Adobe to buy Macromedia for $3.4 billion

Adobe Monday said it has reached a definitive agreement to acquire Macromedia for $3.4 billion in stock.

The deal would combine the companies' document management, Web publishing and online video delivery tools, putting Adobe squarely in the path of rival Microsoft, analysts said.

Between the two of them, Adobe, in San Jose, and Macromedia, in San Francisco, have some of the most widely-distributed software in the world. Adobe's PDF and Acrobat Reader software is common on most desktops, and Macromedia's Flash products are widely used to create and view animation, video and other content.

"I see this as both companies bulking up against Microsoft," said Steven Brazier, an analyst at Canalys. The first step will be both vendors supporting each other's formats, and Adobe will likely start integrating Flash into its products, Brazier said.

Adobe has traditionally been strong in the offline graphical design business, such as desktop publishing, while Macromedia has a presence in GUIs for the desktop with its Dreamweaver and Flash products. The merging of these two businesses would give Adobe new capabilities for delivering rich media tools, analysts said.

Adobe also stands to benefit from Macromedia's base of ColdFusion Wed developers, allowing it to integrate and automate new offerings, according to RedMonk analyst James Governor.

Governor predicted that dynamic forms that allow users to create, change and share information online will be one of the first products of the marriage. Graphics automation is also in the cards. Both of these capabilities would fly in the face of Microsoft's plans, according to Governor.

"Adobe's ambition in this acquisition looks like a bit of a Longhorn killer to me," Governor said.

Microsoft has been working on dynamic form technologies and a graphics system called Avalon as part of its upcoming operating system, Longhorn. By moving into these areas, Adobe may be trying to cut the software giant off at the pass, both analysts said.

"There is no doubt that this is a significant competitive threat to Microsoft and one of Adobe's goals is to predict future battles," Brazier said.

The combined company would be able to create a variety of rich media and Internet applications that use Flash, bumping into areas that Microsoft has shown interest in, said Ovum analyst Bola Rotibi.

"When you think of where Microsoft is headed with the future of its Media Player and Media Center PCs, this goes head-to-head," Rotibi said.

The difference, however, is that the Microsoft offerings are locked into one platform, whereas Adobe will be trying to get its products on multiple platforms, she added. The company is looking to deliver content and applications not just to desktops, but to cell phones and other devices.

But while Adobe and Macromedia have a lot of strengths and products between them, the question now is what the big strategy is, according to Rotibi.

"Integration of products is one thing, but creating a new lineup is something else," she said.

The IDG News Service is a Network World affiliate.