How Adobe Got Its Customers Hooked on Subscriptions

When Adobe Systems Inc. started the transition from a product-sales model to a cloud-based subscription model less than five years ago, the move looked risky. Skeptics figured it would eat into the rich profit margins of the company’s pricey design, photography, and video software. At the time, prices on its popular Creative Suite package, which bundled together Photoshop, Illustrator, and other programs, started at $1,300 and went as high as $2,600, depending on the version. Meanwhile, some customers openly rebelled against the idea of renting cloud-based versions in perpetuity. About 50,000 signed a Change.org petition demanding the company abandon the scheme. Revenue shrank 8 percent in 2013 and was pretty much flat the next year.

There aren’t many doubters today. Adobe’s revenue was just shy of $5.9 billion for the fiscal year ended in November, up from $4 billion in 2013; about 80 percent of that came from subscriptions and other recurring sources. Melissa Webster, program vice president for content and digital media technologies at researcher IDC, calls it a great example of “smart paranoia.” Says Webster: “If they didn’t reinvent, someone might reinvent them out of business.”