have to pay Apple at all to hear my music. And I don’t.

        You can’t use Photoshop unless you pay Adobe.

    2. I’m doing my best to stay away from “the death of a thousand subs” – no Creative Cloud, no Office 365, no cable anymore, etc., etc.

      Especially for updates that are meaningless to me personally.

      It’s not like new Photoshop (or Word or whatever) features are water or electricity or sewer service… ..rather fripperies.

      For my non-commercial purposes I sometimes work in CS5, but actually I can do nearly all I need in my trusty old PS 7 on my creaky Vista machine, and just sweat that hardware upgrades will force me into either new programs or into these $ drip, drip, drip “solutions”…..

    1. I assume you’re trolling, but I’ll bite.

      These are industry-leading professional tools at an appropriate price.

      While owning/sitting at one version of an app forever is theoretically good for the customer, it’s fundamentally bad for Adobe. They need their customers to buy every version. That wasn’t happening, so they forced the issue. The alternative was you buy CC2015 and sit on it forever while Adobe shrinks staff to cut losses, reducing product quality, costing sales, costing staff, etc. into oblivion.

      This way, if you’re using the product, you’re paying. If you want it on short terms, you can do that, too.

      Price per release is lower than ever, so the people hurt by this are the folks who buy one version and sit for 3 years.

      1. Why do you assume I’m “trolling?” I’ve only been contributing to this site for many years now and I’m a professional in the Hollywood VFX trade and member of the both movie and TV Academy’s. I do outside projects, or my own projects, and obviously would prefer to upgrade every couple years instead of paying every month. That’s the way it was for many years. I bought CoSA After Effects software for $2500 before Adobe even bought the company! I’ve paid plenty into Adobe over the years already but unless you are doing paying gigs now with their CC monthly stipend you’re kinda stuck. I’m used to using these tools and would prefer to keep using them but at a reasonable cost. For a post house or facility or individuals with paying projects that’s fine (though profit margins can be thin to nonexistent enough there already) but for someone doing their own thing it starts to be prohibitive. Not every user of Photoshop is a high roller. There are many folks using these tools but making little to no money off them, often just for personal projects. If everyone went to this model it would have a chilling effect on the ability to afford to freely create.

        1. At $2,500 purchase price (master collection), buying new versions every 3 years, that comes to $72/mo.

          For a smaller set, Production Premium was $1,800 which comes to $50/mo.

          Current annual plan pricing under CC is $50/mo and you get 6 feature releases in 36 months. If you want to just pay in the months you use it, it’s $75/mo.

          For the moment, it’s not even a worse deal than it was. It just evens out the cash flow for Adobe.

          1. Well you don’t have to buy new but pay upgrade prices every other year which was a better deal. Don’t really care if Adobe CEO’s can now afford yachts and more summer homes as a result of this move. There should be options and a cheaper media package. Most people don’t use every Adobe app in the master collection so it’s a bit of a miss in their line-up to essentially offer only one app or all when you only need a couple.

            1. It’s true there are no sub-bundles anymore. I suppose the way to bring them back would be to eliminate the fringe applications that probably can’t support themselves.

              But the going price at the individual level of $600/yr just doesn’t seem unreasonable to me for what are ostensibly professional level tools. Educational pricing is lower, monthly terms are available, single-app options, so on and so on.

            2. Part of the real problem is that Adobe’s strategy is eating their own future customer base.”

              Case in point: educational pricing was roughly equal to a single upgrade price, and for a developing photo student, they didn’t need anything more than Photoshop. That intro price pulled them into the ecosystem, eve after they paid the same $150 upgrade price as everyone else, because updates were only every ~2 years (or stretching it out to every 3-4 years with skip upgrades), which not only allows them to schedule the expense, but it also worked out to a lower cost for the customer: paying $150 for a PS “CS” upgrade every 2 to 4 years mathematically is 37% to 69% cheaper than the current $9.99/month rate …

              …YMMV, but since the likes of PS is a quite matured product with incremental changes on old, klunky legacy code, the only customer that is happy to shell out for a 50% price increase are the ones who are not well informed.

