Can Shantanu Narayen and Adobe Replicate Consumer Magic in Enterprise?

By: John Foley

Shantanu Narayen
Shantanu Narayen

Can Shantanu Narayen and Adobe Replicate Consumer Magic in Enterprise?

By: John Foley

CLOUD WARS RANKING

#10

CEO

Shantanu Narayen

QUARTERLY CLOUD REVENUE
AS OF NOV. 30, 2020

$838 million

Adobe is in the content creation business. It’s also in the content consumption business. In a world where both are “exploding”—according to Adobe CEO Shantanu Narayen—that creates demand for Adobe’s cloud services at both ends of the equation.

No doubt, companies are creating unprecedented amounts of digital content—graphics, documents, photography, video, web pages, social, augmented reality—in support of product launches, sales, personalization, and customer engagement. And they need tools and platforms not just to create that content, but to manage the marketing campaigns that drive it and the millions of customer relationships that result.

In the third quarter of FY2020, ended Aug. 28, Adobe reported revenue of $3.23 billion, a 14 percent increase compared to year ago. The largest and fastest-growing part of that is Adobe’s Digital Media business, which includes Adobe Creative Cloud, the company’s traditional consumer-oriented business.

Adobe’s Digital Experience business, which includes Adobe Experience Cloud and is focused on CRM and other enterprise capabilities, is not as big or as fast-growing. For Q3, Digital Experience revenue was $838 million, which represents 14 percent growth albeit with a caveat: That growth rate excludes Adobe’s underperforming Advertising Cloud.

However, there’s tremendous potential upside for Adobe’s “experience” business. By Adobe’s estimate, the overall addressable market will grow to $84 billion by 2022. That’s 100 times larger than its Digital Experience business today. But Adobe has its work cut out in this space—it’s up against Salesforce, SAP, and Oracle, all of which are bigger and rank more highly in the Cloud Wars Top 10.

Adobe forecasts solid growth in Q4 FY2020. During its Q3 presentation, Adobe predicted Q4 revenue will be in the ballpark of $3.35 billion, or about 12 percent higher than Q4 of FY2019. As part of that, Digital Experience subscription revenue is expected to grow only 1 percent, with Advertising Cloud factored in. Without Advertising Cloud, the forecast improves to 12 percent growth in Q4.

Success will hinge on Adobe’s ability to build on new partnerships, extend into more industries, continue to modernize its applications, and minimize the damage of its ill-fated Advertising Cloud. Let’s take a closer look at how that may play out in the year ahead.

Adobe’s Opportunities

The world of content is all about scale. In his 2020 Letter to Shareholders, Narayen touched on this when he pointed out that Adobe added millions of customers, delivered billions of “experiences,” and processed trillions of transactions in the previous year.

There’s no doubt, as Narayen said, that content is exploding in every corner of business and indeed life. I have some personal experience in the content business that may be relevant here.

For the past few years, I helped build and manage content teams at three companies. At Oracle, the team was called Content Central. At IBM, it was the Content Hub. And at MongoDB, it was Content Marketing. In each case, the strategy involved establishing centralized content operations that were designed to expand audience and convert new-found awareness of the company’s products and services into customers. Our teams created blog posts, multi-media articles, e-books, social content, video, and more—all pushed through a variety of digital channels. We used data and analytics to understand audience engagement and drive performance. Other companies are building their own content engines.

One of Adobe’s prime opportunities is to be the tools and platform provider to these teams. It’s already got a foot in the door, since many digital-content creators—photographers, videographers, illustrators, creative directors—already use the Adobe app suite. The long-term play for Adobe is to sell a broader set of tools to a wider group of users—across departments and throughout the company. “Content hubs” like the ones I managed are a center of excellence, but CMOs understand that content creation needs to be pervasive across a company. That means putting content and design tools into the hands of more content creators, and CRM and analytics tools in the hands of marketing and line-of-business managers.

Adobe provides three primary cloud services that enable this kind of enterprise-wide content creation and management.

 

  • Experience Cloud enables a modern, personalized customer experience (CX) through marketing, analytics, advertising, and commerce capabilities. Adobe’s latest and most-significant acquisition in the past 12 months, Workfront, fits in here. Workfront is used by marketing teams to manage content, plan and track campaigns, and manage workflows.
  • Creative Cloud is a suite of applications for photography (PhotoShop), design (Illustrator), video (Premiere Pro), publishing (InDesign), and other aspects of content generation. For design professionals in business, Creative Cloud for Teams offers 20+ Adobe apps and integration with collaboration tools such as Slack and Microsoft Teams.
  • Document Cloud supports creation and management of digital documents and secure electronic signatures, and integrates with Microsoft’s apps.

 

The Digital Experience business is Adobe’s tallest challenge, but also its broadest opportunity. Customer wins in Q3 include Eli Lilly, Truist, Nike, Lowe’s, Shell, and Lloyds. The foundation for Experience Cloud is the Adobe Experience Platform, an “open system” for building customer profiles and managing customer experiences across channels. Adobe is looking to drive growth of Experience Cloud through two recent partnerships: the first with IBM and Red Hat, and the other a three-way agreement with Microsoft and C3.ai, a provider of enterprise AI software.

In the IBM/Red Hat deal, Adobe’s Experience Manager—a content- and digital-asset management system that is part of Experience Cloud—can now be deployed in hybrid cloud environments courtesy of Red Hat’s OpenShift container and application software. In addition, Adobe becomes a CX partner in the IBM Cloud for Financial Services. That helps clear a hurdle in the financial sector around data protection and regulatory compliance. Anil Chakravarthy, who joined Adobe in January as EVP and GM of Digital Experience, said the partnership with IBM and Red Hat will enable companies in regulated industries to “use real-time customer data to securely deliver experiences across any digital touchpoint, at scale, and compliant with regulations.”

The other new relationship, with Microsoft and C3.ai, gives Adobe deeper reach into vertical markets. The partners have agreed to:

 

  • Integrate Adobe Experience Cloud (including Adobe Experience Platform) with Microsoft Dynamics 365 and C3.ai’s data models, connectors, and AI models, to provide industry-specific, AI-enabled CRM solutions.
  • Target vertical industries, including financial services, oil & gas, utilities, manufacturing, telecom, public sector, healthcare, defense, intelligence, automotive, and aerospace.

 

In explaining the significance of the three-way alliance, Thomas Siebel, CEO of C3.ai (and former CEO of Siebel Systems, acquired by Oracle), said general-purpose CRM systems are no longer enough. Customers want “industry-specific solutions that provide AI-enabled revenue forecasting, product forecasting, customer churn, next-best product, next-best offer, and predisposition to buy,” Siebel said.

Adobe’s Challenges

These strategic relationships are promising, but Adobe faces an uphill climb in several areas. Adobe’s underperforming Advertising Cloud has been a drag on Experience Cloud, and Adobe is now easing out of Advertising Cloud’s transaction-based offerings, though not out of advertising entirely.

Also, Adobe has a bifurcated customer model—some of its cloud services are targeted at consumers, others at business customers. In a Cloud Wars blog post earlier this year, Bob Evans outlined why that is problematic. Here are his key takeaways:

 

  • It’s extremely difficult for a tech company to serve two masters: consumers and enterprise. Microsoft has managed to do so but its consumer businesses are dwarfed by its enterprise revenue. Google’s G Suite is certainly used by lots of consumers, but its growth potential is anchored in the enterprise market.
  • Salesforce’s strength across the CRM category is so powerful that other vendors must be very precise in selecting subsegments where they can hope to pounce on opportunities Salesforce is not pursuing.
  • Adobe’s still recovering from its ill-fated move into an Advertising Cloud as part of its enterprise business. The adverse financial impact of the Advertising Cloud is what obscures the current and future growth opportunities for the Digital Experience business.
  • Adobe’s positioning of its enterprise business is still unclear. While it might very well have some excellent technologies and products to offer, its position in the market remains elusive to enterprise buyers and will remain so until company leadership give it the same priority as they do their consumer businesses.

 

Adobe faces tough competition in each of its core areas. Salesforce, SAP, and Oracle all have cloud offerings that stack up against Adobe Experience Cloud. Apple, Microsoft, and Autodesk offer alternatives to Adobe Creative Cloud. And it’s DocuSign versus Adobe Document Cloud.

Adobe’s Opportunities

The world of content is all about scale. In his 2020 Letter to Shareholders, Narayen touched on this when he pointed out that Adobe added millions of customers, delivered billions of “experiences,” and processed trillions of transactions in the previous year.

There’s no doubt, as Narayen said, that content is exploding in every corner of business and indeed life. I have some personal experience in the content business that may be relevant here.

For the past few years, I helped build and manage content teams at three companies. At Oracle, the team was called Content Central. At IBM, it was the Content Hub. And at MongoDB, it was Content Marketing. In each case, the strategy involved establishing centralized content operations that were designed to expand audience and convert new-found awareness of the company’s products and services into customers. Our teams created blog posts, multi-media articles, e-books, social content, video, and more—all pushed through a variety of digital channels. We used data and analytics to understand audience engagement and drive performance. Other companies are building their own content engines.

One of Adobe’s prime opportunities is to be the tools and platform provider to these teams. It’s already got a foot in the door, since many digital-content creators—photographers, videographers, illustrators, creative directors—already use the Adobe app suite. The long-term play for Adobe is to sell a broader set of tools to a wider group of users—across departments and throughout the company. “Content hubs” like the ones I managed are a center of excellence, but CMOs understand that content creation needs to be pervasive across a company. That means putting content and design tools into the hands of more content creators, and CRM and analytics tools in the hands of marketing and line-of-business managers.

Adobe provides three primary cloud services that enable this kind of enterprise-wide content creation and management.

 

  • Experience Cloud enables a modern, personalized customer experience (CX) through marketing, analytics, advertising, and commerce capabilities. Adobe’s latest and most-significant acquisition in the past 12 months, Workfront, fits in here. Workfront is used by marketing teams to manage content, plan and track campaigns, and manage workflows.
  • Creative Cloud is a suite of applications for photography (PhotoShop), design (Illustrator), video (Premiere Pro), publishing (InDesign), and other aspects of content generation. For design professionals in business, Creative Cloud for Teams offers 20+ Adobe apps and integration with collaboration tools such as Slack and Microsoft Teams.
  • Document Cloud supports creation and management of digital documents and secure electronic signatures, and integrates with Microsoft’s apps.

 

The Digital Experience business is Adobe’s tallest challenge, but also its broadest opportunity. Customer wins in Q3 include Eli Lilly, Truist, Nike, Lowe’s, Shell, and Lloyds. The foundation for Experience Cloud is the Adobe Experience Platform, an “open system” for building customer profiles and managing customer experiences across channels. Adobe is looking to drive growth of Experience Cloud through two recent partnerships: the first with IBM and Red Hat, and the other a three-way agreement with Microsoft and C3.ai, a provider of enterprise AI software.

In the IBM/Red Hat deal, Adobe’s Experience Manager—a content- and digital-asset management system that is part of Experience Cloud—can now be deployed in hybrid cloud environments courtesy of Red Hat’s OpenShift container and application software. In addition, Adobe becomes a CX partner in the IBM Cloud for Financial Services. That helps clear a hurdle in the financial sector around data protection and regulatory compliance. Anil Chakravarthy, who joined Adobe in January as EVP and GM of Digital Experience, said the partnership with IBM and Red Hat will enable companies in regulated industries to “use real-time customer data to securely deliver experiences across any digital touchpoint, at scale, and compliant with regulations.”

The other new relationship, with Microsoft and C3.ai, gives Adobe deeper reach into vertical markets. The partners have agreed to:

 

  • Integrate Adobe Experience Cloud (including Adobe Experience Platform) with Microsoft Dynamics 365 and C3.ai’s data models, connectors, and AI models, to provide industry-specific, AI-enabled CRM solutions.
  • Target vertical industries, including financial services, oil & gas, utilities, manufacturing, telecom, public sector, healthcare, defense, intelligence, automotive, and aerospace.

 

In explaining the significance of the three-way alliance, Thomas Siebel, CEO of C3.ai (and former CEO of Siebel Systems, acquired by Oracle), said general-purpose CRM systems are no longer enough. Customers want “industry-specific solutions that provide AI-enabled revenue forecasting, product forecasting, customer churn, next-best product, next-best offer, and predisposition to buy,” Siebel said.

Adobe’s Challenges

These strategic relationships are promising, but Adobe faces an uphill climb in several areas. Adobe’s underperforming Advertising Cloud has been a drag on Experience Cloud, and Adobe is now easing out of Advertising Cloud’s transaction-based offerings, though not out of advertising entirely.

Also, Adobe has a bifurcated customer model—some of its cloud services are targeted at consumers, others at business customers. In a Cloud Wars blog post earlier this year, Bob Evans outlined why that is problematic. Here are his key takeaways:

 

  • It’s extremely difficult for a tech company to serve two masters: consumers and enterprise. Microsoft has managed to do so but its consumer businesses are dwarfed by its enterprise revenue. Google’s G Suite is certainly used by lots of consumers, but its growth potential is anchored in the enterprise market.
  • Salesforce’s strength across the CRM category is so powerful that other vendors must be very precise in selecting subsegments where they can hope to pounce on opportunities Salesforce is not pursuing.
  • Adobe’s still recovering from its ill-fated move into an Advertising Cloud as part of its enterprise business. The adverse financial impact of the Advertising Cloud is what obscures the current and future growth opportunities for the Digital Experience business.
  • Adobe’s positioning of its enterprise business is still unclear. While it might very well have some excellent technologies and products to offer, its position in the market remains elusive to enterprise buyers and will remain so until company leadership give it the same priority as they do their consumer businesses.

 

Adobe faces tough competition in each of its core areas. Salesforce, SAP, and Oracle all have cloud offerings that stack up against Adobe Experience Cloud. Apple, Microsoft, and Autodesk offer alternatives to Adobe Creative Cloud. And it’s DocuSign versus Adobe Document Cloud.

Unique Differentiation

Adobe has been building and expanding Experience Cloud, formerly called Adobe Marketing Cloud, through development of new capabilities with AI and machine learning and through acquisition. The recent addition of Workfront helps with marketing workflow, which is critical to addressing the so-called “customer journey.” Other acquisitions include Magento Commerce, a provider of order management and e-commerce capabilities, and Marketo, a specialist in lead management and account-based marketing.

As mentioned earlier, the foundation for Experience Cloud is Adobe Experience Platform, which enables real-time personalized customer experiences. CEO Narayen sees the ability to create and manage unified customer profiles as being one of Adobe’s unique advantages. “That will continue to be an area where we can completely differentiate ourselves relative to anybody else,” he said. In November 2020, Adobe made is possible to build even richer customer profiles through integrations with a handful of companies that compile and manage data around customer engagements, in areas such as loyalty programs, curbside pickup, and call centers.

Adobe used Experience Cloud to develop a data-driven operating model and “CXM playbook” to manage and measure the performance of its business. Narayen says Adobe is helping its customers develop their own CXM playbooks.

Adobe’s creative software has a loyal following among the design crowd, though some of its apps—Acrobat, Illustrator, Photoshop, and others—were developed in the PC era. Adobe is using AI and machine learning technology called Sensei to modernize and automate not just those popular apps but its entire product line and cloud services. At the Adobe MAX virtual event in October 2020, Adobe introduced dozens of Sensei-powered feature updates. Here are a few examples of how Sensei is being baked into Experience Cloud.

 

  • Marketo Engage uses Sensei to support “predictive content,” i.e. content that customers may care about based on their web activity.
  • Adobe Target uses Sensei for A/B testing by promoting higher-performing content during a test for “always-on” campaign optimization.
  • Adobe Analytics uses Sensei to analyze audience activity, understand what drives conversion, and predict behavior.

 

Sensei is also used to compile Adobe’s annual holiday-shopping forecast, which showcases Adobe’s commerce, analytics, and cloud capabilities. Using Adobe Analytics, Adobe crunched data from more than 1 trillion website visits and 100 million SKUs from 80 of the largest U.S. retailers. Adobe predicts another record-setting shopping season: $189 billion in U.S. online sales, a 33% jump over the same period last year, fueled by stay-at-home shopping. Sensei is used to identify insights from data aggregated by Adobe Analytics and Adobe Commerce Cloud, both of which are part of Experience Cloud.

Unique Differentiation

Adobe has been building and expanding Experience Cloud, formerly called Adobe Marketing Cloud, through development of new capabilities with AI and machine learning and through acquisition. The recent addition of Workfront helps with marketing workflow, which is critical to addressing the so-called “customer journey.” Other acquisitions include Magento Commerce, a provider of order management and e-commerce capabilities, and Marketo, a specialist in lead management and account-based marketing.

As mentioned earlier, the foundation for Experience Cloud is Adobe Experience Platform, which enables real-time personalized customer experiences. CEO Narayen sees the ability to create and manage unified customer profiles as being one of Adobe’s unique advantages. “That will continue to be an area where we can completely differentiate ourselves relative to anybody else,” he said. In November 2020, Adobe made is possible to build even richer customer profiles through integrations with a handful of companies that compile and manage data around customer engagements, in areas such as loyalty programs, curbside pickup, and call centers.

Adobe used Experience Cloud to develop a data-driven operating model and “CXM playbook” to manage and measure the performance of its business. Narayen says Adobe is helping its customers develop their own CXM playbooks.

Adobe’s creative software has a loyal following among the design crowd, though some of its apps—Acrobat, Illustrator, Photoshop, and others—were developed in the PC era. Adobe is using AI and machine learning technology called Sensei to modernize and automate not just those popular apps but its entire product line and cloud services. At the Adobe MAX virtual event in October 2020, Adobe introduced dozens of Sensei-powered feature updates. Here are a few examples of how Sensei is being baked into Experience Cloud.

 

  • Marketo Engage uses Sensei to support “predictive content,” i.e. content that customers may care about based on their web activity.
  • Adobe Target uses Sensei for A/B testing by promoting higher-performing content during a test for “always-on” campaign optimization.
  • Adobe Analytics uses Sensei to analyze audience activity, understand what drives conversion, and predict behavior.

 

Sensei is also used to compile Adobe’s annual holiday-shopping forecast, which showcases Adobe’s commerce, analytics, and cloud capabilities. Using Adobe Analytics, Adobe crunched data from more than 1 trillion website visits and 100 million SKUs from 80 of the largest U.S. retailers. Adobe predicts another record-setting shopping season: $189 billion in U.S. online sales, a 33% jump over the same period last year, fueled by stay-at-home shopping. Sensei is used to identify insights from data aggregated by Adobe Analytics and Adobe Commerce Cloud, both of which are part of Experience Cloud.

Leadership

A 22-year veteran of the company, CEO Narayen expresses optimism for the near term. The COVID-19 pandemic has created “tailwinds” for Adobe, he says, as people find new ways to conduct business both virtually and visually. Narayen characterized Adobe’s Q3 as “outstanding,” and added that Adobe “saw strength across Creative Cloud, Document Cloud, and Experience Cloud.”

The strategy for Adobe’s Experience Cloud is in the hands of Chakravarthy, EVP and GM of Digital Experience, who was formerly CEO of Informatica before joining Adobe. Chakravarthy in charge of product management, engineering, and marketing for Experience Cloud. He also oversees worldwide field operations, including the enterprise sales org and customer success functions.

Given that Chakravarthy is relatively new to the management team, a financial analyst asked Narayen how it’s going. “He is doing an absolutely fantastic job,” the CEO replied, a vote of confidence not just for Chakravarthy, but for Adobe’s Experience Cloud.

Scott Belsky
Scott Belsky

The Creative Cloud business is led by Scott Belsky, chief product officer and EVP. Belsky is an author and, with 100K Twitter followers, something of a social media personality. As a content creator himself, Belsky has an affinity with many of Adobe’s customers.

In an industry that has always put a premium on innovation, Adobe is in a unique place as a cloud platform provider for creativity and personal experiences. “We believe everyone has a story to tell,” Narayen says. After the challenges of 2020, that’s never been truer.

But what about 2021? Will digital activity—including content creation and consumption—slowdown once a semblance of normalcy returns with a COVID-19 vaccine? The financial analysts wanted to know. “The genie’s not going back in the bottle,” Narayen said on the Q3 call. Content “is just going to gain in importance.”

Leadership

Scott Belsky
Scott Belsky

A 22-year veteran of the company, CEO Narayen expresses optimism for the near term. The COVID-19 pandemic has created “tailwinds” for Adobe, he says, as people find new ways to conduct business both virtually and visually. Narayen characterized Adobe’s Q3 as “outstanding,” and added that Adobe “saw strength across Creative Cloud, Document Cloud, and Experience Cloud.”

The strategy for Adobe’s Experience Cloud is in the hands of Chakravarthy, EVP and GM of Digital Experience, who was formerly CEO of Informatica before joining Adobe. Chakravarthy in charge of product management, engineering, and marketing for Experience Cloud. He also oversees worldwide field operations, including the enterprise sales org and customer success functions.

Given that Chakravarthy is relatively new to the management team, a financial analyst asked Narayen how it’s going. “He is doing an absolutely fantastic job,” the CEO replied, a vote of confidence not just for Chakravarthy, but for Adobe’s Experience Cloud.

The Creative Cloud business is led by Scott Belsky, chief product officer and EVP. Belsky is an author and, with 100K Twitter followers, something of a social media personality. As a content creator himself, Belsky has an affinity with many of Adobe’s customers.

In an industry that has always put a premium on innovation, Adobe is in a unique place as a cloud platform provider for creativity and personal experiences. “We believe everyone has a story to tell,” Narayen says. After the challenges of 2020, that’s never been truer.

But what about 2021? Will digital activity—including content creation and consumption—slowdown once a semblance of normalcy returns with a COVID-19 vaccine? The financial analysts wanted to know. “The genie’s not going back in the bottle,” Narayen said on the Q3 call. Content “is just going to gain in importance.”

The Big Questions for Adobe

  • How will Adobe adjust its cloud offerings to address the different needs and idiosyncrasies of its B2B and B2C customers? Adobe’s Digital Media offerings are used by consumers, by design pros in business, and by “prosumers” who are part of the gig economy. This part of Adobe’s business is surprisingly opaque for a company with expertise in CX and analytics.

  • What industries represent the biggest opportunities for Adobe Experience Cloud? Is the partnership with IBM/Red Hat in the financial services industry a harbinger of enterprise-class engagements that raise the stakes for Adobe?

  • What are the proof points in Adobe’s emerging approach to vertical industries? The partnership with Microsoft and C3.ai promises to deliver AI-enabled capabilities to a broad set of industries, including oil and gas, automotive, aerospace, defense, and intelligence. Does Adobe have the experience, expertise, and levels of support that demanding clients in these sectors require?

  • As Adobe drives real-time customer profiles, does it have the all of the necessary data-governance and data-protection safeguards in place? Collecting and managing customer data is often easier than it sounds in the real-world of policy and security.

  • What will Adobe’s next big acquisition be? Some of the key capabilities of Experience Cloud have come via acquisition. What will be next and when?

  • How long will Adobe Advertising Cloud continue to be an albatross to its Digital Experience business? Once again, the negative impact is reflected in Adobe’s revenue forecast for Q4 of FY2020. be? Some of the key capabilities of Experience Cloud have come via acquisition. What will be next and when?

  • And perhaps most importantly, how will Adobe differentiate Experience Cloud as it competes with Salesforce, SAP, and Oracle in CRM/CX? Will Adobe’s leadership in digital media and design provide an advantage against these established players?

About The Author

I’m an independent writer and analyst covering the enterprise technology market with a focus on cloud computing and data management. As a tech journalist earlier in my career, I covered databases and enterprise software, open systems, analytics, data centers, and all aspects of the emerging cloud market (SaaS/PaaS/IaaS). More recently, I established and led editorial teams driving strategic communications at Oracle, IBM, and MongoDB.

As a thought leader in the tech industry, I have traveled around the world meeting with CIOs and CEOs; written hundreds of blog posts and magazine articles on products, strategy, and implementation; explored innovative startups; and made countless trips to Redmond and Silicon Valley.

John Foley

About The Author

John Foley

About The Author

I’m an independent writer and analyst covering the enterprise technology market with a focus on cloud computing and data management. As a tech journalist earlier in my career, I covered databases and enterprise software, open systems, analytics, data centers, and all aspects of the emerging cloud market (SaaS/PaaS/IaaS). More recently, I established and led editorial teams driving strategic communications at Oracle, IBM, and MongoDB.

As a thought leader in the tech industry, I have traveled around the world meeting with CIOs and CEOs; written hundreds of blog posts and magazine articles on products, strategy, and implementation; explored innovative startups; and made countless trips to Redmond and Silicon Valley.

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