Adobe Systems Inc. History

Company Perspectives:

Adobe's mission is to be the premier provider of products and services in the information age for professional publishing solutions, business publishing solutions, document solutions, and digital imaging solutions in the company's addressed market segments while: achieving and maintaining an above-average return on investment for shareholders measured in terms of return on equity, earnings per share, revenue growth, and operating profit; maintaining or achieving the number one or two position in addressed market segments in terms of market share, customer satisfaction, revenue generation, product margin, product functionality, and technological leadership; treating all employees with respect and rewarding both group and individual performance that exceeds commitments and expectations; being a good corporate citizen in the local and national locations where the company produces, sells, and services its products. Key Dates:

Key Dates:

1982:

John Warnock and Charles Geschke form Adobe Systems.

1986:

Adobe goes public.

1987:

Adobe releases Adobe Illustrator and establishes an international presence through its European subsidiary.

1994:

Company acquires Aldus, the developer of PageMaker software.

1999:

Adobe introduces InDesign, a professional publishing software package. Sales surpass $1 billion for the first time.

Company History:

Adobe Systems Inc. is a leading developer of desktop publishing software. Sales of three of the company's software products--Photoshop, Illustrator, and PageMaker&mdashcount for about 50 percent of Adobe's sales. Adobe also developed and distributes, free of charge, Acrobat Reader, which allows Internet users to view and print portable document format (PDF) files. The company has investments in about 20 technology companies and is involved in two venture capital partnerships. Adobe also sells print technology to original equipment manufacturers; the company's PostScript page description language became the industry standard for the imaging and printing of electronic documents.

Sparking the Desktop Publishing Revolution in the 1980s

Adobe was founded in 1982 by John Warnock and Charles Geschke, both former employees of Xerox Corp.'s Research Center in Palo Alto, California. At Xerox, Warnock conducted interactive graphics research, while Geschke directed computer science and graphics research as the manager of the company's Imaging Sciences Laboratory. In a 1989 interview with the San Jose Business Journal, Warnock recalled that he and Geschke were frustrated at Xerox 'because of the difficulty in getting our products out of the research stage.' Believing in the profitability of an independent venture, they left Xerox to establish their own business, which they named after a creek that ran by their homes in Los Altos, California.

Shortly after it was launched, Adobe introduced PostScript, a powerful computer language that essentially described to a printer or other output device the appearance of an electronic page, including the placement of characters, lines, or images. The introduction of PostScript proved integral to the desktop publishing revolution. With a personal computer and a laser printer equipped with PostScript, users could produce polished, professional-looking documents with high-quality graphics. An article in a 1989 issue of the Los Angeles Times stated that Adobe's PostScript 'made desktop publishing possible by enabling laser printers, typesetting equipment and other such devices to produce pages integrating text and graphics.' Advertising agencies, in particular, soon found the new technology indispensable.

Realizing the wealth of potential uses for the PostScript language, Adobe marketed and licensed PostScript to manufacturers of computers, printers, imagesetters, and film recorders. In 1985, Apple Computer, Inc., maker of the MacIntosh computer, incorporated PostScript for its LaserWriter printer. Shortly thereafter, Apple invested in a 19 percent stake in Adobe, which had reported revenues of $1.7 million the year before. Adobe's rapid growth led to an increase in staff from 27 in 1985 to 54 by 1986.

More than 5,000 PostScript applications were developed and made available for every operating system and hardware configuration. In 1986, Adobe signed an agreement to supply Texas Instruments Inc. with the software for two of its laser printers, producing the first PostScript-equipped printers made for use with IBM-compatible personal computers. In addition, PostScript soon became available for use with minicomputers and mainframes, and it remained the only page description language available for multiple-computer environments, such as corporate office networks. Independent software vendors marketed products that used PostScript to render images and text onto film, slides, and screens, for less money than traditional typesetting methods incurred. Used by corporations, professional publishers, and the U.S. government, PostScript rapidly became one of the most ubiquitous computer languages worldwide.

To supplement the PostScript language system, Adobe introduced a software technology known as Type 1, which provided digital type fonts that could be printed at any resolution. Vendors soon began developing different Type 1 typefaces until there were more than 15,000, including Japanese and Cyrillic character sets. By the end of 1986, Adobe reported sales of $16 million and income of $3.6 million. During this time, the company was taken public and began expanding its customer base to include IBM and Digital Equipment Corp.

