Adobe’s CEO Underestimating Microsoft’s Ability To Compete With Flash

Comments from a meeting last week with journalists at Adobe's headquarters indicate that Adobe's CEO, Shantanu Narayen, thinks Adobe has already won the online video platform battle and that Flash can survive any threat from Microsoft. That's a dangerous assumption to make and underestimating Microsoft's ability to challenge any company, in the long run, is never a good idea.

In the article, which appears on the website, Adobe's CEO is quoted as talking about how much adoption Flash has and the penetration rate of the Flash plugin on computers around the world. While I would agree that the penetration rate is high, keep in mind that Flash has almost no penetration in areas like the enterprise vertical, or mobile, markets that Microsoft still dominates. It also has literally no penetration when it comes to downloaded video to the desktop, which is dominated by Windows Media and QuickTime. And for all the talk of the Adobe Media Player (AMP), which allows you to play back downloadable video, when was the last time you saw any website offering Flash video as a download with the Adobe Media Player? While Adobe is clearly trying to push into the enterprise market and offer a platform for downloadable video, Flash has gotten almost no penetration in those markets.

And when it comes to live video, while Adobe has now made live Flash streaming stable in version 3.+ of the Flash Media Server, any CDN will tell you it does not scale as well as Windows Media and has a higher total cost of deployment than Windows Media. It does not support multicasting, that I am aware of, and the DRM capability of Flash has been very late to the game and expensive to deploy. The fact we see Netflix and others offering streaming movies for Mac users is primarily due to the DRM capabilities of Silverlight. Not to mention, in most cases, Flash video streaming is still more expensive for content owners to deliver, especially for those with a lot of traffic.

In the guardian article, Adobe's CEO was also quoted as saying, "The BBC moved over, the NFL [National Football League] went live with
us using NBC. Microsoft and NBC have had a long standing relationship,
but they picked us.
" The problem with that quote is that it's factually wrong. Yes, Microsoft and the NBC have a long standing relationship, yet they did not decide to use Flash for the NFL streaming. The NFL decided and is quoted on the record in various locations as saying they are the ones who made the decision to use Flash, not NBC. And from what various sources tell me, Adobe is helping to foot the bill to stream the NFL games. So is it really fair for Adobe's CEO to be calling out Microsoft for "opening its chequebook" in an attempt to muscle its way into the web video market when Adobe may also be helping content owners foot the bill? The fact no one from Adobe will comment or give any details, on the record about the NFL deal, speaks volumes.

No one is debating whether or not the Flash platform has tremendous penetration in certain segments of the market, it clearly does. But to go on record and say that you think Microsoft has no shot at ever competing with the Flash platform and stating that you feel you can withstand any push from Microsoft, that's a dangerous message to convey. Especially when, from what I have seen, the Flash team operates with the intelligence knowing that they always need to improve upon their product. I deal with a lot of people on the Flash team and at no time, that I can remember, do they ever talk about having Microsoft "beat" or talking down their competition. They know they have a good product that they are constantly working to improve on and aren't happy to sit around the rest because of the market penetration they already have. But when the CEO of Adobe comes out and says they have already won the online video platform battle, what message is that conveying to the rest of the company? Should the Flash team now stop working as hard to make Flash even better? It's a very dangerous tone to set.

We all remember what happened when Real's format ruled the online video industry and then Microsoft entered the market and took nearly all of Real's market share in a few short years. I'm not predicting the same thing will happen in this case to Flash, but Microsoft is going to take share from Adobe, with Silverlight, over time. Might not be next year or the year after, but Microsoft isn't playing for a short-term win. They are in this for the future and can build their platform over time, waiting until online video truly becomes a business, when content owners start making money. Enabling others to make money from online video has been Microsoft's goal from day one and one of the driving forces behind their DRM functionality in the Windows Media platform since 1999. Adobe only just started addressing DRM functionality this year. Adobe has also been very late to the HD game, something else Microsoft has been focusing on for years.

