Over the past few months, Adobe has been starting to see more competition in the market thanks to Microsoft’s Silverlight platform and products like the Wowza Media Server. While they are not in jeopardy of losing the tight grip they have on the market with Flash video anytime soon, it does mean that they have to work harder than they had to last year, when they didn’t have as many threats. With their recent H.264 announcement and the work being done on the new Adobe Media Player, they are not sitting idle by any means.
But put that aside and Adobe still has a major problem when it comes to the cost of licensing the Flash Media Server. While Adobe points out the functionality the Flash Media Server provides and what they feel that is worth for content owners, many still find it too expensive and it stops them from adopting the platform. Every single week I hear from customers who want to use Flash video, but have not done so once they find out how expensive it is. With prices for licensing starting at $45,000 for any website that wants to host its own content and reach more than 1,000 simultaneous users, it’s not cheap. And for those who instead use a content delivery network to distribute their content, customers typically have to pay the CDN 2x what it costs to stream content in the Windows Media format, since CDNs have to charge customers a Flash platform license fee.
CDNs are required to have to share revenue with Adobe based on Flash streaming delivery over their network. It’s a very similar deal that RealNetworks use to have in place with the CDNs many years ago, and one that didn’t work out well for RealNetworks in the long run. How is a CDN suppose to know what it’s fixed cost of doing business is each month when each quarter the revenue share number changes? And why is the license fee so high? Would customers mind paying a small premium if they see the value? Not at all. But when it is 2x the cost of other platforms, that’s not a small premium, especially since the fee is based on the volume of transfer a customer does. As the customer grows and does more delivery, overall the license fee they pay goes up each month because of the growth. In the long run, it’s a bad licensing model for Adobe, the CDNs and content owners.
CDNs would much rather pay a one time cost for the license and then pay 10% of that cost each year for upgrades and support. Now Adobe probably feels it’s better for them from a business model to share in revenue and make more money that way, but as I hear from customers all the time, that business model of Adobe’s is stopping a lot of customers from adopting Flash. And while the Flash Media Server has it’s strengths, like all platforms, it also has it’s weaknesses, especially in the areas of live, digital rights management and scalability, when compared to other solutions in the industry.
When it comes to the buying trends in the market, we know that many customers buy on more than price alone. But price is always a factor in their decision. It’s my belief that before too long, Adobe is going to have no choice but to reduce the license cost for the Flash Media Server. While there has been a lot of talk in the industry about Adobe’s strength in the market, pricing is one factor that can easily affect any company very quickly. And as Silverlight continues to provide more functionality in its platform, over time customers will have more options in the market and Adobe won’t be the only game in town. Adobe is smart and knows this and it is my belief that they want to make the pricing issue less of a problem over time so that customers don’t have any strong reasons not to use Flash streaming. Before too long, I think Adobe will reduce pricing of the Flash Media Server and head this off at the pass before it becomes an issue that starts to really have an impact of their market share.
Note: I asked Adobe if they wanted to discuss their current or future licensing plans for the Flash Media Server but they declined comment.