The strategy of marketing and licensing technology to original equipment manufacturers (OEMs) such as Apple became the cornerstone of Adobe's success. In 1986 Apple accounted for 80 percent of Adobe's sales, and the other 20 percent was composed of retail sales, an area into which Adobe moved the following year.

In 1987 the company introduced the Adobe Illustrator, a design and illustration software program. Enabling users to create high-quality line drawings, the Illustrator became popular among graphic designers, desktop publishers, and technical illustrators. The company also released the Adobe Type Library, which contained a large selection of type fonts, many of which were original typefaces Adobe had created especially for the electronic medium. The Type Library eventually would become the most widely used collection in the industry.

As graphics became more widely used in business communications, Adobe was poised to offer new technologies. The company's introduction of a new version of the Illustrator, designed for use with Microsoft's Windows program, offered PC users an exciting array of graphics tools and helped pave the way for other PostScript language-based graphics packages. By 1988 many industries and universities had adopted the Illustrator standard. Moreover, the Type Library, with 300 typefaces, had become the world's largest collection of typefaces for personal computers.

Having successfully marketed its technology to both Macintosh and IBM, Adobe tackled a new project--developing the Illustrator and the Type Library for the NeXT computer system. Once this was accomplished, the NeXT computer system became the first to implement a new Adobe technology, Display PostScript. This adaptation of the original PostScript was unique in that it communicated directly with the computer's screen, rather than through the printer. Representing a breakthrough in the long struggle for what computer buffs called 'WYSIWIG' (What You See Is What You Get), Display PostScript ensured users that images on the screen would be replicated exactly on paper through the printer. Display PostScript also allowed users to manipulate graphics on the screen; rotating, scaling, and skewing could all be performed to suit the user's needs. IBM and Digital Equipment Corp. soon followed NeXT's lead, licensing Display PostScript for their desktop systems.

In 1988 more than 25 PostScript printers and typesetters were on the market and 20 computer corporations had signed PostScript licensing agreements with Adobe. The company's revenues for 1988 were an impressive $83.5 million, representing a 112 percent increase over revenues of $39.3 million the year before. Moreover, net income for 1988 increased 137 percent, reaching $21 million. During this time, Apple Computer remained the company's biggest customer, accounting for 33 percent of Adobe's revenues. By the following year, Adobe's staff had increased to 300. As one of the fastest-growing software developers, Adobe sought to maintain its position in the industry and foil any potential competitors. Toward this end, Adobe kept its typeface strategies confidential, while continuing to expand into new areas.

At the 1989 MacWorld Exposition in San Francisco, Adobe introduced two new applications. Adobe Streamline software permitted users to reproduce hardcopy graphics onscreen, converting bit-mapped images into high-quality PostScript artwork. The second product, Collectors Edition II, could be used to set patterns. Adobe eventually adapted these technologies for IBM and IBM-compatible computers that used the Windows program.

Next on Adobe's agenda was international expansion. The company signed an agreement with Canon Inc. of Japan, under which Canon had full licensing rights to Adobe PostScript. The world's leading manufacturer of laser printers, Canon could bring the PostScript technology to international and multinational customers. To enhance its Type Library, Adobe signed agreements that permitted several companies to develop downloadable typefaces based on Adobe's proprietary technology.

Adobe ended the 1980s on a high note; revenues in 1989 were more than $121 million, and net income reached $33.7 million. That year, the company introduced Adobe Type Manager. This program used Adobe's outline fonts to generate scalable characters on screen, giving users greater flexibility and better WYSIWYG. The Type Manager also represented an expansion of the Adobe Type Library to 420 typefaces.

Also during this time, Adobe announced that it had acquired all rights to a software program called PhotoShop, an image editing application. PhotoShop, designed especially for artists and desktop publishers, was slated for market in conjunction with the Apple Macintosh. Designed to work with type, line art, and other images, PhotoShop provided users with a complete toolbox for editing, creating, and manipulating images. Other unique PhotoShop features included color correction, retouching, and color separation capabilities.

Continued Growth in the Early 1990s

By the end of the decade, the incredible boom in the computer business was showing signs of subsiding. In a 1989 Los Angeles Times interview, Adobe's president, John Warnock, suggested that 'if you think you have a formula for success, you'd better figure out how to change it from year to year.' Coming up with fresh formulas to ensure continued success was Adobe's focus as the company entered the 1990s. One of its strategies involved developing software that could operate platform-independent, allowing documents to be worked on and sent over many different computers and networks. In other words, Adobe envisioned a world in which a document could be produced on an IBM PC, for example, and sent directly to a MacIntosh.

