Microsoft‘s (NASDAQ: MSFT) rumored interest in acquiring Adobe (NASDAQ: ADBE) makes sense more than it ever has before. It made sense five years ago, of course – as high-speed Internet access became commonplace and Adobe Flash made video easy to implement and use. It was only natural for MSFT to want a piece of that market – only they opted to create their own program instead.
But if you can’t beat them, as Microsoft demonstrated it couldn’t with Flash competitor Silverlight, then buy them out. And as consumers access and use the Internet differently with devices like smartphones and tablet PCs, Microsoft needs Adobe more than ever to maintain an edge as the once dominant Windows empire fades before the mobile device revolution.
The fact is, Microsoft is no longer the most valuable technology company on the planet. That title’s gone to Apple Inc. (NASDAQ: AAPL), the company that has seized the consumer market with its mobile devices like the MacBook, iPod, and iPhone. Now, thanks to the runaway success of their iPad tablet PC, it looks like Apple may finally capture the business computing market as well. Microsoft’s new Windows Phone 7 operating system isn’t going to be a killing blow against Apple. It may not even be a stern shove. With the help of Adobe, however, Microsoft might just find a way back to the top.
What may be the deciding factor in the battle between Microsoft and Apple may not be software specifically but the emerging standard language for web page design, HTML5. Unlike previous revisions of the HTML language, HTML5 will allow video content and movable parts of websites to be built directly into the site without a need for plug-ins like Adobe’s ubiquitous Flash. Apple CEO Steve Jobs has been very frank about his company’s goal of making HTML5 the standard for all video content on the web, citing that as the reason that none of Apple’s mobile devices have offered support for Adobe’s platform.
The Apple party line serves a dual purpose, letting the company build their reputation as purveyors of bleeding edge consumer technology while also striking a blow at one of their biggest software competitors. (Flash is more widely used than Apple’s Quicktime, not to mention how much more popular Adobe’s design programs like Photoshop are than Apple’s own similar products.) Apple’s devotion to HTML5 may hurt them in the short term though. Phillipe Le Hegaret, an official with the World Wide Web Consortium, recently told InfoWorld that HTML5 is still months, if not years, away from mass implementation. “The real problem,” explains Le Hegaret, “is can we make [HTML 5] work across browsers and at the moment, that is not the case.” With a feature-complete version of the web language still at least 9 months away, Adobe has time to further build on Flash’s presence on mobile platforms and Microsoft could use Adobe to help establish Windows Phone 7 as a major competitor in the mobile OS market.
Flash’s lasting proliferation and Microsoft’s new OS aren’t enough to win the smartphone market, however. The truly rich promise of a Microsoft and Adobe union is cross-platform mobile business apps. A recently published IBM (NYSE: IBM) survey of 2000 professionals in the international technology industry indicates that the future of business software is in mobile devices, not on home computers. Microsoft’s Office suite of programs like Excel and Word remain the most widely used business programs on the planet. If they were to add Adobe’s stable of design tools to their stable of properties, and the two companies began to aggressively build new Office and Adobe design software to work on Symbian, Android, Windows Phone 7, and even Apple iOS-powered phones, they would control an emerging market before anyone else has a chance. Business apps are only the fifth most-used pieces of software on mobile devices, but as more companies began to provide employees with tablet PCs and smartphones instead of laptops, the business app market will increase dramatically.
Investors should be watching Microsoft and Adobe with a close eye in the coming weeks. Should the acquisition take place, the mobile tech market could change dramatically inside of the next twelve months. A Verizon iPhone would undoubtedly sell well for Apple, but chances are it will still be supporting Flash-based video content and using Microsoft app suite with Excel and Photoshop side by side.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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