Spend Matters welcomes this guest article by Jeff Muscarella, partner, IT and Telecommunication, at NPI, a spend management consultancy, focused on eliminating overspending on IT, telecom and shipping.
For some IT vendors, transitioning offerings to the cloud has been a rocky road. And, then there’s Adobe. Unlike many of its peers, Adobe Systems is a case study in how IT vendors can evolve quickly and successfully from an on-premise perpetual license software model to a cloud-only product strategy. In a few short years, the company has migrated its portfolio of digital media and marketing offerings to a cloud-based delivery model that features instant availability of upgrades and easier sharing.
Following the May 2013 announcement that the company would only offer its Creative Suite in the cloud, Frederic Lardinois at TechCrunch interviewed the product (or service) lead at Adobe:
“As Scott Morris told me, the company was surprised by the success of Creative Cloud and decided that instead of trying to keep working different versions of apps like Photoshop, Dreamweaver and PremierePro – one for Creative Cloud, which gets continuous upgrades, and one for the next version of the Creative Suite – it made more sense to just focus on using the Creative Cloud as a distribution mechanism for its tools.
Producing these different versions was a distraction, and this move, Morris told me, will “give Adobe the ability to focus” and make life easier for its engineers. This change, he believes, will allow the company to be more innovative and deliver new features to its customers faster than before.”
Two short years later and Adobe’s all-in approach to the cloud has paid off and eliminated the need for customers to manually upgrade to new versions. As of March 2015, Adobe boasts nearly 4 million subscribers for its Creative Cloud offering. By mandating customers move to a subscription model, the company has been able to deliver new features seamlessly, which has in turn boosted recurring revenue rates. A December 2014 survey from CNET-RBC Capital Markets showed that 89% of Creative Cloud customers indicated that after their first year, they had renewed or planned to renew their subscription.
These changes have come at a cost to some enterprise customers – especially those who have been slower to migrate from perpetual licensing. Myriad changes to contract terms, pricing models and discounts have created ample opportunity for overbuying, overspending and underutilization. This is in addition to the typical sourcing challenges that plague the cloud buying process (e.g. SLA terms and conditions, securing favorable discount levels, etc.).
Adobe’s transition to the cloud has introduced several sourcing and transition risks – especially in regards to the vendor’s deal structuring preferences and the nuances surrounding pricing, bundling and discounting of its services. Those companies considering Adobe’s cloud offerings – either as part of a renewal or as a new customer – should take the following steps to avoid overspending:
Demystify bundled buying. Adobe’s shift to the cloud has resulted in more bundled offerings. The issue with this approach is that Adobe’s terms and conditions don’t always specify what’s included in the bundle. This has led many customers to sign up for a product a la carte, not realizing they already have access to it through their current subscriptions. It’s important for companies to establish clarity across Adobe’s terms and conditions to understand which online services they have access to and reconcile any redundancies.
Validate and maximize transition discounts for existing customers. Like many vendors, Adobe is willing (and motivated) to subsidize the transition of existing customers to the cloud through heavy discounts. But, what happens if the pre-discount price is actually above fair market value? Buyers need to validate whether initial pricing (the basis for discounting) is competitive and, if not, secure the lowest price and highest discount possible.
Structure purchases for cost flexibility. “Get the customer to buy as much as possible up front” – it’s a fundamental objective in selling, and one that’s entrenched among IT vendors. Adobe is no exception. The vendor often offers customers the best volume discounts during the first year of the contract term. For that reason, customers are incented to “anticipate” their long-term Adobe needs and pressured to purchase more seats up front. While this may be a sound strategy for some (after all, the discount is more favorable), it’s important that customers map out the cost impact of their short and long-term usage requirements – then seek a flexible deal structure that aligns with their needs.