            3. It’s only unreasonable if you are not using them day in and day out, not making money off them but prefer to use the pro software apps you’ve already been using for years. There really should be a three app bundle, it’s so conspicuously missing in their lineup as just one or all. I think that scares them as most people would just sign up for just Photoshop, After Effects & Premiere @ $25-30. It’s the casual user who prefers using pro products that gets screwed but that’s nothing new. Adobe I believe has opened the Pandora’s box for others to compete and innovate in this space.

          2. Math & Price checking:

            > At $2,500 purchase price (master collection), buying new versions every 3 years, that comes to $72/mo.

            $2500 divided by 36 months is $69.44, not $72.

            Furthermore, after the initial license, upgrades apply.
            See: for an old Adobe price list.

            For the most frequent upgrade, the cost is $899 – – that’s ~$37/mo for the two year period between the listed versions . Similarly, for a skip upgrade $1199 for four years –> $25/mo.

            > Current annual plan pricing under CC is $50/mo and you get 6 feature releases in 36 months.

            36 months at $50/mo = $1800 (twice the prior upgrade price).

            And for getting six (6) ‘feature releases’ in return, that also means that they’re costing $1800/6 = $300 each –> generally, that’s easily 50% more than the old individual upgrade prices.

            **Plus** the customer no longer gets to choose just which of these six releases they’re going to get: it could be all of the pieces within the Suite that they use the least (or not at all).

            > For the moment, it’s not even a worse deal than it was.

            Not only does the above math illustrate otherwise, so too does the news article’s headline: Adobe’s profits have doubled, which means that it was a very good deal … for Adobe.

            1. Let’s try again.

              $2500 yr 1 + $900 (yrs 2-3-4) = $108/mo over 4 years, with upgrades every year.

              $2500 yr 1 + (skip yr 2) + $1199 yr 3 + (skip yr 4) = $77/mo over 4 years for every other year upgrade.

              Both cases more than the $50/mo currently charged for CC before discounts.

              Adobe’s profits are up over the prior year, but historically they have an up year / down year cycle because of customers skipping every other version. This year’s correction is due to all customers who want to continue using new versions software being required to obtain a subscription. Future years should see consistent revenue with increases based on growth.

            2. > $2500 yr 1 + $900 (yrs 2-3-4) = $108/mo over 4 years, with upgrades every year.

              Sorry, but incorrect.

              The reason it is incorrect is because in the “CS” business model, updates did not exist to buy every year, so your math of $2500 + 3*$900 = $108/month is impossible.

              If one were to buy every available update possible, the math would then be as follows:

              Month 1 … spend $2500

              Month 23 … no upgrade yet available to purchase. Amortized cost so far is $2500/23 = $108/mo

              Month 24 … buy $900 upgrade. Amortized cost jumps to $142/mo

              Month 47 … no new upgrade yet available to purchase. Amortized cost so far is ($2500+$900)/47 = $72/mo

              Month 48 … buy next update for $900. Amortized jumps back up, but now to only $89/mo

              Month 59 … no upgrade yet available to purchase. Amortized cost so far is ($2500+$1800)/59 = $73/mo

              Month 60 … buy next update for $900. Amortized jumps back up, to $87/mo

              Month 83 … no upgrade yet available to purchase. Amortized cost so far is ($2500+$2700)/83 = $63/mo

              ————–

              And for skip upgrades, see next post.

            3. Per my ‘skip upgrade’ note, months 59 – 83 are incorrect and overstate the monthly cost. They should be:

              59/60 –> replace with 71/72
              83 –> replace with 95

              Thus:

              71 … no upgrade yet; amortized is ($2500+1800)/71 = $61/mo

              72 … upgrade; ($2500+2700)/72 = $72/mo

              95 … no upgrade yet; ($2500+2700)/95 = $55/mo.

              Overall, what this is really showing is that what Adobe’s strategy really was about was to deny the consumer the optional strategy of using skip upgrades to save himself money.

              And what’s important here is to have the insight into the consumer to understand why they wouldn’t be buying every update: quite simply put, Adobe’s software upgrades simply failed to be sufficiently value-added to be a compelling purchase on their own.

              As such, the consumer perspective changed from “it can do X .. gotta have that” — to — “Well, if I don’t spend $900 on this upgrade now, it will cost me $2500 later, when the enhancements eventually become worthwhile.”

