PHOTO: Victor Solanoy

If you live in the content, commerce and marketing space as I do, the last two weeks have been all about Adobe's acquisition of ecommerce platform provider Magento. Adobe agreed to acquire Magento for $1.68 billion, a deal which left many in the industry a little perplexed. The confusion wasn’t because it was a bad deal, rather, just unexpected with no clear vision of the future for the technology titan. 

Rumors have circulated for years that Adobe was shopping for a commerce solution, because frankly it needed one. Having assembled a world-class digital experience platform with powerful solutions like Adobe Experience Manager, Adobe Analytics and Adobe Campaign, Adobe was still lacking the commerce piece. I wrote an article about how it should purchase a commerce solution six months ago, but I predicted (or better yet, recommended) it purchase a headless best-of-breed tool like Elastic Path.

So given the case I laid out for how Adobe would win by acquiring a commerce platform, why the head scratching?

For one, Adobe paid 10 times the annual revenue of Magento — a sum which is excessive by most valuations. Paying 10 times means Adobe plans to exponentially increase the acquisition’s revenue and not wait 10 years to break even, a difficult challenge given the new acquisition is on a completely different technology stack (PHP) than the rest of your platform (mostly Java). While a headless integration could resolve this, it still means the commerce piece would be living on an island by itself, unlike the rest of the Adobe Experience Cloud. 

Should Adobe choose a different route, namely a seamless and native integration with the experience cloud, it will lose out on the user interface (UI) capabilities and components of Magento. Those UI features are surely a big part of the software value that Adobe paid for. So why did Adobe make this inexplicable move?

Related Article: Adobe Goes From Forrester Leader to Strong Performer

Adobe Plus Magento: The Short Win

The short play is to complete its digital experience platform, finish the story. With this acquisition, Adobe will undoubtedly get back to the “Leader” category of DXPs in the next Forrester Wave (or the one after that) after being spurned last year. 

The really short and satisfying play is to stick it to its rival, Salesforce. After Salesforce acquired DemandWare (and CloudCraze) and SAP acquired Hybris (just as it was almost acquired by Adobe), there were no more tier 1 commerce platforms left to buy — except Magento. The short win is all about immediate benefits and they are almost always related to bragging rights.

Related Article: Forrester Boots Adobe, Names Oracle Lone Digital Experience Platform Leader

Adobe Plus Magento: The Long Win

The long play is quite simple: there are very few whales left for Adobe to land. While the large enterprise market is full of big spenders, they are also limited in numbers. Adobe has sold (or failed to sell) to almost every major player in the digital space, so what's left? 

Even before this acquisition, Adobe had started to focus on small to medium business (SMB) and mid-market customers. This focus has been in the form of Sales and Marketing as well as beginning to restructure offerings and pricing to cater to those clients. A strong internal push and prioritization of these initiatives has fueled this move because that is where Adobe can grow and scale. 

Post Magento acquisition, the same strategy applies. Magento has a very strong presence in the SMB and mid-market ecosystem for the commerce space, in fact there are some who don’t consider Magento “enterprise” at all. But what good would it do for Adobe to acquire a platform with which it shares a client base? Therefore, acquiring Magento introduces Adobe to 185 thousand Live Commerce websites currently on Magento: imagine the cross-selling possibilities. If equipped with the right cost structure and offering, Adobe can be very appealing, even for those with annual revenues less than $1 billion.

The Road Forward for Adobe and Magento

Whether it works or not, Adobe is certain to acquire thousands of newer, albeit smaller clients. The effectiveness of that play doesn’t just rest on the cost and offering restructure by Adobe, it requires a cultural change internally — because selling to McDonalds isn’t the same as selling to Southwest Missouri Bank. 

Adobe also has to bring in a ton of commerce expertise in house (from Magento or elsewhere). No one can talk “experience” better than Adobe but “commerce” is a whole different animal. Adobe has to award key and leadership positions for those coming in with Magento to ensure the success of this strategy.

Unfortunately, the reverse is harder to do for Magento. It is difficult to scale up the platform to cater to large enterprises from both a product capability and culture perspective. While that is not impossible to achieve, the road to get there would be treacherous with unwieldy obstacles along the way. Magento doesn’t have the best of B2B capabilities and suffered a performance setback with Magento 2. Even though these types of limitations can be overlooked for a smaller organization, it certainly wouldn’t pass the smell test of larger enterprises (especially ones with Architecture Review Boards).

At the end of the day, when the glamor of the short win wears off, Adobe is hoping the long win would prove this deal praiseworthy. Acquisitions can be difficult (see Neolane) but for this $1.68 billion purchase, only time will tell.