Adobe CEO: We Dropped Creative Cloud Prices Because Boxed Software Is The Past

At the opening of Adobe's new Sydney office today, Adobe's global CEO Shantanu Narayen bravely fronted the media to talk about the business. The only question anyone really wanted answered was the justification for charging exorbitant prices for digitally distributed software in Australia. So how was the answer from the head of Adobe? Pretty much the disaster we all thought it would be.

I'm a big fan of Shantanu Narayen's bravery in showing up to talk to the media amidst the storm of the Australia Tax inquiry, but his answer is a classic lesson in PR spin.

When the gaggle asked him to justify his prices, he responded (emphasis is our own):

When we look at what happens with Creative Cloud the goal, is rapid adoption and we've seen that. We grew units over 10 per cent and the barrier to entry to allow next generation of creative professionals to the platform is a key part of our strategy, it's one of an ongoing and continuous ways to get people to the platform. We've used Australia in the first region in which we've done detailed pricing studies.
The Creative Cloud is really the future of the creative process. The benefits of the Creative Cloud and having that access to innovation and the ability to get new products in imaging and video [suites to customers faster]. The future of the creative [customer] is the Creative Cloud. It's all about Creative Cloud in future. The pricing moves [with Creative Cloud] are where we set the future of the company.

Now if you took a drink every time the head of the company said the words "Creative Cloud" you're probably dead by now, but let me break down what that really means (if anything.

Adobe doesn't want to drop the prices of its Australian boxed software because it's achieving quite a healthy profit from them. On top of that, Adobe wants to get people onto Creative Cloud in future rather than actually offering boxed copies or digitally distributed copies of its software.

I'm dizzy from the spin I just saw.


Comments

    That all seems perfectly reasonable to me, or did you miss the bit where he said that Australia was the first region in which they had conducted a detailed pricing study? (You can't have, you wrote it into your article.) Unless that is a lie, it certainly explains the price adjustment.

      It's not reasonable at all. It's an answer to a legitimate question and it's a garbage answer at that. As mentioned in a previous article, it's cheaper to fly to the USA and purchase a copy. Even cheaper if you purchase more than one copy.

        It is not a legitimate question, in that it isn't anyobdy's business. Adobe don't have to explain themselves at all, much as you and I don't have to justify our wages in the face of the average US wage being just $26,000. That's what really gets up my nose - unless it is three times the price, we can still afford it more easily.

        I'll take the comfort of a strong economy over what's happening in the US every time but you guys are so completely self-centred you think you can cherry-pick all the best bits of good and bad economies around the world to make your lives what you want them to be. It doesn't work like that. If you really want to pay US prices, why don't you go and live there? (That's a legitimate question.)

          So you're happy to pay more, for no other reason than because Adobe feels they can get away with it. Got it. Don't expect us to play along though.

          Cherry-picking? It's called global trade. Some goods can be produced cheaply in some places, and we ship them around to take advantage of that. It's made the world wealthy. All I object to is when companies restrict that, by exclusive distributor contracts and blocking parallel imports. Digital products are especially guilty here.

            "So you're happy to pay more, for no other reason than because Adobe feels they can get away with it." No, which is why I am still using CS4 and trialling CS6 on the cloud for free. But you know what, even if Adobe dropped their prices to match the US I would still think they were over-priced for what they have to offer. I only use them because I have to for work, the rest of the time I use much better products, some of which were much cheaper, others considerably more expensive.

            But every time I buy anything I am acquiescing to the same dilemma. Do I pay $45 for a Belkin HDMI cable or go to the variety store down the road and get a dodgy Chinese one for $5? Either way someone has made a decision to charge as much as they think they can get away with and I have no idea what a fair price should be. At least with Adobe products I can earn $600 a day and claim whatever exhorbitant fee they feel like charging on tax.

            The bottom line is that I find it much easier to get my head around why we pay more for everything here than how anyone sees any value in an iPhone or iPad (or a Lumia 920 for that matter). i.e. The "Australia Tax" makes a lot more sense to me than a lot of other things most of you seem to take for granted.