            4. Math for a single “skip” upgrades:

              Month 1 … spend $2500

              Month 23 … no upgrade yet available to purchase. Amortized cost so far is $2500/23 = $108/mo

              Month 24 … upgrade (“N+1”) becomes available … BUT YOU SKIP buying it. Amortized drops to $2500/24 = $104/mo

              Month 47 … you’re still running off of your original version “N”, having skipped “N+1”. Amortized drops to $2500/47 = $53/mo

              Month 48 … new upgrade (“N+2”), which you now finally buy. Price may have been $900 or $1199 depending on what year we’re talking about. Amortized is $77 or $71 per month.

              (Editorial note: I made a slight error in the prior “every update” example by only adding 11 months here instead of 23. Replace 59/60/83 with 71/72/95.)

              Month 71 … no upgrade yet available to purchase. Amortized drops to $63 or $58.

              Month 72 … new upgrade (“N+3”) becomes available … but once again, you skip buying it, so your amortized costs continue to decline over time.

              Month 95 … total spent to date is still just $2500 plus just one instance of ($900 or $1199); amortized costs are now down to $45 to $41 per month.

              Versus $50/month, the cash outlay deltas net out as follows:

              Month 1 … $2500 vs $50 = -$2450
              Month 23 … $2500 vs $1150 = -$1350
              Month 24 … $2500 vs $1200 = -$1300
              Month 47 … $2500 vs $2350 = -$150
              Month 48 … $3400 vs $2400 = -$1000
              Month 71 … $3400 vs $3550 = +$150
              Month 72 … $3400 vs $3600 = +$200
              Month 95 … $3400 vs $4750 = +$1350

              Now granted, this does look like it takes a long time for skip upgrades to break even and be ahead, but that’s also because it assumed the $2500 initial price of a full commercial copy, instead of it being for example originally a student license….which cost $900 at the time, so we need to take $1600 off of the above, resulting in:

              Month 1 … $900 vs $50 = -$850
              Month 23 … $900 vs $1150 = +$250 <– customer break-even!
              Month 24 … $900 vs $1200 = +$300
              Month 47 … $900 vs $2350 = +$1450
              Month 48 … $1800 vs $2400 = +$600*
              Month 71 … $1800 vs $3550 = +$1750*
              Month 72 … $1800 vs $3600 = +$1800*
              Month 95 … $1800 vs $4750 = +$2950*

              * – reduce these customer cost savings by $300 for if done under Adobe's revised policy in CS5…but also note that CS5 also had a provision for allowing a "double skip" for only $100 more.

      2. A fair point, but what it misses is providing a fair product at a fair price.

        The hole that Adobe dug for themself was that they jacked up prices without delivering due value to the customer. They then doubled down by played games with questionable revisions and even cut off & terminated upgrade eligibilities … and golly gee, customers pushed back, reducing their spending with the company.

        Adobe used to get $10-15K from out workgroup annually. Now they get zero.

        -hh

      1. I think my problem is that I don’t use the applications enough to feel that I’m getting value from the subscription model.

        I could see if I lived entirely within the ecosystem for my job I would probably see the value.

        As an occasional user its reached the point where I just can’t justify the prices.

        Time to look elsewhere I guess.

        1. That’s somewhat the problem I have. I need their professional tools, but don’t need their latest versions. So while people may justify the cost if they’re comparing purchasing each new release, when I compare the cost to only needing to purchase once or twice per decade, I’m getting screwed.

        2. And therein lies the rub: the big philosophical question for Adobe is just what percent of their business was from Prosumer types who were “slow” upgraders…but nevertheless added to the boo tomorrow line and broadened their base, which mad it cheaper for the full time pros.

  2. One place that software subscriptions work is in the Enterprise. IT people are always caught between users who want the latest and greatest versions and the finance people who say we just upgraded that shit a year ago!

    Users typically find a way to get new software. Next thing you know, half your computers have full copies of Adobe’s Font library, or the newest version of Photoshop that no one at the company ever authorized or purchased. Then one asshole walks out the door, reports the company for software theft and the next thing you know you’re facing a multimillion dollar lawsuit because each typeface is a separate copyrighted property.

    Which means you’re constantly battling the the users who see you as management, and hate your guts. And you try to explain to the morons that you cannot just steal people’s software, and they’re creatives, so it’s like talking to members of the Mickey Mouse Marxist club who think everything should be free and yada yada.

