Two Must-Dos For Adobe's New CEO (ADBE)

New Adobe CEO Shantanu Narayen inherits a company in good shape: Q4 revenue will come at the high end of expectations, Adobe said yesterday. Its biggest software launch to date, Creative Suite 3, is doing well. And outgoing boss Bruce Chizen will be around to answer questions at least through late 2008. Narayen has been Adobe's president and COO since 2005, so he knows the company as well as anyone. But he has two crucial tasks ahead of him:
1) Transition Adobe from a boxed software giant to a Web- and "cloud-" driven firm. Adobe's flagship Photoshop is a massive application -- its "Extended" Mac OS X installer file alone is almost 800 megabytes. We are not suggesting that Adobe deliver a full-fledged on-demand version of Photoshop over the Web. But if Adobe doesn't put some version of its most popular and most profitable software online for free, someone else will. Adobe has already had some success here, providing free, lightweight, Web-based video editing tools to sites like News Corp.'s Photobucket. But there is a lot left to do here. Microsoft caught onto this trend late and is still scrambling to catch up.

2) Fix Adobe's mobile strategy before Flash gets dumped. Adobe's Flash plays a huge role on the Web, thanks to its excellent distribution: some 99% of computers have Flash plug-ins installed. But Adobe's presence on the mobile Web is weak. Adobe says 100 million cellphones shipped with the company's Flash Light software installed between February and the end of September, for a yearly run rate around 160 million. Research firms estimate that 1.1 billion phones will ship this year. So Adobe's mobile market share -- about 15% -- is much weaker than its computer share.

Why does this matter? The mobile Web is only going to get more important, and everyone from handset makers to carriers to Google is looking to make a buck on mobile advertising. A huge chunk of Web ads use Flash, but you'll have a hard time finding mobile ads using Flash Light. Flash isn't on Apple's iPhone, and Adobe isn't part of Google's open handset alliance. It's not too late for Adobe. Mobile advertising is in its infancy, and if Narayen acts quickly, he can still be an important player. But Adobe must do whatever it takes to get Flash Light on more phones as soon as possible -- even if it means figuring out a way for people to download and install it themselves -- or Flash will get left out of the mobile advertising picture.