In the guardian article, Adobe's CEO is also quoted as saying, "If you look at the number of partners who are signing up [to use Flash]
despite the fact that Redmond opens its chequebook and tries to get
companies to move to Silverlight, we're winning.
" If Adobe thinks Microsoft has "opened its checkbook" and is not seeing results, think again. While many people think Microsoft throws money at everyone, they have not, as of yet. To date, Microsoft has offered up very little money to content owners, Olympics aside, and has not implemented some of the programs, like "netcredits", that Microsoft did back when it battled RealNetworks. If Microsoft were to put serious money behind Silverlight and really spend the marketing dollars it did when it took the market from Real, Adobe would be in for a serious fight. Don't underestimate Microsoft's ability to do that again, sometime soon.

  • Christina

    You are dead on. While I love Flash and Microsoft still has a long road to haul to get Silverlight adoption, this battle is far from over. You’d be crazy to say that the Redmond folks can never challenge Adobe. Didn’t Real Networks say that back in 2000?

  • GreenField

    You clearly pointed out the CDN perspective. What about from a website designers standpoint? or from an audience experience standpoint?
    Rumor has it that this “checkbook” theory was in full effect when the Olympics where deciding on which format to use.

  • Microsoft did open it’s checkbook for the Olympics, that is not in any doubt. They did help pay to deliver the Olympic video for NBC. But it is not like Microsoft is offering every content creator money like Adobe’s CEO is making it sound.
    As for your question on the audience experience, that is hard to place an answer on since users have different opinions on what makes a “quality experience” and how they define the word “quality”. There are pros and cons of each format depending on what type of content you are delivering, the length of the content, the bitrate, the method being used (HTTP or RTMP) and the device being used to play the video.

  • Dan,
    You did good in pointing out that DRM is clearly a differentiator between Flash and Silverlight now. Adobe initially came out with a product that wasn’t really presented the way it needed to be to solution and service providers. As a result they are heads down re-vamping their approach and I expect they will come back with some big announcements and much more viable and relevant product.
    Microsoft on the other hand has been moving pretty quickly with PlayReady for Silverlight and has already beaten Adobe to the Mac desktop in terms of marketshare and as a result they may draw attention to this big win early on.
    Events like the Olympics are pure marketing Dollar opps for companies like Microsoft. We all know that. Adobe has done similar deals in the past with MySpace and other content portals including all the content providers in the AMP offering.
    Yeah we only have to look back to the RealMedia/WindowsMedia wars of old to realize how easily one’s lead can be claimed by a challenger.

  • I really don’t agree with this thread hardly at all.. I think both “platforms” have very differentiated strengths and I am someone who used “FutureSplash Animator” with IE 4 betas so I have known flash for a while..
    This blog is the “Business of Video” and you guys are focused on Silverlight and Flash’s video capabilities in your comparisions..
    I humbly suggest to you that the motivation behind silverlight is a cross-platform version of Microsoft’s WPF technology that makes Windows apps.
    Microsoft has been for years looking for that last link to be able to run a desktop application fully client side inside a web browser.
    Inside the web browser was the last place the .NET framework didn’t reach, now it does and you can stay in the .NET enviroment to create an application that runs just about anywhere.
    Flash was designed as an animation tool, it originally didn’t try to be a runtime for full blown applications.. Most people still have to work with one main timeline for it..
    I think these folks are wrong about this, because they have not previous basis of familiarity with the .NET framework for creating full blown applications, they see Silverlight and say “Flash”.
    When the full blown windows applications start showing up in a browser on Macs, Linux, phones, etc running 100% client side (no server required) then they will start understanding what Silverlight brings.

  • Rob

    This type of thinking by Adobe’s CEO is almost always the begining of the end for MS’ competitors.

  • Don,
    You do make some good points that Silverlight is really built for the future of desktop/web apps. It was good to see MS backport WPF for XP although I think that the install base is still quite low given it’s dependencies on .NET.
    That being said, Silverlight video delivery is really the exciting app right now that is bringing WPF type functionality to the forefront of our industry.
    Yes it will be nice someday to write apps for the web and the desktop via one payload. Today it’s not where the market is but we are headed there for sure.
    Throw in AIR and you get a real race for parity between the desktop and browser.

