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Adobe Throws In Towel To Apple In Web Software War

Adobe Systems Inc halted development of its Flash Player for mobile browsers, surrendering to Apple Inc in a war over Web standards as the company surprised investors with a restructuring plan.

While the matter might seem like inside baseball for the average person, it is likely to improve the browsing experiences of tens of millions of iPhone and iPad users, who have trouble accessing sites built with Flash.

That is because Adobe's decision means Web developers who currently use Flash tools to produce Web content will likely move over to the newer HTML5 technology, which Adobe embraced on Wednesday.

Adobe's concession to Apple and its late founder Steve Jobs, who famously derided Flash as an inefficient power-hog, came as the design software specialist warned that revenue growth will slow next year.

That is because the company is scaling back development of some products and shifting towards leasing other types of software via the cloud on a subscription basis, instead of selling licenses up front.

The news, detailed Wednesday at the company's annual analyst day, sent shares in the company tumbling nearly 8 per cent.

Adobe announced a restructuring plan on Tuesday that involves laying off about 7 per cent of its workforce.

Adobe said revenue growth is expected to slow to 4 to 6 per cent in fiscal 2012 -- below the roughly 9 per cent Wall Street was projecting, on average.

The company said the revenue shortfall is partly because it plans to scale back promotion of its LifeCycle business process management software and Connect web conferencing businesses. It will stop marketing those products to most customers, though it will continue to support them.

Analysts were uncertain when Adobe's moves would deliver, despite executives saying that top line growth should return to normal in 2013.

"Shifting from a license model to a recurring model is hard," said Brigantine Advisors analyst Barbara Coffey.

"Longer-term, Adobe will be a stronger company. However, in the meantime we believe that the shares will languish until revenue growth is evident."

Victory For Jobs

Adobe's surrender signals the end of a long-running war with Apple that has overshadowed the software maker's other activities.

At one point in the battle, Steve Jobs wrote a nearly 1,700-word "manifesto," calling Flash unreliable and ill-suited for mobile devices. Adobe retaliated by taking out newspaper ads saying Jobs was just plain wrong.

Analysts say the cessation on Flash development might be a setback to rivals of Apple who tout the ability to support Flash as a reason to buy their equipment. They include Asustek Computer Inc, Google Inc, HTC Corp, Motorola Mobility Holdings Inc, Research in Motion Ltd and Samsung Electronics Co Ltd.

"It certainly changes the position a little bit for those who said that iOS products such as iPhone and iPad were disadvantaged for not supporting flash," said Michael Gartenberg, an analyst with Gartner.

While Adobe only publicly conceded on Wednesday that HTML5 has become the preferred standard for creating mobile browser content, it has long been investing in the technology.

For example, it worked with magazine publisher Conde Nast for about year developing software that allows for the use of HTML5 technology to publish digital editions of magazines, including the New Yorker and Wired.

This means any content producer can use Adobe's publishing software to build video and motion graphics suitable for the iPad, as well as most other mobile devices.

Plus, Adobe incorporated HTML5 into its popular Illustrator and Dreamweaver software programs and highlighted an HTML5 program dubbed Edge for creating animated Web content it highlighted at its analyst meeting.

The company said it plans to infuse HTML5 technology across its entire product line over the coming years, offering increasingly sophisticated tools and services to design professionals, publishers, retailers and other businesses.

David Wadhwani, head of Adobe's digital media business unit, said the company was in "close collaboration" with Apple as well as Google, Microsoft Corp and others as it developed these new products.

"There is rocket science in this," he said. "There is enough innovation here to last a decade."

He said the company would continue to invest in Flash technology for use in mobile applications that would run on devices through its Adobe AIR platform. To access those applications, a user must first install Adobe's AIR software.

It will also invest in technology to produce Flash applications for desktop computers, including ones that render 3D graphics.

Adobe shares closed down 7.7 per cent at $28.08 on Nasdaq, while Apple shares were down 2.7 per cent at $395.28.

Adobe Vs Apple On Flash Technology

Here is a timeline of the battle between consumer technology giant Apple Inc and software company Adobe Systems over the latter's Flash technology, which is widely used to view videos and play games on the Internet.

January 2007 - Apple unveils its blockbuster iPhone with a browser that was not compatible with Adobe's Flash player, dealing a blow to the software maker.

June 2008 - Adobe CEO Shantanu Narayen said the company was making internal progress on getting Flash to work on the iPhone but cautioned it was still in test phase.

Jan 2010: Apple unveils iPad tablet, which also doesn't run Flash software in browsers, and the company effectively asks developers not to work with Flash.

April 2010: Flash "platform evangelist" Lee Brimelow writes a blog post supporting Flash that ends with the words "Go screw yourself Apple."

April 2010: Apple cofounder and CEO Steve Jobs posts a blog on the company's website simply titled "Thoughts on Flash" where he criticizes the technology as unreliable, ill-suited for mobile devices, and for being a buggy battery hog.

"We have routinely asked Adobe to show us Flash performing well on a mobile device, any mobile device for a few years now. We have never seen it," he said in the unusual and nearly 1,700-word manifesto.

"Adobe publicly said that Flash would ship on a smartphone in early 2009, then the second half of 2009, then the first half of 2010, and now they say the second half of 2010. We think it will eventually ship, but we're glad we didn't hold our breath."

Jobs said the company prefers open standards for the Web and favors technologies such HTML5 for creating multimedia programs.

April 2010: Adobe Chief Executive Shantanu Narayen calls the technology problems noted by Jobs "a smokescreen," labels Jobs' letter an "extraordinary attack."

June 2010: Jobs snipes again at the "waning" Flash technology at the annual All Things Digital conference. "We didn't start off to have a war with Flash or anything else. We just made a technical decision," he said.

Sept 2010: Bowing to pressure from app developers, Apple eases restrictions for building iPhone and iPad applications, a move that allowed for the use of Flash software.

Adobe responds by saying it was "encouraged to see Apple lifting its restrictions on its licensing terms, giving developers the freedom to choose what tools they use to develop applications for Apple devices."

Oct 2010: Apple says will no longer ship Mac computers with Adobe's Flash player pre-installed but the decision does not ban Flash software from its computers.

Nov 2011: Adobe says it is halting development of its Flash Player for mobile browsers and conceded that HTML5 has become the preferred standard for creating mobile browser content. Adobe plans to infuse HTML5 technology across its entire product line over the coming years.

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