Adobe Systems Incorporated (ADBE) Proves Subscription Model Works

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When Adobe Systems Incorporated (NASDAQ:ADBE) released its second-quarter earnings report, results were better than analysts had predicted. The news that the maker of such products as Photoshop and Acrobat had enjoyed earnings of more than $1 billion was enough to increase shares four percent in after-hours trading.

This is good news for a company that announced it would be removing its Creative Suite from store shelves and exchanging it for subscription-only access to the Creative Cloud. It’s a bold move in a world that still seems to be making the transition from boxed software to Cloud-based applications.

Adobe Systems Incorporated (ADBE)

Creative Cloud Success

Since the end of the first quarter of this year, Adobe Systems Incorporated (NASDAQ:ADBE)’s Creative Cloud subscriptions have grown by nearly 500,000, reaching the 700,000 mark. For a $49.99 monthly fee, customers get full access to Photoshop, Illustrator, Acrobat, and other Adobe Systems Incorporated (NASDAQ:ADBE) applications. Current Adobe customers can upgrade to the Cloud-based version for the first year at a cut rate of $29.99 per month.

The success comes while Adobe is still in transition. The majority of its users possess licensed versions of Adobe Systems Incorporated (NASDAQ:ADBE) Creative products, still in place on laptops and desktops purchased one to five years ago or more. As those PCs require replacement in coming years, users will then begin to contemplate upgrading to the Creative Cloud.

Office 365

Adobe Systems Incorporated (NASDAQ:ADBE) is leveraging subscriptions by taking away customer choice. If the company removes its software from circulation, consumers will be required to subscribe or go without the products they rely on for the work they do each day.

Microsoft Corporation (NASDAQ:MSFT), on the other hand, is making its Office 365 subscription an option. Consumers can choose to pay a lump sum of $219-$399.99 for Office 2013 on one PC. Or they can opt for the Office 365 Home Premium option for $9.99 per month. Office 365 can be installed on up to five PCs or Macs and up to five mobile devices, helping out families who want to run Microsoft Word or Excel on tablets, phones, and other devices.

For Microsoft Corporation (NASDAQ:MSFT), however, it may be too little, too late. The company seems to be lagging behind competitors these days, and that shortfall is costing Microsoft. The software-oriented company reported flat third-quarter earnings.

In its earnings statement, Microsoft Corporation (NASDAQ:MSFT)’s CFO specifically singled out Office 365 as the company’s future. One in four Microsoft Office enterprise customers are using Office 365, bringing a $1 billion annual run rate. As Microsoft continues to urge customers to shift to the Cloud, this number is expected to grow.

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