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Adobe Systems Incorporated's Creative Cloud Shakes Off the Critics -- For Now


Adobe sees strong demand for its Creative Cloud.

In May, software producer Adobe Systems Incorporated (NASDAQ:ADBE) made a landmark announcement when it said it was moving to a subscription-only model for its leading products like Photoshop. In a nutshell, the Creative Suite became Creative Cloud.

To be clear, the Creative Cloud isn't really cloud-based the way something like Google Inc (NASDAQ:GOOG) Docs is. Basically, the Creative Cloud is traditional desktop software with some cloud-based enhancements like remote storage and social sharing capabilities.

Adobe's announcement caused significant outrage among users, especially since for many people, the transition to the Creative Cloud represents a significant price increase while permanent ownership is being revoked.

As an example, I could theoretically use my copy of Photoshop CS5 (for which I paid $220) until the end of time, so long as I had a computer that could run it.

But should I want to upgrade to the latest Photoshop, I'd have to pay $19.99 per month or $240 per year, while knowing that I'd lose my ability to use the software at all should I be unable or unwilling to pay this amount at some point down the road.

While I wasn't terribly outraged since I have no intention of upgrading anytime soon (I'll cross that ugly bridge when I come to it), plenty of folks were making their voices heard.

An online petition at garnered nearly 33,000 supporters:

There was also plenty of anger seen throughout the blogosphere, perhaps expressed best by photographer Brad Trent in his post entitled "Why We All MUST Fight Adobe and Stop the Creative Cloud!!!":

The real controversy is that from now on, you won't have the ability to move forward incrementally as you see fit. In the past, if Adobe trotted out an upgrade to Photoshop that didn't fit your workflow, you could just keep using the version you had and wait for the next version before you kicked in your money to be up to date. Adobe obviously didn't like this. They saw it as a money-losing proposition if users didn't slavishly continue along the upgrade ladder, paying for the privilege, of course.

And put together a spectacular summary of the ramifications and described Adobe's actions as a "colossal marketing and PR blunder that only a truly insular organization could have invented."

Now the good thing about a controversy like this one is that, as a public company, Adobe's obligated to let us know what's going on in terms of actual sales.

Did the negative PR hit Adobe's bottom line?

The answer is a big, fat resounding... probably not.

Adobe reported better-than-expected earnings at $0.36 per share while revenues were in-line. On the downside, third-quarter earnings and revenue guidance were below consensus estimates.

However, the big news is that Adobe saw an acceleration in signups for the Creative Cloud, with 221K subscribers added vs. expectations of around 185K subscribers. And this was a big improvement from the 153K subscribers added last quarter. Plus, Adobe is expecting an even greater number of subscribers to come on board during the third quarter.

This is where things get interesting.

On one hand, Adobe is being told by both customers and Wall Street that it's moving in the right direction.

Yet the company also said this on the earnings call:

Our decision to discontinue perpetual licensing of new versions of our desktop products has caused concern with some customers. While we will continue to offer CS6 on a perpetual basis, the feedback from our community is important and we are evaluating additional options that will help them with the transition. Our goal is to over-deliver on customer expectations, which we believe will make the entire community ultimately embrace Creative Cloud.

So to some extent, Adobe is hedging its bets on Creative Cloud with this ambiguous statement, which could be interpreted a million different ways -- the phrase "additional options" doesn't offer much in the way of clarity.

Presumably, its most logical concern is that signups slow down, leaving it facing the challenge of converting those of us who see no need to upgrade our existing Adobe software products. But at the same time, the company probably doesn't want to aggressively trigger such worries because the appearance of momentum is important to both customers and investors.

Stay tuned -- I suspect this story's going to get a lot more interesting in the quarters to come.

See also:

The Future of Android Looks More Like Apple Inc.

Democratizing Wall Street: Inspired by 'Hoofy & Boo,' 'Seasonal Odds' Aims to Level the Playing Field

Tomorrow's Product Announcements Could Get Samsung Electronics Co., Ltd. Rolling Again

Twitter: @Minyanville

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