By Dries Buytaert, CTO, Founder, and Chairman of the Board of Acquia, Inc
Yesterday, Adobe announced that it has agreed to buy Magento for $1.68 billion. When I woke up this morning, 14 different people had texted me asking my opinion on this acquisition.
That Adobe bought Magento is not a surprise. One of the worst kept secrets in our industry is that Adobe first tried to buy Hybris, but lost the opportunity to SAP's proposal; Adobe subsequently tried to buy DemandWare and lost to Salesforce. It's clear that Adobe has been wanting to acquire an e-commerce platform for quite some time and it's finally been done.
The product motivation behind the acquisition
Large platforms such as Salesforce, Oracle, SAP and Adobe try to have products that cover the digital experience market comprehensively, which includes providing support for marketing, commerce, personalization and data management, as well as content management and in general everything related to user experience.
Compared to the other platforms, Adobe was lacking in e-commerce. With Magento under its belt, Adobe now has better arguments to compete against Salesforce, Oracle and SAP.
While Salesforce, SAP, and Oracle all offer good e-commerce capabilities, they lack high-level capabilities in content and experience management. I expect that Adobe closing the commerce gap will force Salesforce, SAP, and Oracle to act more aggressively on their content management capabilities and the user experience management gap.
Magento has historically had a niche in SMBs and the mid-market and the company has recently started making inroads into corporations. Adobe will provide you with great operational maturity; how to sell in the corporate market, how to provide enterprise level support, etc. Magento will greatly benefit from the experience and track record of its new owner.
The mathematics behind the acquisition
According to Adobe press statements, Magento has achieved "approximately $150 million in annual revenue." We also know that in early 2017, Magento raised $250 million in funding from Hillhouse Capital. Let's assume that of all that, about $180 million stays in the bank. If we do a simple calculation, we can subtract this $180 million from the $1.68 billion mentioned at the beginning, and determine that Magento was valued at approximately $1.5 billion, equivalent to 10 times the trailing twelve months' revenue. It is a great achievement for Magento, which today is mainly a license sales business.
If you compare the above to Shopify, which was recently listed for about $15 billion and has $760 million in annual revenue; This valuation is equivalent to 20 times trailing 12-month earnings. Shopify, in my opinion, deserves this multiplication, basically because it is a better business; Its entire product is delivered in the cloud and it has maintained 65% revenue growth year over year, it is growing much faster than Magento.
In any case, you could argue that Adobe made a great deal, to the extent that it is able to accelerate the transformation of Magento from a licensing business to a cloud business.
Most organizations aim best-in-class in any acquisition opportunity at another company; While both the product and the financial motivations behind this purchase are an irresistible mix, I'm not sure these two organizations are interested in maintaining an integrated approach.
Instead of being limited to closed software vendor suites, multinational brands are looking for open platforms that allow them to easily integrate with their technological flavor. Organizations want to create content-rich shopping experiences that integrate their digital experience management solution with their e-commerce platform.
We’ve seen this firsthand many times at Acquia. These integrations can span multiple commerce platforms including IBM WebSphere Commerce, Salesforce Commerce Cloud/Demandware, Oracle/ATG, SAP/hybris, Magento, and even custom transaction platforms. Just look at Quicken (Magento), Weber (Demandware), Motorola (Broadleaf Commerce), Tesla (custom for buying cars and Shopify for ordering accessories) as great examples of Drupal and Acquia working with multiple commerce platforms. And of course, we have quite a few projects with Drupal’s native commerce solution, Drupal Commerce.
Owning Magento becomes a disadvantage for Adobe, because e-commerce solution vendors will naturally be reluctant, for obvious reasons, to integrate with Adobe Experience Manager in the future.
It all comes down to innovation through integration
Today, there is an incredible flood of innovation in the digital marketing technology landscape, and it is impossible for any single vendor to have the most competitive product suite across all categories. The only way to keep up with this unrestricted innovation is through integrations.
Marketing Technology Landscape 2018
This image from the “Marketing Technology Landscape 2018”. As reference; Here are the 2011, 2012, 2014, 2015, 2016 and 2017 versions of the landscape. It shows how fast the digital marketing technology industry is growing.
Most brands want an open platform that allows for unlimited innovation and integrations. That’s why Drupal and Acquia are gaining ground; that’s why the work on Drupal web services is so important and why Acquia remains committed to the best strategy for e-commerce. Acquia strongly believes that Acquia Journey will establish itself as a digital marketing integration platform. That is, innovation through integration, facilitating those integrations and eliminating friction in the process of adopting and implementing digital technologies in organizations.
If it were a question of buying a trading platform, it would have been better to buy a decoupled (headless) one.
If I were Adobe, I would have looked for a headless commerce platform, like Elastic Path, Commerce Tools, Moltin, Reaction Commerce, or even Salsify. Today, there is a lot of functional overlap between Magento and Adobe Experience Manager: from content editing, content workflows, page creation, user management, search engine optimization, theming, and much more. Competing functionality between the two solutions makes for a poor developer experience and a poor merchant experience.
In a headless approach, the front end and back end are decoupled, meaning that the experience or presentation layer is separate from the e-commerce layer. There is much less overlapping functionality in this approach, and it provides a better experience for business owners and developers.
Alternatively, you could opt for a deeply integrated approach like Drupal Commerce. It has no overlap between its commerce, content management, and user experience development capabilities.
For the Open Source world, it could be good or bad.
How Adobe will go about its process of becoming a foster parent to the Magento community is possibly the most intriguing part of this acquisition, at least for me.
For a long time, Magento was sold as open source in lip service, but it wasn't much of an open source in practice. Over the past few years, the Magento team has worked hard to revive their open source community. I know this because I attended and participated in one of their conferences on this topic. I've also spent a fair amount of time with the Magento leadership team discussing this. Like other projects, Magento has been inspired by Drupal.
For example, the release of Magento 2 allowed the company to move to GitHub for the first time, giving the community a better way to collaborate on code and other important matters. The latest Magento release cited 194 community contributions. While that's great progress, it's small compared to Drupal.
My hope is that these open source community efforts continue now that Magento is part of Adobe. If they do, it would be a huge victory for the “Open Source” movement. On the other hand, if Adobe releases Magento as a cloud-only product, it will radically change its pricing model, limit integrations with Adobe's competitors, and will not honor the spirit of “Open Source”; this could easily scare away the Magento community. At the end of the day, Adobe bought Magento because of the brand and its evolution and history in the market, not necessarily because it truly believes in the open source model.
This acquisition is also a big win for PHP. Adobe now owns a $1.68 billion PHP product and this helps validate PHP as an enterprise-grade technology.
Unfortunately, Adobe has a history of being background open source and not foreground open source. Adobe acquired Day software in July 2010; This technology was largely built with open source frameworks (Apache Sling, Apache Jackrabbit, and more) and was positioned as an open, best-in-class solution for agile developers and marketers.
Most of that was masked and buried over the years and because of things like this, Adobe's track record with developers has been somewhat bittersweet, to say the least.
Will the same thing happen to Magento? Only time will tell.
Translated by Jairo Pinzón, CEO SeeD EM
SeeD Expert Drupal Developers in Colombia
Acquia Partner and Drupal Commerce Implementer