Adobe Proves Subscription Model Works

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When Adobe Systems (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.

Creative Cloud Success

Since the end of the first quarter of this year, Adobe'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 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 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 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 (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, 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'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.

CRM Success

Not one to be outdone, Salesforce.com (NYSE: CRM) recently acquired ExactTarget, an e-mail marketing provider. Analysts believe the move positioned Salesforce.com to become a full-service marketing data solution, giving it an edge in the marketing field.

Salesforce is on a winning streak lately, having reported earnings that were a 28% increase over last year's quarterly earnings. In fact, the past four years have been positive for the company that specializes in helping sales professionals succeed by making their jobs easier.

Since many sales executives spend the majority of their time rushing from meeting to meeting, Salesforce seems to have realized early on the power of putting its app in the Cloud. Business customers can go from the office to the car to a meeting without losing connection to crucial information, running the Salesforce app from smartphones and tablets.

The acquisition of ExactTarget makes Salesforce a cross-channel marketing platform, providing Cloud-based access to even more functionality. Many analysts have expressed concern that Salesforce paid too much for ExactTarget, leading to potential problems in coming months.

Best Cloud Choice

Adobe is a promising stock, always on an upswing, making it a consistently good buy. Both Adobe and Salesforce are innovative, always interested in growing ahead of the competition. But while Microsoft seems sluggish to commit to new technologies, the company's undeniable popularity with consumers makes it an enduring favorite.

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Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Adobe Systems and Salesforce.com. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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