Though much of the coverage of Adobe Systems' (ADBE) $1.68 billion deal to buy Magento Commerce has revolved around the potential threat the deal poses to Shopify (SHOP) , in many ways the acquisition is about strengthening Adobe's hand relative to traditional marketing software rivals such as Salesforce.com (CRM) , Oracle (ORCL) and SAP (SAP) .
It also looks as if Adobe, having successfully transitioned much of the customer base for its content/media-creation software franchises to subscription offerings, is now hungry to expand its reach in fast-growing online marketing and commerce fields.
Magento, which was sold by eBay (EBAY) in 2015, provides tools for setting up and managing online storefronts, as well as for analyzing shopping data and marketing goods and services on social media. The company also claims an ecosystem of 300,000-plus developers creating software extensions and services that integrate with its offerings.
In some respects, all of that has much in common with what Shopify, whose shares are down nearly 4% on news of the Magento deal, provides its clients. Shopify, which is coming off a first quarter in which its sales rose 68%, offers a variety of tools and services for running online stores and selling on platforms such as Facebook (FB) , Amazon.com (AMZN) and Pinterest. However, Shopify depends far more on small businesses than Magento, which relies heavily on mid-sized businesses and also has some larger corporate clients such as Coca-Cola (KO) , Canon (CAJ) and Nestle.
Whereas Spotify claims to power more than 600,000 businesses and has handled more than $55 billion in gross merchandise volume (GMV) over its history, Magento says it powers over 235,000 stores and handles over $155 billion in GMV annually. In addition, only 22% of Shopify's first-quarter monthly recurring revenue came from the costlier Shopify Plus service, which competes directly with Magento's offerings. The rest appears to stem from cheaper service plans that cost between $29 and $299 per month -- a small fraction of Magento's starting price of $2,000 per month.
Moreover, on a Monday conference call, Adobe suggested it's more keen on growing Magento's sales to large enterprises -- many of which are already Adobe clients -- than moving downmarket to battle Shopify. "I think there's an opportunity given our presence with the enterprise and with the largest, most complex, I would say, experienced implementations in the world, we think there's an opportunity to really bring [Magento's] technology to bear," said Adobe exec Brad Rencher.
Such an effort would put Magento into greater competition with platforms such as Salesforce's Commerce Cloud (the product of its $2.8 billion Demandware acquisition in 2016), Oracle's Commerce Cloud and SAP's Hybris. These platforms tend to be highly scalable and customizable, and are often priced well above what Magento's plans start at.
These offerings also often integrate with other CRM software sold by a vendor, including their marketing software. That's doubtlessly of interest to Adobe, which counts Salesforce and Oracle as the largest rivals for its far-reaching Experience Cloud platform. Experience Cloud, which saw its revenue rise 16% annually in Adobe's February quarter to $554 million, includes software and services for creating marketing content, personalizing customer experiences, running online ad campaigns and analyzing customer data, among other things.
On the call, Adobe talked up the ability of Magento and Experience Cloud to jointly give retailers and other businesses an end-to-end platform for shaping, personalizing and analyzing customer experiences. "Adobe is the only company with leadership in content creation, marketing, advertising, analytics and now, commerce, enabling real-time, personalized experiences across the entire customer journey," proclaimed CEO Shantanu Narayen. Execs also suggested Adobe could use its Sensei AI/machine learning framework to derive insights from data that Magento's platform can deliver, and selling Magento's developer base on supporting Experience Cloud.
In addition to competitive positioning, industry trends likely had something to do with Adobe's decision to buy Magento. U.S. retail e-commerce sales continue growing at a 15%-plus clip, and though Amazon gets much of the credit here, this growth is also being fueled by the rise of a variety of small and mid-sized direct-to-consumer players that often leverage platforms such as Magento and Shopify. In addition, chief marketing officers (CMOs) are overseeing a larger and larger portion of global IT spend.
All of this raises the question of whether Adobe might pull the trigger on additional acquisitions to both better compete against Salesforce/Oracle/SAP and grab a larger chunk of CMO budgets. BMO Capital's Keith Bachman, for example, suggested that Adobe could also expand into the customer support/engagement software market -- another field where Salesforce and Oracle have well-established offerings.
Whether or not such a move happens, the Magento deal does suggest that Adobe is now hungry for new worlds to conquer.