            As for global trade, what's stopping you from buying overseas? We all do it all the time. I got my CS4 off eBay for bugger-all compared to what it costs in the US or anywhere else. And yes, it is completely legit' and registered with Adobe Australia.

              In Adobe and Microsoft's case, it's relatively easy for an individual to purchase direct from the US (try setting up a rival distributorship though). eBay is often a good option too, for those that are willing.

              In many other cases, it's not so easy. Don't like iTune's 70% markup? Good luck trying to buy from iTunes US. Same with Steam (though in both cases it's the publishers' decisions, not Apple/Valve). Amazon is frequently prevented from shipping many of its products to you. Professional software in particular is frequently restricted from export, purely in order to raise the prices in some regions. The music industry blocked all parallel imports of CDs for the same reason, until the Copyright Amendment Act (1998) put a stop to it (after the ACCC complained that it violated the Trade Practices Act). Yet this same situation persists in so many other areas. We should be rooting it out as the illegal practice it is, rather than excusing it.

          as much as I regret this next sentence, I must..

          I agree 100% motormouth..

          oh gawd, I feel so dirty, but he's right, Aussies want their cake and they want to eat it all too.. life isn't like that kiddies

            While that's certainly true in some cases, it's certainly not true in all.

            Would you be just as happy if a given supermarket charged you twice as much as the next guy, just because your address is in a more affluent suburb? How is this different?

              @Namarrgon... to answer your completely irrelevant questions, yes, but what we are talking about is having the stores in different COUNTRIES, not in adjacent suburbs in the same city.

              We have a population base that 90X smaller than the yanks, our wages are twice as high, and private companies are in the market to make a PROFIT, the last time I looked that was acheeved by getting suckers to buy goods at inflated prices, Adobe/Apple are not alone. It happens in all areas of retail and service.

                Yes, I understand their motivation in doing this ("PROFIT"), I just don't understand why you seem to feel we "suckers" should roll over and let them. I understand retail in AU has higher costs (wages etc), and I'm fine with higher prices where it's warranted. What I'm not fine with is unwarranted rip-offs, especially combined with restriction of competition, and I'm curious as to why you are defending this.

                Most other companies charge only a little more for AU cost of business. Even Apple only charge 10-15% more for their hardware, despite their expensive retail stores. Yet some companies are not only demanding we pay 70% more just so they can get rich off us, but are also actively preventing us from choosing a more competitive outlet. And for some reason, software and media publishers (who have low to zero distribution costs) are particularly guilty here.

                  Actually, once you take GST and duties out of the picture, Apples markup is around 3-5%, unlike Adobe, whose costs can be 50%-100% greater for some of their software programs. Bit rich for something you can download at no cost to Adobe, but they want you to subscribe to continue using what you've already paid for. And they wonder why people pirate software.

                  Last edited 14/02/13 10:16 pm

              @ Namarrgon - I live on the North Shore, that is the reality I face every time I walk into a local store. It is also the perfect illustration of the issue. If the lease on my local Woolworths in Neutral Bay is 30% higher than for the Wooloworths in Campbelltown, for example, is it fair for me to pay more for my groceries to cover the higher cost of rent or should shoppers in Campbelltown be subsidising my choice to live somehwere nice by spreading that extra cost over the whole Woolworths network (or whatever you call a bunch of shops)?

                Of course I understand higher costs in some stores, but my example was referring to a single store discriminating based on where the customer lived. And even 30% extra costs would not justify a 70% mark-up.

                Perhaps a clearer example: Would you be OK with an online shopping site charging you 70% extra based on your Neutral Bay address, even though you know delivery costs are only 5% more than to Campbelltown?

          Companies price their products at the maximum amount they think their customers are willing to pay. It has nothing to do with their cost price (ie, they price they need to break even). All it shows is that Australians are willing to pay more, so they charge more. Most companies know this already and in general, Australians have been paying more for a very very long time. US people are not willing to pay as much (whether it is a lower average wage or any other number of reasons), so companies in the US set the price low there. This is nothing new. The annoying thing about the Internet is that it lets us see the price US people are paying (something that was invisible to us before) and seeing this frustrates us. I don't think it is illegal at all, I just think it is annoying and makes us a little jealous.