On the way to realizing that goal, Adobe continued to set the pace for technological developments in the industry. In 1990 Adobe received what was believed to be the first copyright registration for a typeface program. The ITC Garamond font program was registered with the U.S. Copyright Office, a move that suggested that typeface programs could be considered creative works of authorship.

By this time, the Adobe Type Library had burgeoned from the original 12 type families to 134. The down-loadable typefaces were available for both IBM and Macintosh personal computers. The Type Manager, Adobe's scalable-font technology, was made available for IBM PCs, as well as UNIX, DOS, and OS/2 systems. Adobe launched PostScript Level 2, which enhanced the PostScript language with new features, such as improved forms handling, color support, and pattern manipulation, making PostScript a more practical and convenient language. One important feature of Level 2 was its use of data compression to reduced transmission times and save disk space by reducing the size of PostScript files on disk. Level 2 also boasted new screening and half-toning technology, better memory, and better printer support features, allowing users to specify color choices and receive those colors in their output.

Late in 1990, Adobe acquired BluePoint Technologies, a leading creator of chips for rendering type. Adobe also signed a new agreement with Apple Computer to work jointly on developing new products using Adobe's PostScript software and Apple's printer technology. Moreover, Adobe announced the creation of Adobe Illustrator for the NeXT system, providing NeXT users with the same powerful design and illustration tool used by owners of MacIntosh and IBM PCs.

Adobe's revenues continued to soar. In 1990 the company hit a new record of $168.7 million in revenues, with net income of $40 million. The following year, Adobe announced that it was developing a new type technology, multiple master typefaces, which would allow users to control the weight, width, visual scale, and style of a single typeface to produce endless variations.

Furthering its strategy of providing numerous licensing agreements throughout the early 1990s, Adobe signed contracts with Lotus Development Corp., Eastman Kodak, Tektronix, Inc., and others. In addition to its updated version of PhotoShop, Adobe also was responsible for another breakthrough in printing technology with the development of the Adobe Type 1 Coprocessor. The new device could render text 25 times faster than the fastest existing printers.

The company celebrated another year of record earnings in 1991. Revenues increased 36 percent to $229.7 million, and income shot up 29 percent to $51.6 million. Founders Charles Geschke and John Warnock received the MacUser magazine's John J. Anderson Distinguished Service Award, for 'enduring achievement in the Macintosh industry.'

Adobe's efforts to create a universal standard for viewing complex documents continued in 1992. That year, the company marked its tenth anniversary and branched out into new ventures. With Hayden, a division of Prentice Hall Computer Publishing, Adobe signed an agreement to create Adobe Press, a joint publishing venture for developing books about graphic arts, Adobe computer applications, and advanced technologies.

During this time, competition in the industry intensified, and Adobe sought new ways to maintain its lead in the industry. Adobe Carousel was the company's first foray into electronic transmission of newspapers, magazines, and other print media. Carousel would allow such materials to be displayed on screen complete with pictures, color, and multiple typefaces.

In June 1992, Adobe President and CEO Charles Geschke was kidnapped. Although he eventually was returned safely and began granting interviews two months after the incident, he refused to discuss details of the abduction. In an interview with the San Jose Business Journal, Geschke discussed Adobe's plans for the future. Maintaining that the company was beginning 'a long journey down a digital highway,' Geschke revealed that its primary mission was to make text, pictures, video, and, perhaps, sound computer-readable. Toward that end, Adobe acquired OCR Systems, an optical character recognition company that turned scanned documents into manipulatable text.

With the introduction of Adobe Premiere 3.0 for Macintosh in 1993, Adobe entered the fields of video and multimedia. The software enabled users to perform desktop video editing formerly achieved only with expensive equipment. Adobe Premiere featured nonlinear editing, graphics, and special effects.

In 1993 Adobe realized its goal of enabling incompatible computer systems to communicate. Adobe Acrobat software was designed to turn computers into information distributors that would allow Mac users to view a document in its original form, with formatting and graphics intact, even if the document had been created on an IBM. Analysts hailed Acrobat as a tool that could facilitate electronic distribution of everything from interoffice memos to training manuals to magazines. Adobe's revenues for the year rose to $313.4 million, up from $265.9 million in 1992, and net income was reported at $57 million.

