Mobile revolution driving Indian economy: Adobe

Q: When we last spoke which was a couple of months ago, you were confident about the India story. The headline numbers continue to look very good. Of course India is the island of growth among most emerging markets at this point in time. How bullish are you about the India business and about India’s contribution to Adobe’s global revenues?

A: Honestly, what is driving the Indian economy right now is this mobile revolution and as you know a big part of our business is everything we are doing around digital marketing and transformation that technology is causing on businesses and given how significant the mobile explosion is here, we are pretty bullish about what is happening in India.

Q: What does that mean in terms of growth and in terms of revenue contribution? Are we expecting significant double digit growth for your business here in India and how much will the India business contribute to Adobe’s global revenues?

A: When you think about India as a percentage of global revenue, it is still starting off a small base because digital marketing is a new business. We are starting from scratch here in India. On the digital media side, clearly we have had more established presence. But when you look at growth rates they are clearly explosive, when you see what is happening with e-commerce companies like Flipkart and Snapdeal and so we will have various significant growth rates from a percentage point of view. I hope to double our business all the time but from an overall contribution to Adobe it is still relatively on the small side.

Q: Can we talk to you specifically about the changes that you are seeing within your India business? You have a change at the top - Naresh Gupta is going to be exiting by the end of March. Do you have a replacement identified? When can we here that announcement?

A: Naresh has done an absolutely magnificent job for us. I wish him well. I have partnered with him for seventeen years on this journey that we have been to build India as a global research and development (R&D) force and part of what he has done is create a phenomenal batch of leaders who are ready to assume more responsibility. So, Shanmugh Natarajan is going to be our executive director for the R&D. Umang is going to continue to run our field organisation. So, part of what we are doing is actually building bridges with all of these key leaders with the business leaders in the US so that we can actually continue to invest and grow here in the market.

Q: So, you will not actually be bringing in a replacement whether internally or externally for Naresh?

A: We do have an internal Head of India’s R&D, we do and that is Shanmugh Natarajan.

Q: Can we ask you about the R&D play in India and your expansion plans because the last time that I spoke to you, you were talking about expanding significantly to drive innovation out of India. I understand that you have a new facility in Noida. If you can take us through your current expansion plans and what we can expect.

A: We have a facility in Bangalore that we have just inaugurated and this new facility in Noida which actually augments our existing facility. So, when you look at what we have, we have over 3,000 people which is a significant portion of Adobe’s global employment here in India and on the R&D side. Approximately 25 percent of all R&D worldwide is happening here. There is not a product in the US that is not touched by some piece of India R&D and the growth rate has just continued to accelerate.

Q: What is that going to mean in terms of your headcount? You are currently at 3,000 employees as you just pointed out. Are we likely to see significant growth as far as your headcount is concerned as well here in India?

A: We do not breakout absolute numbers but we have added probably 1000 people. In addition to R&D we have made very significant investment in two other areas in India’s global consulting and our services on digital marketing as we continue to help people transform their businesses. The consulting and implementation, resources required to make that magic happen are frequently here in India and in addition to that as we are building these demand generation centres for our product, more things like inside sales, a significant or a disproportionate part of that growth is actually happening in India as well. So, India truly now represents a microcosm of everything that we are doing abroad.

Q: Let me ask you about possible acquisitions in India because you have announced the acquisition of Fotolia, which is a leading market place for stock content but you are also doing a lot of work in the data analytic space and of course in a bunch of other marketing application related services. Can we expect any announcements in the near-term as far as acquisitions in India especially in the start-up space?

A: I don’t know that there are many companies on our radar specifically in India. We typically look for technology companies and I think while it has been phenomenal to see the explosion of new start-ups in India, I think they are more on the e-commerce and actual end-user sites as opposed to technology companies providing technology for companies like Adobe or other people in the enterprise space. So it seems like the evolution of the start-up in India has been more around how do these companies actually provide the e-commerce backbone for companies and be an end-user product as opposed to a technology company that used by marketers which is our focus.

Q: So no specific acquisition targets here in India at this point in time but what about globally what can we expect in 2015 as far as your acquisition or your M&A strategy is concerned?

A: We have just made two fairly large acquisitions. You pointed out Fotolia. With the Creative Cloud, we produce the world’s best products for people to create content and now we have created the leading market place to enable them to monetize that content. So very excited about the prospects of Fotolia - it has just closed and we will be announcing plans to integrate that more into the Creative cloud experience.

