Adobe’s CEO Underestimating Microsoft’s Ability To Compete With Flash

Comments from a meeting last week with journalists at Adobe’s headquarters indicate that Adobe’s CEO, Shantanu Narayen, thinks Adobe has already won the online video platform battle and that Flash can survive any threat from Microsoft. That’s a dangerous assumption to make and underestimating Microsoft’s ability to challenge any company, in the long run, is never a good idea.

In the article, which appears on the website, Adobe’s CEO is quoted as talking about how much adoption Flash has and the penetration rate of the Flash plugin on computers around the world. While I would agree that the penetration rate is high, keep in mind that Flash has almost no penetration in areas like the enterprise vertical, or mobile, markets that Microsoft still dominates. It also has literally no penetration when it comes to downloaded video to the desktop, which is dominated by Windows Media and QuickTime. And for all the talk of the Adobe Media Player (AMP), which allows you to play back downloadable video, when was the last time you saw any website offering Flash video as a download with the Adobe Media Player? While Adobe is clearly trying to push into the enterprise market and offer a platform for downloadable video, Flash has gotten almost no penetration in those markets.

And when it comes to live video, while Adobe has now made live Flash streaming stable in version 3.+ of the Flash Media Server, any CDN will tell you it does not scale as well as Windows Media and has a higher total cost of deployment than Windows Media. It does not support multicasting, that I am aware of, and the DRM capability of Flash has been very late to the game and expensive to deploy. The fact we see Netflix and others offering streaming movies for Mac users is primarily due to the DRM capabilities of Silverlight. Not to mention, in most cases, Flash video streaming is still more expensive for content owners to deliver, especially for those with a lot of traffic.

In the guardian article, Adobe’s CEO was also quoted as saying, “The BBC moved over, the NFL [National Football League] went live with us using NBC. Microsoft and NBC have had a long standing relationship, but they picked us.” The problem with that quote is that it’s factually wrong. Yes, Microsoft and the NBC have a long standing relationship, yet they did not decide to use Flash for the NFL streaming. The NFL decided and is quoted on the record in various locations as saying they are the ones who made the decision to use Flash, not NBC. And from what various sources tell me, Adobe is helping to foot the bill to stream the NFL games. So is it really fair for Adobe’s CEO to be calling out Microsoft for “opening its chequebook” in an attempt to muscle its way into the web video market when Adobe may also be helping content owners foot the bill? The fact no one from Adobe will comment or give any details, on the record about the NFL deal, speaks volumes.

No one is debating whether or not the Flash platform has tremendous penetration in certain segments of the market, it clearly does. But to go on record and say that you think Microsoft has no shot at ever competing with the Flash platform and stating that you feel you can withstand any push from Microsoft, that’s a dangerous message to convey. Especially when, from what I have seen, the Flash team operates with the intelligence knowing that they always need to improve upon their product. I deal with a lot of people on the Flash team and at no time, that I can remember, do they ever talk about having Microsoft “beat” or talking down their competition. They know they have a good product that they are constantly working to improve on and aren’t happy to sit around the rest because of the market penetration they already have. But when the CEO of Adobe comes out and says they have already won the online video platform battle, what message is that conveying to the rest of the company? Should the Flash team now stop working as hard to make Flash even better? It’s a very dangerous tone to set.

We all remember what happened when Real’s format ruled the online video industry and then Microsoft entered the market and took nearly all of Real’s market share in a few short years. I’m not predicting the same thing will happen in this case to Flash, but Microsoft is going to take share from Adobe, with Silverlight, over time. Might not be next year or the year after, but Microsoft isn’t playing for a short-term win. They are in this for the future and can build their platform over time, waiting until online video truly becomes a business, when content owners start making money. Enabling others to make money from online video has been Microsoft’s goal from day one and one of the driving forces behind their DRM functionality in the Windows Media platform since 1999. Adobe only just started addressing DRM functionality this year. Adobe has also been very late to the HD game, something else Microsoft has been focusing on for years.

In the guardian article, Adobe’s CEO is also quoted as saying, “If you look at the number of partners who are signing up [to use Flash] despite the fact that Redmond opens its chequebook and tries to get companies to move to Silverlight, we’re winning.” If Adobe thinks Microsoft has “opened its checkbook” and is not seeing results, think again. While many people think Microsoft throws money at everyone, they have not, as of yet. To date, Microsoft has offered up very little money to content owners, Olympics aside, and has not implemented some of the programs, like “netcredits”, that Microsoft did back when it battled RealNetworks. If Microsoft were to put serious money behind Silverlight and really spend the marketing dollars it did when it took the market from Real, Adobe would be in for a serious fight. Don’t underestimate Microsoft’s ability to do that again, sometime soon.