Digital Experience Segment, Growth Performance & M&A Importance – 10 June 2021

I believe people are aware of and understand Adobe broadly, perhaps through using some of its products and services, but there’s less familiarity with the digital experience segment. Adobe says the business provides a comprehensive and integrated platform instead of applications and services through Adobe Experience Cloud, and it enables brands and businesses to create, manage, execute, measure, monetise and optimise customer experiences spanning from analytics to commerce. I’m not sure that clarifies what exactly Adobe’s digital experience segment consists of, so could you help us understand this?

The digital experience segment seems to have many components. What focus areas and products do you think are most important? How would you describe what the company calls the Adobe Experience Platform or Experience Cloud? I think about it as an amalgam of different products and services that serve a few key areas centred on content, commerce and customer journey management. You mentioned Adobe’s 2009 acquisition of Omniture, which was the centrepiece of the data and analytics segment. Could you discuss the different areas and key products that we should be thinking about?

How far along do you think Adobe is with getting everything possible from the digital experience business and Adobe Experience platform into the cloud? The platform and customer journey seem to be a unifying technology or approach. I often hear how companies are in the cloud and are pulling data from many places and leveraging it in a way that’s optimised by being a cloud platform or a SaaS provider-type company. As a legacy software company, Adobe had to shift to the cloud, doing so much earlier than most companies. However, it has had some of these assets for a long time – it’s been more than a decade since the Omniture acquisition and the most recent deal was about 2-3 years ago. There isn’t yet full and total integration. There are legacy challenges, but how far along is Adobe in becoming fully cloud-enabled and supported?

You referenced Workfront and I think that speaks to what you highlighted as the importance of acquisitions in building out the digital experience business over 10-plus years. Adobe’s major acquisitions during that time probably add up to around USD 10bn in value and that doesn’t include a lot of the dollars invested into the digital experience business – the company has clearly made a significant commitment to it. To what extent do you think Adobe’s platform approach in the areas and products we’ve highlighted differentiates it in the marketplace? How much do you think customers are really connecting with and buying into the broader strategy?

Adobe announced several new digital experience offerings at its 2021 Summit in April. Would you say the company is more thoughtful about the investments it makes internally or externally with M&A and innovation efforts vs Oracle or Salesforce, especially as it aims to win business and differentiate in the marketplace?

There is reason for people to wonder why Adobe has spent the better part of the last decade building out this new business with significant investment. The company said with its last TAM update that digital experience accounts for over half of the overall company TAM and yet it accounts for less than one-quarter of overall revenue. There’s clearly an opportunity to close the gap here, but the key challenges are execution and competition. To what extent do you think Adobe is in a position to continue taking market share in the digital experience category? The company is perceived as a leader, but there is a lot of work to do across revenue growth, market share and so on. What do you expect Adobe to do? What is its market share now and how could it potentially develop? How does Adobe compete in this marketplace? We discussed the platform, areas and products, but what differentiators will enable Adobe to re-accelerate revenue growth here and continue to take share?

As recently as 2020, the revenue growth of the digital experience business was a laggard vs Adobe’s overall growth, even with the M&A activity. That suggests that the execution hasn’t been up to par or that it’s a very competitive market and it will take some time for Adobe to gain momentum. What are your thoughts on this, especially as the company expects the business’s revenue growth to significantly re-accelerate in 2021? I believe there’s some scepticism. There are many must-have franchise products in digital media, but the digital experience side seems to have more of a hand-to-hand combat situation, where Adobe leads with some offerings but is trying to gain a foothold or market share in other areas. How would you describe these dynamics, especially around revenue growth and market positioning?

What investments do you expect Adobe to make? How should we monitor the company’s aggressiveness or success in the marketplace? What should we think about and monitor?

We touched upon competition from Oracle and Salesforce, but how much of a factor do you think the smaller competitors are, such as Acquia, Episerver, Liferay and Sitecore, which have potentially focused more or for longer on digital experience vs Adobe? Do you think Adobe could buy one of these players as it considers further consolidating the market opportunity?

How important do you think Workfront is for Adobe’s marketplace differentiation plans? Adobe acquired the work management and collaboration solutions provider for USD 1.5bn in December 2020. You mentioned the notion of bookending the last decade with the Omniture and Magento acquisitions, and how there had been no significant M&A from Adobe until the Workfront deal.

Half of Adobe’s revenues come from international and that’s been the case for the last five years or so, which is perhaps a testament to how the company has executed in the US. Do you think there’s more significant opportunity for the digital experience business outside the US, as many other countries are behind with recognising the related marketing opportunities for customers? Could Adobe have the right timing, in that it’s spent the last couple of years integrating this platform after building it out for a decade and can then roll it out more aggressively outside the US?

What’s your 1-3-year outlook for Adobe’s digital experience business? What’s the most significant potential risk that we should consider or monitor?