What do CEOs do when core product growth slows? 2/28 ReleVents hed: Bean-counting CEOs dek: What do CEOs do when core product growth slows?
I got an e-mail today from Joe Farace, our Thursday SOHO columnist, about a report in The Weekly Standard that details Adobe’s plans under new CEO Bruce Chizen. The plans call for Adobe to aggressively enter the wireless and networking spaces as a way to offset sagging revenues in graphic software. Joe’s concern is that entering these new markets will inevitably lead Adobe to dump Photoshop and Illustrator.
He thinks it’s inevitable. If the new wireless initiatives produce the kind of aggressive growth Chizen expects (25 percent per quarter), the slower-growing graphics programs will be seen as only slowing the company down. If the new wireless initiatives do not produce Chizen’s target growth numbers, the company will be forced to go into cost-cutting mode, and will sell off the graphics programs to pay for the wireless initiatives. Either way, he says, Photoshop’s and Illustrator’s days at Adobe are numbered.
It’s interesting to see what happens to companies when the products upon which the founders built their fortunes saturate markets and no longer give the company enough growth to satisfy investors. Even though the companies are profitable with those products, investors don’t care about profits. They care about growth. Typically, the companies diversify into new, faster growth markets.
While there are examples of this type of CEOmanship strewn throughout techdom, there are also examples of the reverse. Recent examples include 3Com, Intel, AT&T, and Xerox. 3Com went big into consumer broadband markets before broadband service matured. Consumer broadband will never come close to the lucrative business clients 3Com built its fortunes on. Layoffs are becoming an epidemic over there. Intel bought a lot of trendy companies in a variety of markets. When the trends turned out less favorably than analysts projected, the stock tanked. Layoffs won’t be far behind. Xerox is a mess. I don’t even know if it will be around by year’s end. And AT&T is desperately trying to dump its number one revenue generator (consumer long distance), despite the investors’ pleading with its CEO to keep things together.
These are all examples of failed attempts to diversify. But what if Adobe succeeds? Then it could hang on to Photoshop and Illustrator and support its huge client base and profits, as IBM did with its S/390, RS/6000 and AS/400 systems. What IBM did was to take these slow-growth products and modernize them into the new inclusive view under Gertzner. But it did not dump them; quite the contrary: As the only mainframe manufacturer out there, it has a nice stable S/390 business to add to its fast-growing Internet-related businesses. And the modernized RS/6000 and AS/400 lines are growing as fast as they ever have.
This is the course I hope Adobe takes. Recognizing that these applications are its bread and butter, how will it continue to pour innovation into them to suit the market’s needs?
James Mathewson is editorial director of ComputerUser magazine and ComputerUser.com.