Challenges and Diversification in the Mid to Late 1990s

Adobe solidified its position in the desktop publishing market in 1994 when it acquired Aldus, the maker of the industry-leading PageMaker desktop publishing software. Adobe and Aldus had worked in cooperation previously, and Adobe's font software was used in PageMaker. Also that year Adobe introduced After Effects, a program geared toward multimedia and film production efforts. After Effects provided tools for producing two-dimensional animation, as well as special effects and motion compositing. Adobe reported revenues of $676 million for fiscal 1994, up from $580 million the previous year.

In the mid-1990s Adobe continued to grow through acquisitions and worked to strengthen its position in the volatile software industry. The acquisition of Frame Technology Corporation, the developer of FrameMaker publishing software, proved to be an unfortunate purchase; after integrating Frame into the Adobe family of operations, Frame's sales declined heavily. Industry observers attributed the drop to Adobe's decision to get rid of Frame's technical support division. Also in 1995 Adobe bought Ceneca Communications, which developed tools for creating Web pages. The following year Adobe made additional acquisitions, including Ares Software, for about $15.5 million, and the research and development efforts of Swell Software, for about $6 million. The research project, however, was discontinued soon after the purchase. Also in 1996 Adobe spun off its pre-press division to Luminous Corporation for about $43.6 million and moved its headquarters from Mountain View to downtown San Jose. The following year Adobe divested its investment in Netscape Communications Corporation and separately acquired three software companies, spending a total of about $8.5 million.

On the software front, Adobe released PhotoDeluxe and PageMill in 1996. PhotoDeluxe, the first of its category, allowed consumers to manipulate and edit photographs on their computers. PageMill included tools for easily creating Web pages. In 1997 Adobe released upgrades of PageMaker, Illustrator, and FrameMaker. These releases, coupled with increased demand for Photoshop, PhotoDeluxe, and Acrobat products, led to total revenues of $912 million for fiscal 1997, up from $787 million the previous year. In addition, the company's balance of software revenues shifted from predominantly Macintosh-based software to Windows-based software.

Not everything was rosy at Adobe headquarters, however, and 1998 proved to be the most grueling in the company's history. In 1997 Hewlett-Packard chose to stop licensing PostScript from Adobe when it developed its own clone version of the software. By the following year Adobe was feeling the effects of Hewlett-Packard's decision, and its licensing sales suffered. The decline in Macintosh software sales hurt Adobe as well, and competitors such as Microsoft Corporation took away precious market share. In addition, because of the economic recession in Asia, sales in Japan, one of Adobe's stronger markets, fell about 40 percent. Adobe's stock price fell as well, hitting a low that was less than half of its value. Industry observers noted that Adobe had not kept up with the pace of software introductions. As the Wall Street Journal reported in 1998, 'In fast-moving industries, the quest for perfection can get in the way of cranking out good-enough products.' Adobe's methodical approach to developing software had hindered its growth and success. Adobe also had grown its work force too enthusiastically, anticipating demand that failed to materialize.

In August 1998, Adobe indicated that third-quarter revenues would not meet expectations. For the nine months ended August 28, 1998, sales reached $101 million, down from $179 million for the same period in 1997. The company also announced a major restructuring designed to streamline operations and increase profitability. The firm planned to eliminate about 12 percent of the work force, about 300 people, including several top executives, and to concentrate more heavily on corporations and businesses, which represented a wider and more profitable niche than Adobe's traditional audience of designers and graphic artists. Just as Adobe announced its intentions, it received a hostile takeover bid from competitor Quark Inc., developer of the leading QuarkXPress professional publishing software. Adobe successfully fended off Quark's attempt and embarked on its restructuring journey. Despite the company's trials, CEO Warnock, for the most part, shrugged off Adobe's financial problems. 'I don't think Adobe's struggling,' Warnock told Computer Reseller News. 'We're not a company that's in a turnaround situation. What we are is a company that was letting expenses get out of line.'

The year 1999 proved to be busy for Adobe. Adobe sold off two noncore operations as part of its reorganization tactic--Adobe Enterprise Publishing Services, Inc., which offered services related to Adobe Acrobat products, and Image Club Graphics, which produced and marketed graphics products and typefaces. In addition, because Adobe wished to enhance its reputation as a provider of tools for Internet and Web applications, the company acquired GoLive Systems, which developed Web design software. Thanks in part to marketing efforts, an increasing number of consumers began to use existing Adobe products Photoshop and Illustrator to design Web pages. Adobe Acrobat, which had failed to catch on in the mid-1990s, was quickly becoming a ubiquitous presence on the Web in the late 1990s.