            It's simply a holdover from when costs actually were higher (due to the exchange rate doubling). Prices went up (for importing too), and we got used to it. Then costs went down again, but some companies kept their prices high, soaking us for the difference, because many people didn't realise there was any other choice. It's not illegal - so long as they don't try to prevent us from choosing a more competitive outlet.

            But there's absolutely no reason why we *should* pay more, just to fatten their bonuses and dividends, and frankly I'm surprised that people feel so willing to donate so much extra to these multinationals. Is this Stockholm Syndrome? Do people have nothing better to spend their money on, or better causes to donate it to?

          Holy frikkin cow! You're right, Adobe don't have to explain themselves inasmuch as I don't have to explain myself to you. However MotorMouth (how appropriate), if Adobe wish to retain loyal paying customers, they do need to explain themselves. Plain. And. Simple.

      What I'm not seeing is any reasoning at all for local overpricing of their boxed software.

      Should we care if they've done a "detailed pricing study", if the results are the same rip-off we've always had? How much credit do you think they should get for bringing one of their many products into line with the US, while unashamedly gouging us 67% for all the others?

        How about a market 1/12th the size, spread out over a similarly sized geographical area? Distributors have significantly higher costs, yet have to make their money off a fraction of the sales. The only way that works is if the prices are higher. Let's say the distributor gets a third of the retail price but his costs are double (they are probably a lot more than double). To be as profitable as the US distributor, his 30% needs to be 24 times the size. i.e. 2400% higher. That's justification for an 800% mark-up, right there, but the actual mark-up is much less than that.

          Hah, do you really believe what you just said? What on earth makes you think a distributor has double the costs if he's serving 1/12th the market size?? Surely you don't believe all overheads are fixed, regardless of sales. Even the Adobe rep didn't try anything that ridiculous.

          If a distributor+retailer can't import in bulk, at wholesale prices, and still get it to me for close than what it'd cost for me to import one-off at retail (allowing for 10% tax), then they're not adding any value and have no place in the market. They'd have gone out of business years ago, except that Adobe restricts trade to protect them.

            Simple. The average wage in Australia is around $65,000, the average wage in the US is around $26,000. Assuming any large business will have a good spread of wages, it is likely the Australian business is paying around 2.5 times as much in wages per head. Property prices are even more disparate, a local business is likely to be paying between 3 and 5 times as much. The area served is also roughly the same size so you are likely to serve a similar number of retail outlets and your delivery vehicles will be travelling just as many km. You'll save here and there because of the smaller market - fewer support staff, etc. - but I can easily see how it would still cost double to run the business here.

              I would assume that 1/12 the sales would mean almost 1/12 the staff needed (1/6th the wages) and 1/12th the warehousing and office space (1/4 the rent), which would mean costs are much closer to 1/5 than double. Of course you get 1/12th the sales too, so you need so higher margins to cover it, maybe even 25% profit margin instead of the US-typical 5-7% (based on wholesale cost of course). Still not even close to the 70% on top of retail that we're seeing.

              But even assuming your figures are all correct, my original point stands. If it truly costs 70% more to import wholesale and distribute in bulk than it does to import each single package separately, despite all economies of scale, then that's a horribly inefficient way to buy. Why on earth would we waste our money supporting all that dead weight? Oh right, because in many cases we still don't have a choice.

                "I would assume that 1/12 the sales would mean almost 1/12 the staff needed" It doesn't work like that. There are many jobs where one person can handle 5 customers a day or 500. A warehouse that serves 1000 retailers can be run just as effectively with the same staff required to run a warehouse for just 50 or 60. You would also still require specialist sales and support staff for different industry segments amongst your customers. Someone who can sell to broadcasters will likely hav eno idea what a printer's priorities are.