  • I wholeheartedly agree with the point of this article. Public hubris is a rotten characteristic in a CEO. I’d rather they presented like Lou Holtz’s press conferences; with extreme deference to the skills of the competition and acknowledgement of the constant struggle.
    Having said that however, I have a question for the group. When’s the last example of Microsoft coming in as a late entrant in any of the markets they play in and crushing the leader a la Real or Netscape? When’s the last time MS took 20% of a leader’s market share in any industry? The last one I can think of is the mid-level accounting firm but they bought Great Plains to do that. No one with that much cash on hand can ever be counted out but I humbly propose that they are not the dominant force they once were in many markets. Microsoft is not as hungry as they once were. In a lot of markets their solution is an also-ran at best. I’m not suggesting Silverlight is the next Zune but its future, positive or negative, is not guaranteed.
    Jim Wrubel

  • curious

    I have always been told that Flash is excellent for on demand content and is not stable for live content.
    The end-user experience (our clients) of those watching streaming content comment that the quality of Flash video they see on the web is dramatically better than Windows Media that we currently use.
    At our facility, we are limited to 100k 15fps streaming. I am told Flash would be comparable to resulting file size but with a greater quality.
    Is Flash ready for live in an enterprise environment? What are the limitations for live flash streaming (duration, resulting file size)? Should we stick with Windows Media, move to Flash, Silverfish…? What is the main argument to move to Flash for both live and archive streaming to the Flash naysayers?

  • Mike Vitale

    Adobe captured the online video market because they developed a product that made it easy for content creators to support all consumers (Windows, Mac, Linux). Their tremendous adoption rate also grew because the install of their plugin was very easy compared to downloading and installing traditional media players like Windows and RealPlayer.
    Silverlight should be considered a threat by Adobe because now Microsoft has their own cross-platform compatible, easily installed plugin with comparable, if not better, functionality for Web developers and Consumers alike.
    It’s true that Microsoft is very late to the party and will have a difficult time convincing ondemand content providers (the Hulus of the world) to switch from an established Adobe solution because the risk/reward just isn’t there. An area that MSFT can quickly beat out Adobe in is live content production. I can attest to the fact that Microsoft has much better support for live event production and scales better from a capacity, pricing, multicasting and DRM perspective.
    Adobe’s support for h.264 in their live encoder is a huge step towards helping them gain market share for live productions but they need to add support for some of the key items mentioned above to fend off Microsoft.

  • James Deane

    I have been talking about this for a while now as well at the company I work for and with anyone else who is interested. Flash is a great consumer level medium, but it’s still lagging at the enterprise level. The Adobe CEO’s comments were definatly heard at MS, and to the Redmond giant it’ll sound like a glove dropping.
    Other than the delivery costs at the CDN level, the time and effort costs at the editing level are huge. Flash Video can currently only be edited (other than tip and tail) in Premiere, and anyone familiar with that product should know how much time it takes to render a timeline, not to mention the end product. They may have the penetration rate on consumer desktops, but until Adobe releases editing support for Avid, Vegas, and FCPro, they are going to lag.
    Windows Media is much more flexible in an editing and broadcast environment.

  • @curious,
    Really, most codecs these days are pretty good if used correctly; if you’re seeing a big quality difference between Flash and Windows Media, that suggests that something isn’t optimally tuned in your Windows Media encoding workflows. I’m often surprised by how many companies are still using the original WMV 9 encoder from 2003 – we’re now on our fourth generation backwards-compatible encoder that incorporates a variety of improvements.
    For an example;
    I think we’re past the era where basic codec differences are a meaningful driver for adoption. It’s much more about tools and ecosystem.
    That said, wow, 100 Kbps 15 fps? That is unusually low for these days. What’s the resolution?