    Along comes software subscriptions. Software costs are now predictable, more easily budgeted for, and best of all, your installs are legal. The company is spending more, but I sleep better which is the most important thing. Ha!

    1. Yes very good points. For that scenario, I absolutely agree it makes sense to have subscriptions as an option. I just wish they also had the option to purchase for those of us in scenarios where subscriptions aren’t cost effective or a better option.

    2. Yes, enterprise means IT and for Adobe, IT means publishing companies. Yes the same publishing companies that have layed off or fired thousands of photographers, designers and artists to save money. The same companies that hadn’t raised freelance rates in 40 years BEFORE the economic downturn.

      Instead, these companies reduced payments to freelancers and all conspired to simultaneously introduce onerous, rights-grabbing contracts across the industry that essentially, required freelancers to give up the copyrights to their own creative works to even get an assignment at insulting, below-market rates AND allow these same publishers with the IT departments to resell the now struggling freelance artists work in competition against the freelancers who created the work in the first place, thereby depriving said freelancers of a valuable source of recurring income that once supplemented the meager payments they received from said publishers.

      Don’t get me started on the greedy, visionless publishers that have destroyed the industry from within.

  3. The Creative Cloud system is wonderful and worth every penny.

    If you actually made your living from this software you would find it very affordable, flexible, always up-to-date and chock full of new features.

    Over the course of 18 months (their previous average upgrade cycle) you end up spending less to stay up to date.

    1. Yeah. I actually prefer this model to the old one. I just wish Adobe would condense down the 20 programs they have into a few less. Don’t make me learn 7 different programs to make a good web page.

    2. Better software can be had for a lower price:
      Graphic design:
      Sketch
      Affinity Designer
      Photo editing:
      Pixelmator
      Affinity Photo
      Acorn
      PDF creation:
      Readdle PDF Expert
      Video editing:
      Final Cut Pro X

    3. That argument only holds up if you need to upgrade every 18 months. I need their professional level tools, but don’t need to upgrade anywhere close to that. In fact, that would actually be annoying and potentially a waste of productive time.

  4. The problem with all of the software that is moving to “subscriptions”, is that the products are already very mature. While I won’t say there is nothing new left to add on or invent, for the most part, the software does everything it needs to do NOW, so the developers don’t really have a new product people need to buy every year or so for the “new features”. Sure, they can add on all kinds of “Cloud” crap, but in the end, not much will be new. Although I don’t use Adobe Products, I do use Pro-Tools from Avid, and am facing the same “subscription” business model. The real problem for Avid, is the software does everything I need it to do NOW. I’m not compelled to buy a newer copy every 2 years, since there are no new features that I need. Tacking on Cloud Connectivity is nice, but not something I have to have. And the first poster is right.. This business model won’t gain them many new customers, as there will always be cheaper alternatives.

    While Adobe’s profits may be up right now, they won’t be up forever. Those profits will all be sucked up by the management, the real value of the company will decline, they’ll have to raise prices to try to keep afloat, and sooner or later, Adobe will be for sale at Fire Sale Prices. I’m guessing 7 years tops. The stock price of Avid has fallen from a high of $22.00 a share back in 2011, to less than $7.00 today, and Avid is pretty much at the end of their conversion to Subscriptions. Avid in particular has so over-promised, and under-delivered, that no one I know trusts anything they say anymore. Features promised this year still haven’t arrived, and those who signed up for subscriptions based on those promises, are pretty PO’d right now, having spent a years with of subscription money for practically zero return.

    And lastly, people see this business model for what it is… just a way to have you pay more and get less.

  5. When Adobe started with the whole online activation thing and later to charge exhorbitant price for the software (even ridiculous upgrade pricing) I ended my upgrade race with Adobe software.
    I have been getting along just fine with Adobe CS3 design suite.
    I, also, use and seriously recommend,

    Pixelmator and/or Affinity Photo

  6. And Not-A-Penny of Adobe’s profit came from me.

    This has been THE YEAR of THE PHOTOSHOP KILLING APPS.
    – Graphic Converter 9
    – Affinity Photo
    – Pixelmator 3
    – Acorn 4
    – Aurora HDR
    – Creative Kit 2016
    . . .

    Up and coming, the Adobe Illustrator Killing App:
    – Affinity Designer

    Be AFRAID Adobe. 💀😨💀

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