                The reason we would "waste our money supporting all that dead weight" is so that we can call a 1300 number during our normal business hours to get product support or so that we can get someone to come out to our facility and help us get over some problems we are having with a new CS6 deployment or maybe just to show us how to use some of the new features. It's something that is worth a lot of money to a company like Adobe because it is very valuable to their biggest customers. It paid my wages at Autodesk for more than 5 years and during that entire time we only ever sold 8 licenses for the product I was looking after (now they give it away and still nobody uses it).

                  I've worked for a distributor myself, and also for a publisher who sold to distributors. What you say can be true, but only to a limited extent. Some customers do require premium support (usually for big-ticket professional software), but most jobs - sales, logistics and including support - still scale per unit sold. Amazon employs many thousands, but smaller operators frequently manage all their needs with a bare handful of staff, and I've dealt with one-man distributors who sell only a few dozen products a year.

                  I agree local support has its benefits, and for some products and/or customers, it's worth a significant premium. But all too often, that 1300 number diverts to the US or India anyway. And for a huge number of products (iTunes and Steam again, for example), there are NO local costs whatsoever, and no virtually demand for local support - yet there's still massive local mark-ups. Consumers should at least allowed the choice - a clear and viable choice, not just dodgy ebay vendors.

                  Of course there are local costs for iTunes, as the price is determined by the local copyright holders, not by the American parent company, so all of the local cost pressures have to be taken into account. That is why we pay more for Kindle books and more for digital music.

        Even less so for the downloadable purchase. Just keep going with this, Adobe. Nobody plans on paying your overinflated prices when they can easily use the US online store.

        (and before all the haters or skeptics show up again - no, it's not difficult or illegal.)

          Exactly, Greg. No-one puts a gun to your head and forces you to pay local prices, there are plenty of alternatives, which is why the whole issue is nonsense.

            Assuming you know that you can often buy Adobe products direct from the US. If everyone knew this and imported, the local distributor would be out of business. Many people still don't, so I would hardly describe the issue as nonsense.

            We need to spread the word about the "Australia Tax", make sure everybody knows of the massive potential savings (where available). Once most people import direct, the local distributor will go out of business - or (hopefully) they will simply drop their prices to a more reasonable mark-up.

              Many customers see the valule in buying locally. The vast majority of Adobe's customers would be businesses, not individuals, who see great value in their vendors having a local, full-service branch office with support staff manning the phones during business hours and specialists in all the major product lines. And when you have local sales managers on the ground you are always going to sell more, regardless of price.

              We sit around using our $1000 laptops or desktops and think that 5 grand is a lot to pay for software but at work we probably have more than 50 Mac and PC workstations that cost 10 grand or more, so spending 5 grand on software for them is nothing but the cost of doing business.

                Not sure why you bring up relative hardware/software costs, and I agree local support can be important, but you'll have to provide evidence to suggest that local sales and support adds a whopping 70% to the retail cost, in any industry. My own experience suggests that some customers will willingly pay a premium (but not 70%!) for free local support of professional software, but many others prefer to get the lowest upfront cost, with the option of paid support if required. Choice is key here.

    You know what also improves the barrier to entry.. Reasonable prices for boxed products. Not only that, but people get to just buy what they need and not pay for EVERYTHING on an ongoing basis.

    Also, just imagine if Office cost $4000 outright or $50 a month. Just think of what will happen to the people who just want to use Word. Imagine how quickly .doc formats will be replaced as standards.

    A thing of the past maybe. But look at it from some customer's perspective.
    So we buy a subscription to Creative Cloud (takes drink) and pay up for 2 years.
    This comes to about $1200 . Cheap, mweh ok for sure, but that is it. Upgrades as long as you are subscribed? fine. What happens to us power users who need EVERYTHING and FAST at their busy graphics job. Do they rely on creative cloud (glug) to keep comfort? Backups to it maybe.

