Adobe (NASDAQ:ADBE) is trying to monetize the Flash Player by introducing premium features to support 3D content on Flash. It plans to charge game developers 9% of their gross revenues after the first $50,000 for using a set of premium APIs which are designed for high end gaming. The Flash Player is the gaming platform of choice for many users on the web, with about 1.3 billion devices and 9 of the top 10 social games running on it. This has made its hold over PC based casual gaming absolute. Revenue from Flash Player is very small compared to overall revenues of Adobe.
The issue for Adobe arises from the rapid rise in tablet and smart-phone penetration. The Flash Player platform is not supported on mobile iOS devices such as iPod, iPad and the iPhones. With mobile devices becoming the device of choice for casual and social gaming, Adobe needs ways to support its popular content on iOS mobile devices as the casual gaming market size in 2011 was nearly $5 billion and is poised to grow to about $8.7 billion in 2014 according to the Casual Games Association. ((Adobe Introduces Premium Features for Gaming with Flash Player 11.2; Announces Collaboration with Unity Technologies, Adobe Blogs, March 2012)) We take a look at some of the alternatives.
1) Adobe AIR
The work-around is to bundle the AIR run-time environment into the stand alone apps. This makes the apps a little heavier, but it currently the only way to port Flash onto mobile iOS devices. Flash applications tend to be very CPU intensive and therefore power consumption goes up and is the primary reason for Apple to refuse Flash support on its mobile devices. Most of the popular Flash games usually have stand alone apps to work on the iOS devices and this drives traffic away from PC’s and therefore the Flash Player.
2) Adobe Flash Media Server
The largest source of Flash content is video. The Flash Player is the player of choice to render video content online and mobile devices are becoming the largest source for viewing video content. Though PC’s with Flash support is still on top for video consumption, as smart-phone and tablet penetration increases we can expect users to switch. Adobe has a solution for this with its Flash Media Server 4.5 which will allow Flash video content to be viewed directly within Safari on iOS devices.
When the server detects a lack of Flash support on a device, it will allow Flash content to be streamed using the HLS (HTTP Live Streaming) protocol supported by HTML5 that Apple created for use in Quicktime X and iOS. This solution enables realtime video rendering to take place on the server, so the mobile device won’t have to carry out the processor-intensive rendering, resulting in improved battery life. This however means that Flash-based games and animations still won’t work on iOS devices. This is however an expensive work around as content publishers need to pay US$4,500 to implement the new Adobe Flash Media Server 4.5. 
3) Third Party Applications
There are a host of third party applications exist in the iTunes market which render Flash videos. The most popular is the Skyfire mobile web browser which essentially works on the same principle as the Flash Media Server. It renders the video on a server and shows it to the user using an iOS compatible platform. The advantage here is that content developers need not pay this to happen as it is an in-built feature. Adobe does not benefit directly from this but if the browsers’ penetration increases it may pose a threat to the Flash Media Server.
The revenues from Flash Player is currently very small and the main impact of the success of the Flash Player would come from sales of content creation software that makes content to be played on Flash. Currently We estimate the creative software market share to be in the range of 44 percent and slowly decline to 42 percent at the end of our forecast period. If this decline faster due to Flash content losing popularity to 35 percent at the end of our forecast period, we can expect a downside of upto 8 percent on our current Trefis price estimate. Adobe currently competes in this space with Microsoft (NASDAQ: MSFT) Silverlight and HTML5.
We currently have a $33.88 Trefis Price Estimate for Adobe which is slightly higher than the current market price.Notes: