Adobe broke tradition just over a year ago when it switched from its traditional perpetual license to a subscription model for its popular Photoshop, Illustrator and InDesign software. Under the new model customers pay from $29.99 to $49.99 per month depending upon the package they want.
Since then the San Jose, Calif.-based software giant is growing revenues nearly 10 percent, increasing sales to $1.07 billion over the $1.05 billion reported a year ago. With solid gains validating the move, Wall Street has also stood up and applauded.
The future looks equally bright. CEO Shantanu Narayen recently told investors that they should see continued benefits from the sales model they launched just over a year ago. He went on to say that Adobe is building a stronger, more predictable revenue model, which will drive higher long-term growth, as evidenced by its improved quarterly earnings.
It’s clear that Adobe is executing well, joining the ranks of other tech leaders that market products via a recurring fee. Amazon, Apple and Netflix have disrupted their categories and often their own businesses to give customers what they want, the way they want it, when they want it. For Adobe, it’s boosting not only near-term sales and profits but the long term as well.
Adobe bet its business on its ability to execute on this new model that traded ownership for the affordability and utility of a pay-as-you go model. At the time, the company’s announcement shocked a lot of observers. In looking to grow its business, Adobe developed a literal workaround for stock that had been languishing for years. The old retail model that had worked so well had now become an impediment to sales. With few viable options, they bit the bullet and rolled the dice on pricing and packaging versus the product, which had built the company. It was a huge risk.
In adopting a recurring revenue model, Adobe had to reinvent many aspects of its business. Customer service supported basic product utility, which was paramount to renewals, upsells and low churn. These new metrics had to be tracked closely and continuously.
Customer engagement shifted from beginning and ending with the sale into continuous cycle where every touch is an opportunity to increase or diminish brand loyalty. It also netted a multitude of cross-sell and upsell occasions.
In transitioning to the new pricing model, Adobe allowed customers to vote with their dollars. Customers could validate the product and re-sign for another year, or they could keep the cash and walk. To succeed, Adobe’s products had to meet the continual demands of a market — more utility and easier functionality with continual availability.
In short, to succeed Adobe had to reinvent not just its billing department but every aspect of its business. The change to recurring revenue meant overhauling the sales process, marketing programs, financial operations, customer service along with IT operations that enabled the entire business effort.
Yet the reward has been worth the risk. Adobe’s real success is demonstrated in its share price which has grown 57 percent over the past year, underscoring a payoff for both the C-suite and Wall Street.
Parker Trewin is the senior director of global communications and content at Aria Systems, a recurring revenue management software provider. He is an award-winning, 16-year high-tech, marketing veteran specializing in brand, communications and content. Contact him at Parker@ariasystems.com or on Twitter.