Creative Cloud May Prove To Be A Double Edged Sword For Adobe

by Trefis Team
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Adobe
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Adobe (NASDAQ:ADBE) has released the final version of Creative Suite 6. It is still only available as a bundle or as individual software for the time being, but the subscription-based model will be available after May 11. The subscription model is available to users at $49.99 a month and will allow users to access the entire CS6 suite as well as exclusive online content. Considering the fact that the entire package is currently available for $2599, the subscription model will attract and encourage part time and casual users. [1] See our complete analysis of Adobe here

In our model, we estimate that 2.7 million licenses for the creative software will sell in 2012. Considering the yearly subscription fee for the Creative Cloud Suite is $600 and it releases a new version of the Creative Suite every two years, a subscription model works out to be half the rate of buying every new release. This is bound to encourage more users to adopt it and we can expect a spike in the number of users. In our analysis we estimate that about 11 million licenses have been sold since 2008. Assuming the subscription model encourages 10 percent retention of those users who shift to the subscription model, that is a potential additional revenue of $610 million in the first year alone.

Advantage Of A Cloud Based Subscription For Adobe

The subscription model can make it cheaper for the users to use the software, but the real advantage is for the providers who can exercise better control over software maintenance and updates.

It also prevents loss of revenue due to piracy and there can be savings from inventory storage. There is however a chance that revenues will suffer in the short term if the cloud offering is comparable to the stand alone software. If a significant portion of the users switch to the subscription service, there is a potential for revenues to fall by as much as $650 per user per year. This is assuming a full license fee of $2500 for each two year release and subscription fee of $600 a year. Though margins are likely to be higher on the cloud based service, we can expect short term fall in revenues.

We currently have a $33.88 Trefis Price Estimate for Adobe which is slightly lower than the current market.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. Adobe now shipping Creative Suite 6 Creative Cloud launching May 11, www.techspot.com, May 8, 2012  []
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