    I have not yet used Creative Cloud (slurp) because I have a nice healthy version of CS5.5 master collection right now which works perfectly (not bought in Aussie btw just so you know).
    Some people would say I'd be limiting myself. Well I call bullsh*t on that. If you know how to use the software you wont have any problems. You will never be outdated.

    $1200 for 2 years. You only get to use about 4 or 5 apps including phoroshop for that amount supposed to the full versions which have everything. Or the Master Collection which has everything and then some. I am still happily using CS4 at home and 5.5 at work. All full versions and all customized to my own needs so I can work in a fast paced environment. Something tells me Creative Cloud (drinks) will not do this for me. Great for ppl who want to only use the software provided. (I still find that not worth it)

    Also, in 2 years time, it's time to upgrade again because of Master Collection Cs85 or whatever . Granted, creative cloud (shots) upgrades you. But you would still be limited. We would so appreciate if this could all be included in Adobes new platform, or at least make the price of the boxed stuff go down to an acceptable level. $200 More in Aussie? No Problemo. If it means I can buy from here and get it shipped to my doorstep the next day. Awesome.

    But nearly DOUBLE of the US price? Are u guys insane?
    I am also very drunk right now.

    CREATIVE CLOUD!! (Beer)

      I'm not sure what you refer to as being the limitations Creative Cloud have over the boxed versions (the full versions you refer to) of the software.

      Creative Cloud is not a cloud-based solution for using these tools with your web browser, it's an alternative payment method for the Master Collection, rolled with some online storage for projects and integration with other Creative Cloud users. So when you pay your Adobe tax each month, you get full and unfettered access to every Adobe app (even Lightroom now), with or without an internet connection. It has an app installer tool, where you choose which app(s) you want, and install them to your computer. The licence terms are the same as the boxed version, so you can have it on two computers, but only use it on one at a time.

      I would assume the business model comes from the fact that the monthly cost is low enough that more people than ever can pay it (and keep paying it), and that it means the vast majority of their customers would be on the latest version at all times, reducing the costs of supporting the previous versions.

      So again, the benefit for a designer is that they have access to every tool, all the time, and always up to date. They just can't stop paying the monthly bill or it all gets switched off.

        Creative cloud is really a misnomer - another fancy name for software rental. This business model works for some users but obviously isn't for everyone. Once you are locked in you can't easily exit unless you don't need the software anymore or you buy a boxed version. And rental can be another means of managing cash flow for the user without a huge upfront cost.

        However not everyone needs to upgrade with every new shiny release (look at how many companies still use XP). There are hidden upgrade costs (example : learning curve leading to short term productivity reductions for example) on top of the real dollars.

          But with something like Creative Cloud they can drip-feed you new features, thus reducng the learning curve substantially. It's the lock-in that puts me off so I will probably jsut keep it around for the occasional month-by-month rental when I need it.

      You are completely incorrect here. You do not need to be connected to the internet to use the products. They are installed on your local machine and run as fast as any previous version of CS. It may require you to connect from time to time, I've only had mine installed for a few days, but so far it has worked perfectly with my modem off. You also have access to every Adobe product, 30-odd in all, not the "4 or 5" you mentioned. So far I have noticed no difference in working in CS6 Cloud or CS4, except that CS6 is one of the best Adobe upgrades I can remember, probably since we got editable text and layer styles (or what has become Layer Styles) in Photoshop 5.0 or since they started to combat Combustion with After Effects 6.0/6.5.

      That said, when my 30 day trial is over, I can't see myself buying into it, except maybe on a casual basis when a client needs me to work in CS6. As you say, CS4 works perfectly well and Xara and Combustion work even better. But I will be putting the weights on my boss to get CS6 at work ASAP.

    Its obvious that Adobe are running out of fresh ideas, and have resorted to placing a type of levy on their software just to remain relevant. Flash is dying and PS alternatives are popping up everywhere, god even google have joined the party. It's innovate or die for Adobe, and its clear from this, they're grabbing as much out of their users before they cease to be. And don't think it won't happen, look at what happened to Kodak when they failed to change to meet the times. Outside of PS, I won't miss Adobe when they're gone.

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