Geschke on corporate reinvention, betting the business

Want to predict how Adobe will act? Look at its past. Groups develop different cultures, and knowing how a group “works” gives big clues on its future. This Knowledge@Wharton interview with Adobe co-founder Charles Geschke can give you deep background on how the people of Adobe look at things.

Yesterday I pulled out a section on core history with standards… the “open” model with PostScript, PDF and SWF is very similar to the model with HTML, JavaScript and CSS. Here’s a section on how the company has reinvented itself a few times, from turnkey systems provider to PostScript licensing to shrinkwrap software for a consumer channel, then enterprise, and now the various web models.

The early company was based on the idea of providing complete digital printing systems to the types of large companies which were then investing in early computers for database and processing:

Bill Hambrecht was one of the first guys pushing venture investing in high-tech companies. We told him our plan, which was to build a complete turnkey publishing system — the computers, the printers, the typesetting equipment, everything — and sell it to the Fortune 500 so they could bring a lot of their production work in house. He liked the idea because he hated financial printers. Every time he did a prospectus he felt that he was being robbed. He agreed to invest $2.5 million over two years in two equal payments and told us we would have to quit our jobs….

But once they started meeting with potential customers and partners, a need arose which was greater than that for printing systems integration. Both Digital Equipment and Apple had computers themselves, and had printer deals, but were stuck at getting the two to work together — to be able to create and edit a document with a computer at screen resolution, and have it be understood by a printer at high resolution.

Knowledge@Wharton: This is how Adobe began as a printer software company?

Geschke: Yes. We developed the [PostScript] language after we left PARC. What really caught people’s attention was what we were doing in terms of rendering type on-the-fly from outlines [the curves used to define the characters of a typeface at any size or angle].

Popular mythology at the time said that couldn’t be done; you have to hire a bunch of monks to build bitmaps. We knew that wouldn’t fly because we really wanted [to do] arbitrary expansion and contraction [of the typefaces]. You could never have enough bitmaps or enough typefaces to satisfy the printing world. It was just infeasible. You had to do it from outlines. We eventually developed software that did that and continue to use it today.

(It’s funny… what PostScript did with curves-to-dots across early computers and printers, Flash did with vector rendering in the early web-browsers. It’s hard to remember today, but the big reason people first started noticing Flash was that it used “scalable vector graphics” for smooth drawings regardless of resolution, offering very small filesizes for large drawings of low detail.)

PostScript was cloned and resold by competitors, but the Adobe implementation finally ended up as the most important in the printing ecology it spawned. But at this point a new need emerged: the need to be able to actually design with the new publishing technology. A new type of business needed to be invested in and developed, that of software which could be sold to individuals. This was not easy:

Knowledge@Wharton: How was it to go from being a company that sold printer software to OEMs [original equipment manufacturers] to being a shrink-wrapped desktop software company with products like Illustrator and Photoshop?

Geschke: It was a “come to Jesus” moment inside the company, because all the profits were being made by PostScript. As we began to invest in not only development, which was relatively inexpensive — just a few people — but more importantly in building a sales and marketing presence in the retail channel, we were chewing up resources. It was difficult in the early days to demonstrate profitability in that business. Every time we would have a budget debate, you can imagine how that went: “I’m bringing in most of the money. I should be getting these resources.”

Knowledge@Wharton: What motivated you to stick with this second line of business?

Geschke: One of the obvious lessons in business is that you can’t continue to be a one product company and survive. We also felt we couldn’t be a one channel company and survive. We were captive of those OEMs [of PostScript printers]. If they ever decided to drop us, we [would have been] toast. We had no channel.

John’s wife was — and is — a graphic designer. John had a second job [when he went] home at night writing PostScript code to do what she wanted to do on the LaserWriter. He got a couple of engineers to come up with Illustrator. We launched Illustrator and it did very well.

We realized then that we spent a lot of money to build a retail channel and a sales force and we had to feed it. There had to be more products….

Turnkey provider, to printer software developer, to digital creative tools sold at retail. The next jump was to dealing with entire documents across all types of machines, rather than just isolated files. The Portable Document Format and Adobe Acrobat were the next round of investment, development, and ultimately worldly innovation:

Knowledge@Wharton: For a long time it cost Adobe more to develop and market Acrobat than the revenue it returned.

Geschke: Oh yeah, the antibodies inside the company were just all over it.

Knowledge@Wharton: People wanted to kill the product?

Geschke: Of course, because they said, “Look, we’re selling all this Photoshop. We’re selling all these printers. Why the hell are we investing in this thing, and giving it away?”

Knowledge@Wharton: Why did you continue to invest in Acrobat for so long? What gave you the confidence to continue to pour money into it?

Geschke: Your own instincts. You can’t analyze a market that has never existed.

This theme, of radically changing the company to fulfill what the future requires, continues today:

We instinctively knew that was where things were going. The only business book that John and I ever read, and the only chapter that I remember from it was a chapter entitled “Market Gap Analysis.” The one idea I remember was that it is easier to build a business if you find a new solution to an already perceived problem that no one has come out with before — because you instantly are [at] 100% market share.

We did that with PostScript, we did that with Illustrator, and we were going to do it with Photoshop even though we knew we were going in early. And it has worked out very well.

We did the same thing with Acrobat. We brought Acrobat out about three years before the Internet really took off, thinking that local area networking would be enough to support it, but it wasn’t.

And we’re trying to do the same thing with AIR [the Adobe Integrated Runtime development platform for cross-operating system software]: Bring it out before anyone else has the idea of the concept, get the platform established, and then shame on us if we can’t make money off it.

Knowledge@Wharton: While the technology has changed greatly over the past two decades, there appears to be a certain consistency in Adobe’s business strategy.

True. And where does this lead?

Knowledge@Wharton: What do you think is the biggest challenge Adobe is facing going forward?

Geschke: Inventing the future. We’ll never succeed unless we continue to open up new vistas.

I honestly believe that our technology and what’s happening in the market — where essentially all visual communication is going to the web — is the sweetheart point in our whole envelope of products and technologies. Shame on us if we can’t figure out a way to take advantage of that shift in the way the world is moving with the distribution of information.

A lot of what are there today — the limitations of browsers and of the web imaging standards — are things that we think we have a solution for.

There’s indeed “a certain consistency” in all this. It’s “inventing the future.”

From seeing the need for general digital publishing, to changing the business to focus on a gap in the ecology, to expanding outwards to the creation of standalone software and a retail channel, to the building of a document business, and now to the building of a universal media-application platform… each “molting” of the business required a clear commitment to the next generation of growth… betting big on that inevitability which cannot yet be proven. You can see the newest stage of this evolution today.

Adobe invents new things. Its natural disposition is to generate solutions for new problems, to anticipate needs for which there is yet no solution. Adobe then opens up the results, and makes them universally accessible, as the very key to its success. When one generation of problem is addressed, the company bets hard on solutions for the next important problem.

If you want to know how Adobe will act in its future, then look at how consistently it has acted in its past.