The other acquisition that has done well for us is Neolane, which is now called Adobe Campaign that was the major acquisition as well helping us people with orchestrate their multichannel communication. So we are constantly on the lookout for companies. We feel all of our growth initiatives, the core platform exists right now, so it is more likely to be small tuck-in acquisitions, aqua hires that we do all the time but not ones that will probably hit your radar.

Q: So you are looking at small tuck-in acquisitions for 2015 but let me ask you about 2015 and your outlook as far as growth is concerned. Over USD 4 billion that is what you have seen in revenues as far as 2014 is concerned. Last quarter a little over a billion dollars in revenue - you have said 2014 has been an outstanding year for Adobe, what can we expect now in terms of revenue growth as well as margin expansion in 2015?

A: The company has been through this amazing transformation where we have taken the entire creative business and moved it from a perpetual revenue stream to subscription. Four years ago when we talked about trying to attract four million subscribers, we had said we would expect to reach that by the end of 2015 and with the targets that we issued in November, it is clear that we have significantly outpaced that, we will be closer to 5.9 million subscribers was the expectation when we issued our annual targets.

So the good news for investors in Adobe is that we have been through the entire transition, we expect revenue and earnings per share to go up into the right, right now, we have announced the three-year targets at that point in 2013 that we will be growing our digital marketing business by approximately 25 percent and the digital media business by approximately 20 percent on a three-year compounded annual growth rate (CAGR) when we announced our last target. So I think it is the growth phase right now based on a lot of hard work that we have put in over the last few years.

Q: So you are on track to be able to achieve those numbers or perhaps even beat them?

A: We don’t issue updates, we had a good strong Q1, which was a great start to the year and we continued to focus on opportunities ahead of us.

Q: Let me ask you about the Adobe marketing cloud because the growth there has beaten your own expectations, you have seen record bookings in the quarter gone by. What more do you expect and how do you anticipate growth as far as Adobe Marketing Cloud is concerned?

A: The Marketing Cloud is addressing this need that every enterprise has of how do they undergo digital transformation and put the customer at the centre of experiences they are providing across all digital devices. We think the overall market opportunity for us is a 20 billion available market. We just had a billion, we are the clear undisputed leaders in the space and what we tell people is that we are capacity constrained right now and not market constrained. So, continuing to derive 25 percent revenue growth and 30 percent bookings growth is what we are focussed on. Emerging markets are coming on rapidly.

To your first question India as a growth opportunity certainly exists and we have now the most integrated platform. We just recently had our summit in Utah. Over 7,000 people attended. It was a sold out, the largest marketing summit that exists in the world. Here in India today we have 500 people the largest marketing. So interest in technology is evident all across the world and now it is a question of going and executing on that opportunity.

Q: You were talking about the size of the pie and it is a USD 20 billion opportunity and you are currently at about USD 1 billion. You were talking about capacity constraints. What kind of constraints are you facing and by when do we anticipate you will be able to tide over them?

A: The two things really that we need to continue to have this business grow at the rate at which we expect, the first is our own internal field force that is going out there and evangelising the benefits of technology and ensuring that the customers are aware of what is available to them because marketing traditionally has been all about art and not about science and now we are bringing technology there. So our own internal field force and we are very prudent about how we hire people to make sure that we have the best.

The second part is the entire ecosystem and part of organising the summits like we are here and Gurgaon today is all about making sure that the partners like Cognizant and Deloitte Digital and Accenture and IBM Global Services all of whom are significant partners to us have the capacity to then go implement these solutions for the customers. So the excitement is there, the awareness is there and now it is about just like ERP or human resource technology evolved over the last few decades getting people to understand how best to implement it and seize the benefits from this technology.

Q: You talked about some of your partnerships and you name some of your partners. I can add to that list, you have got Publicis, you have got SAP for instance, what more can we anticipate as far as inking for more partnerships are concerned?

A: We like every partner in the systems integrated space as well as the digital agencies to create a practice around the Adobe Technology. You are right in stating that it is not just the traditional systems integrators but companies like Publicis as well as the other digital agencies who recognise that they also have this additional opportunity to provide digital transformation, consulting and expertise to their client.

So I don’t think there is a single large digital agency or systems integrator who is not a partner right now. WPP, Omincom as well as in the systems integrator space companies like Wirpo and Infosys who are also creating phenomenal digital practices. So it is more about scaling the business right now than it is about signing on partnerships.

Q: But you talked about Infosys and Wipro and the partnerships with system integrators here in India. Do you expect to ramp those up significantly?