  • Curious

    Thanks Ben,
    The current resolution is 320X240.
    You say 100K 15fps is unusually low these days. What do you see as an industry norm or the average?
    Also, what type of capture devices are you using? For laptop encoding, we are using he Osprey 50 USB video capture device and the Edirol UA-1X USB audio capture device. For desktop encoders we use either the Osprey 230 or 500.
    And yes, we are one of those facilities that are still using WME v.9
    Are there others out there in the same boat that could comment?

  • @Curious,
    About the lowest bitrate video I see for computer playback (as opposed to mobile) in the USA is 350 Kbps today, with the average certainly higher than that. The lowest I know of globally is a China-based UGC site that does 200 Kbps.
    As long as the capture device is “good enough” it’s unlikely to be the issue. Obviously a composite video connection is going to have a pretty low quality ceiling, but that’s a source issue more than a capture card issue. Properly configured, the Osprey 230 and 500 can definitely produce great looking video when the source feed is high quality.
    If you’re using WME, you definitely want to make sure you’re running the latest encoder .dll (just install WMP 11 on the machine; that’s the easiest way to get them) and set a few options with WMV 9 PowerToy.
    Feel free to email me directly to Ben Waggoner at Microsoft com.

  • As a multicast afficionado Flash is still only in the wings on our roadmaps. Yeah we delvier upto few hundred thousand Flash (unicast) streams a day, but we deliver well over 3m Windows streams in the same period – 15% multicast on average.
    One of the biggest issues is the server. As, im sure, many CDN’s will concurWowza is a far better product (and i dont even have a reseller deal in place 🙂
    Why? Because Adobe, while a great client side company, has little maturity in the server space.
    MSFT on the otherhand has excellence and very open support for its server platforms.
    Latency, DRM and Multicast are the only functional differences on features in a market sense: And all those gaps should gradually close.
    Operationally the adobe platform is about as open and sophisticated as a potato. Programming complex server side features with end user control and SNMP reporting are straightforward on WMS. Its not even logical on adobe (hence the higher cost to market Dan mentions).
    My wristwatch gives me more info than the Adobe FMS GUI.
    Then you have thier risable licensing models. Oh: If thier bus dev teams actually contact you back when they promise to. The models dont make sense and the impression is that they really dont want to do business. By the way thats not just in my experience but in that of some VERY large broadcasters and appliance vendors too.
    By Contrast MSFT can be a little overwhelming much sometimes!
    Adobe’s continued lip-service paid to open standards (it was more of a surprise that Adobe went for h.264 than MSFT to me) such as a lack of RTSP will keep adobe video in the webpage and away from the IPTV device for a good while yet. Do they really think they are SO important that everyone will drop open standards and just buy thier products??
    They are obviously smoking some of what thier CEO is on..

  • Hi Dan,
    Are you sure that what Shantanu Narayen said was “factually incorrect?”
    He said the NFL chose Flash. I don’t think he said NBC chose Flash. So I don’t understand where he went wrong?
    Here’s the quote again:
    “The BBC moved over, the NFL [National Football League] went live with us using NBC. Microsoft and NBC have had a long standing relationship, but they picked us.”
    In the last sentence the “they” seems to me to refer to the NFL and not to NBC.
    So how is he factually incorrect?
    Regarding your larger thesis, Adobe is in an interesting position. Flash video, despite its early limitations, has been an enormous success. Adobe claims roughly 80% of Web video is delivered via the Flash player. At the same time Microsoft is the only company in the world with the financial resources to completely ignore past market failures and technology mistakes and just keep on investing in a strategic market year after year after year. So when Microsoft targets both PDF and Flash, Adobe should be very concerned. But they also cannot afford to send out the message that they are going to roll over and play dead. Their CEO should say publicly that they are currently the dominant Web video provider and make the claim that they provide solutions that are being chosen over competitive offerings by Microsoft.
    I imagine Adobe is very pleased with the NFL and MLBs decisions and they shouldn’t be shy about saying so. On the other hand they can’t afford to be perceived as arrogant or too expensive. We’ll see how that goes.