March 7, 2021

Magento sold to Adobe: a users view

Dr Peter Mowforth

Adobe plans to get into the ecommerce market by paying $1.68 Billion for ecommerce platform supplier Magento Commerce. The platform will be integrated into Adobe Experience Cloud, its Enterprise CMS platform. The transaction is expected to complete between June and August of 2018; i.e. Q3 of Adobe's fiscal year.$1.68 billion is a large sum to pay by a company whose total sales are $7.3 billion. It also seems a lot when Magento only has an estimated current turnover of around $125m. To put it another way, Adobe is paying 23% of its own annual global revenue for something that they value at over 13 times it’s annual sales turnover.While I’m certainly not privy to the logic behind the move, it’s possible to make a few guesses around the corporate thinking involved. Adobe is known for its core range of design tools such as Photoshop and Illustrator. In an attempt to develop a broader ecosystem for their users, Adobe introduced a range of Enterprise-level tools hoping to draw in design-intensive corporate clients to make use of an extended suite of tools. Success was limited and missed the ‘killer application’. Meanwhile the biggest thing impacting the world of business has been the move to ecommerce where goods and services are traded electronically over the Internet. Anything that’s got ecommerce in its DNA currently commands a premium and by adding ecommerce to its enterprise offering, this would surely provide the killer app that Adobe is looking forBefore concluding who are the winners and losers here, let’s look a bit more at the technology and its use by the business community.Magento is the most popular platform for companies who are serious about ecommerce and want a highly scalable platform for selling their products online. Using Magento makes good sense for any ecommerce business that wants to scale, automate, integrate and internationalise their online sales. Magento is suitable for almost any size of business from around $400k annual turnover and upwards. Companies such as Canon, Warner Music, Coca-Cola and Nestlé have all staked their future online sales around the Magento platform while hundreds of thousands of much smaller businesses have also pinned their future success of the platform.A key point not fully appreciated by many of the commentators on the news story is that there are two quite separate Magento products. One is Magento Commerce (previously Magento Enterprise Edition), the other is Magento Open Source (previously Magento Community Edition). Magento Commerce is the ‘enterprise-level’ platform that supports many of the larger client sites while the Magento Open Source platform is maintained by a community of developers on GitHub.At the moment, Magento Commerce costs tens of thousands of dollars a year for the license while the Open Source version is free. It’s estimated that there are a total of around 235,000 Magento sites in use. Given that the company Magento has an annual income of around $125 million and let's assume a very conservative average license payment of $20k dollars then that means that there are only around 6,250 Magento Enterprise/Commerce versions. This would mean that around 2% of Magento sites pay a license while the rest use the free version. This figure is at variance with the BuiltWith shop platform data that suggests a higher figure.The more I ponder why Adobe paid such a large sum for a very small part of the Magento user-base the more I struggle to see the logic. For many (including accountants), Adobe is a design tool company that delivers tools to help designers create a top class visual experience. Ecommerce sites have little to do with exciting visual appearance (eBay or Amazon are not exactly what you want to pin on the wall as a work of art). How many clients would be encouraged to sign up for Adobe Experience Cloud because of an ecommerce platform you can get elsewhere for free? Perhaps Adobe just makes so much money from Photoshop licenses that they were in need of a tax offset?As to the community who support the Open Source version, I assume they will just continue to do what they do. After all, there are 235,000 reasons why the Open Source version will not go away.

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