Adobe released a number of products in 1999, including a new version of Photoshop, GoLive, PressReady, ActiveShare, and InDesign. InDesign was Adobe's first offering in the high-end professional publishing segment, a segment dominated by Quark products. Called by many 'Quark Killer,' InDesign quickly created the largest backlog ever experienced by Adobe for a new product. In September 1999 Adobe reported record revenues of $260.9 million for the third quarter. Profit reached $72 million, up greatly compared with a loss of $6.1 million for the third quarter of 1998. Adobe's stock price more than tripled during the year. Bear, Stearns & Co. analyst Robert Fagin told the Wall Street Journal, 'It's staggering. ... In the space of one year, the company has been able to put together a true turnaround.'

For the fiscal year ended December 3, 1999, Adobe reported revenues of more than $1 billion, the first time in the company's history that sales exceeded $1 billion. In January 2000 Adobe was named one of the 100 best companies to work for in America by Fortune. The company had successfully carried out its restructuring efforts and appeared ready to tackle new challenges. As Adobe approached a new era, it planned to increase profitability and continue developing cutting-edge technological solutions for publishers, graphic and Web designers, and businesses. President and co-founder Charles Geschke, who announced plans to retire effective March 2000, stated in a prepared statement, 'Adobe enters the new millennium in its strongest position ever--in terms of the strength of its management team, its leadership market position, and the quality of its products.'

Principal Subsidiaries: Adobe Systems Pty. Ltd. (Australia); Adobe Systems Europe Limited (United Kingdom); Adobe Systems Co., Ltd. (Japan).

Principal Competitors: Quark Inc.; Corel Corporation; Microsoft Corporation.

Further Reading:

• Chang, Greg, 'Adobe Earnings Top Estimates Again; Cost-Cutting and Strong Web Demand Credited,' Seattle Post-Intelligencer, December 18, 1999, p. B4.
• Clark, Don, 'Adobe Systems Beat Estimates for 3rd Quarter,' Wall Street Journal, September 17, 1999, p. B11.
• Collins, LaVon, 'Adobe and IBM Sign Joint Marketing Agreement,' Business Wire, November 16, 1988.
• Darrow, Barbara, 'Adobe Comes Out Swinging--What a Difference a Year Makes,' Computer Reseller News, September 27, 1999, p. 190.
• Downing, David, 'Adobe Sets New Direction in Digital Type,' Business Wire, March 5, 1991.
• Goldman, James S., 'Will Steve Jobs Buy Apple's Former Stake in Adobe Systems?,' Business Journal--San Jose, July 10, 1989, p. 1.
• Groves, Martha, 'Adobe: Redesigning the Future,' Los Angeles Times, April 30, 1989, p. 9.
• Hansen, Brenda, 'Adobe Announces Adobe Illustrator for the IBM Personal Computer,' Business Wire, September 14, 1988.
• Leone, Genevieve, 'High-Flying Adobe Succeeds in Holding Off Clone Products,' Business Journal--San Jose, January 23, 1989, p. 4.
• Pender, Lee, 'John Warnock: Adobe--The Developer Must Meet the New Challenges of Today's Publishing World,' Computer Reseller News, November 9, 1998, p. 133.
• Privett, Cyndi, 'Adobe Supplies Software for New Laser Printers,' Business Journal--San Jose, May 26, 1986, p. 15.
• Prosser, Linda, 'Adobe Previews PostScript Level 2,' Business Wire, June 4, 1990.
• Rensbarger, Fran, 'Have Desk, Will Publish,' Washington Business Journal, March 9, 1987, p. 9.
• Rodriguez, Karen, 'Adobe Plots Rebound Around Business, Corporate Market,' Business Journal, September 28, 1998, p. 6.
• Thurm, Scott, 'Quark Tries To Catch a Fallen High-Tech Star,' Wall Street Journal, August 27, 1998, p. B1.
• Weber, Jonathan, 'Adobe Software Could Start New Era in Computer Communication,' Los Angeles Times, June 15, 1993, p. 1.
• Weisman, Jonathan, 'Adobe's Hopes Riding on Carousel,' Business Journal--San Jose, August 24, 1992, p. 1.
• Young, Margaret, 'Adobe Expands Retail Role with Two Distribution Pacts,' Business Journal--San Jose, October 19, 1987, p. 11.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.

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