A: Yes, we would like to. All of these companies that I mentioned, the Indian systems integrators have actually created digital practices based on our technology and they are seeing over that ransom demand for Adobe expertise within their companies with all their clients. So our job is to help enable them and make sure they are up to speed on our technology and then we can jointly go to market and provide this magic to our customers.

Q: Speaking of magic I had been looking at the various sort of surveys that have been done and you have topped the Forrester Wave survey, enterprise survey, you have topped Gartner’s Magic Quadrant survey and I was looking at why you stand out amongst all the other vendors and at least Gartner says it is because of two reasons, completeness of vision and the ability to execute. In terms of the first one, completeness of vision do you believe that you have significant gaps at this points in time in the portfolio that you need to plug, what could those be and how soon do you anticipate being able to plug them?

A: We already have the most comprehensive and integrated platform and it is nice to see that being validated by the analysts. Adobe has had a history of always of creating market, helping revolutionise desktop publishing, electronic documents through PDF, imaging and the web through what we did with Photoshop which by the way just celebrated 25 years. So on the marketing side as well we were the first to acknowledge that marketing was underrepresented in terms of technology but we are not standing still. If you look at how Adobe continues to win in the market place it is a relentless focus on innovation and product and we are a product company at our roots and we just have to continue to innovate.

Q: So what is it we can expect in terms of fresh innovations, new categories that Adobe is likely to create? You gave us a list of what you already created in the past, but what can we expect given the fact that we are seeing the market change and evolve so quickly?

A: I will maybe highlight three areas. The first is mobile, we think mobile is not just going to be a consumption device but a creation device. We have already showcased some incredible new hardware that allows people to use tablets as creation devices. We announced some great innovation with Microsoft as a partner in terms of touch and how touch can now be really used to create phenomenal content. The second one I would highlight is on marketing cloud really being able to think about not just all this data we are collecting, we are collecting over 30 trillion transactions, but how do you get insight from that data and the algorithms, everybody talks about big data, we are the default big data company for marketers. So, ensuring that our algorithms and the insight that we can bring from all that data we are collecting. And maybe the third area I would highlight is just, as paper to digital becomes a reality, some of the magic that we are providing around electronic signatures with the new document cloud because it is crazy in this day and age that we believe a wet-signature is any more valid than an electronic signature. So, electronic signatures, big data for marketing and touch in tablets and mobile content creation are three that I am particularly excited about.

Q: Let me just pick up on two of those. You were talking about data-analytics and my earlier question about looking at possible acquisitions in India, this is a space where we have seen significant growth of some select Indian start-ups who are providing data-analytic services. Is that an opportunity or an area that you have looked at, at all?

A: In reality, Adobe analytics is already the clear leader in that space and so again we process most of the webs most critical properties. What you are saying to your point is that there are a number of start-ups that are saying how do I provide a little bit more analytics that might be specialised to a particular mobile device or a particular social sight. So, I look at those as components of a broader solution rather than solutions by themselves. So, again going back with that aqua-higher theme or helping fill-out, round-out augment offerings as opposed to actually fill big holes. That is how I look at some of the start-ups in that space.

Q: On the point of electronic signature and the government is not talking about Digital India, e-governance is the buzzword across various government ministries. We have of course got the aadhar card. The government is now talking about the JAM Trinity which is basically the mobile, the aadhar card and the Jan Dhan Yojana that the Prime Minister rolled out last year. How do you see that opportunity? How excited are you by what the government is doing within that space?

A: The whole Digital India movement is phenomenal and it is spot-on in terms of strategically how the country can continue to use technology to advance. And I believe that mobile is going to be more central so what is different in India versus some of the other countries is the mobile explosion. But the notion that people can use technology to accomplish things, mundane things like getting permits or continuing to get drivers’ licence and moving to a more digital economy. It is one of the ways in which the country becomes more efficient. So I am really excited to see the focus on digitisation, helping transform people’s lives and I think it is spot-on.

Q: Have you had any conversations with the government on the many initiatives that they are rolling out or has your team in India had any conversations with the central government or any of the state governments that are looking at this area of opportunity?

A: We are. We already are actually participating in a number of these initiatives and I was fortunate enough to spend some time with the Prime Minister when he visited the US to talk about some of the things that we could also provide in terms of our digital technology in the US government. I am fortunate I serve on President Obama’s management advisory board which is all about finding how private companies can provide that expertise into digital government and we are happy to participate in any way in which the Indian government would like us to help share that knowledge and that expertise and participate in this digital revolution.