On Monday, Adobe and Magento announced that Adobe will acquire Magento Commerce for 1.68 billion dollars. The deal, expected to close during Adobe’s 3rd quarter, was very well received by analysts. The move allows Adobe to close the loop in the customer journey as the Adobe ecosystem did not previously have commerce capability. An inability to complete the transaction (at the customer/consumer/buyer level) was a vital and missing part of Adobe’s customer experience, including subsequent customer relationship management (CRM) and the all important optimization of customer lifetime value (CLV).
Adobe’s main competitors in the enterprise space, SAP and SalesForce, have both made big eCommerce acquisitions recently. SAP acquired Hybris while SalesForce acquired Demandware. Magento provides the Adobe ecosystem with the critical commerce capability required to bring their digital experience full circle, with “content creation, marketing, advertising, analytics and now commerce – enabling real-time experiences across the entire customer journey,” (source).
As with any transaction of this magnitude, there are many questions, especially for our clients and prospects who are Magento customers and users (and those considering Magento). Though many questions will be best addressed as they come up, here is our take on the situation.
Adobe announced that is acquiring Magento for 1.68 Billion dollars (USD)
When did this happen?
What happens next?
Right now, nothing. Though the deal is announced, it is expected to close during Adobe’s 3rd quarter of 2018 (Q3-2018), which is from June 1st to August 31st.
What will happen once the deal closes this fall?
We don’t expect any short term changes to Magento’s planned releases, current releases, terms or even their strategic outlook. Adobe is very mindful of the community approach that has been key to Magento’s success and adoption. In fact, the Adobe community is very active and there seems to be a cultural fit here.
Maybe a rebranding? When SAP acquired Hybris, they named the solution “SAP Hybris”. When SalesForce acquired DemandWare, the named it “SalesForce Commerce Cloud (formerly Demandware)” That’s right, the (formerly Demandware) part is very important, even on eMarketer’s industry reports (which we integrated in our Q1 Canadian eCommerce Index).
Aside from announcements, we expect very little change (if any) over the next year. Acquisitions and business integrations are complex at best, especially for a deal of this magnitude.
Adobe has a reputation of respecting management structures within acquired entities, which is good, as it minimizes “acquisition pushback” and fallouts. Mostly, it allows technologies like Magento to continue to flourish.
Will this affect Magento 2.3 and the following releases?
Very unlikely. The development work for these releases are the result of a long process and have been road-mapped for some time.
We don’t expect Magento’s roadmap to change over the medium term either. Adobe typically takes time to integrate their acquisitions (a smart move), and you don’t mess with a winning formula, which, based on Magento’s recent growth, is exactly what they have.
If anything, Adobe can probably help accelerate Magento’s roadmap, as Magento now has access to a much deeper pool of resources. Exciting stuff, when you think about it.
Magento has the most modern stack, generally speaking, and Adobe is well aware of this. This is also what Adobe is acquiring, and the best thing they can do is to accelerate Magento’s roadmap, not change the tech at the core of Magento’s value – again, something Adobe is well aware of.
Why did Adobe buy Magento? What does Adobe have to do with eCommerce?
Adobe needed commerce capability with their Adobe Experience Cloud platform – as well as for their other platforms – in order to help their enterprise clients provide end-to-end digital experiences. They needed to close the loop.
Without commerce, they could create compelling experiences and personalize throughout the customer journey, but would lose the consumer at the critical “purchasing” stage. If you “own” the prospect, why not go one step further and own the customer relationship? The long tail implications, from a marketing perspective, make a whole lot of sense and frankly, from a marketing perspective, are very exciting.
The purchase gives Adobe a missing eCommerce platform piece that works in B2B and B2C contexts and should fit nicely in the company’s Experience Cloud. It should also help Adobe compete with Salesforce, which offers its own marketing, sales and service offerings in the cloud and which bought Demandware for more than $2 billion in 2016 to provide a similar set of functionality.
From that same article: “…this fills an obvious hole in Adobe’s Experience Cloud. “Now they have an offering that allows them to close the loop with consumers, who are able to finalize a digital transaction that started online with digital marketing tools Adobe already offered,”
– Brent Leary, CRM Essentials.
Magento also brings solid B2B capability to Adobe’s offering, which currently has a strong B2C presence but is putting its B2B ambitions into action.
Also, Magento and Adobe are partners and share clients like Coca-Cola, Warner Music Group, Nestle and Cathay Pacific.
Why did Magento sell to Adobe?
First things first, ask us why Magento sold in the first place.
Fine. Why did Magento sell in the first place?
1.68 Billion reasons.
The company was built to be acquired – they were always going to sell. Here is a short history of Magento, from an ownership/investor standpoint:
- 2007: Founded
- 2008: First open-source public beta released in August
- 2008: First full release of Magento eCommerce
- 2010: eBay purchases 49% of the company
- 2011: eBay buys the rest of Magento
- 2013: Absolunet becomes a Magento partner!
- 2015: eBay spins off several divisions, including PayPal and Magento, which was acquired by Permira Partners
“Outside of eBay, Magento can shine.” said Mark Lavelle, Magento’s new CEO
- 2015: Magento 2.0 released
- 2017: Hillhouse Capital invests $250 million in Magento
- 2018: Adobe acquires Magento for 1.68 Billion
As you can see, Magento’s ownership had a “build and sell” strategy, which takes nothing away from the work achieved, the install base and the technology milestones reached. Quite the opposite, in fact.
Why Adobe? Why is Magento selling to Adobe?
Adobe has been looking to acquire eCommerce capability for some time. They tried to acquire Hybris (which they lost to SAP), then DemandWare (which they lost to SalesForce). Throughout that time, Magento has been growing by leaps and bounds, both technologically and from an install base perspective.
Magento has been making huge strides in the Enterprise market recently, and Adobe has a HUGE footprint in the mid-market and enterprise markets, across many vectors and in several countries and regions. It seems that Magento has just unlocked their enterprise potential and now has immediate/privileged access to the very clients they were seeking.
“As Content + Commerce capabilities have become inextricably linked, commerce plays a more integral part of the consumer experience than ever before.”
Mark Lavelle, Magento CEO
What happens to current Magento customers?
Business as usual. Clients have contracts and digital ecosystems in place. The technology doesn’t change and won’t change (other than planned evolutions, which are already on the roadmap) any time soon.
What happens next? How does this affect Magento customers, or companies considering Magento?
Business as usual. The technological realities you are working with and/or considering will not change overnight and at this stage, not only is it just an announcement, it is mostly a market/financial/strategic move.
Focus on your business and on improving your eCommerce capabilities. We would be VERY surprised to to see any change should occur, other than maybe branding.
If it does, we’ll be there to work through it and optimize your eCommerce investment without compromising your roadmap.
How should I integrate this into my eCommerce roadmap?
Focus on your current roadmap and on optimizing the ecosystem you already have. The systems and processes remain unchanged and this announcement (that’s all it is, for now) has absolutely no impact on your current technology.
When the eCommerce ecosystem lifecycle will be up for review and potential replatforming, we will perform the same audit and analysis we did when you selected Magento. As it stands now, Magento is by far the best choice for many merchant scenarios and we’d be surprised to see this change in the next few years – though it is our job as an eCommerce agency to keep abreast of all changes, including the rise of new platforms.
Why didn’t Adobe buy Shopify?
Shopify is expensive. Dries Buytaert’s analysis is spot on:
“…in early 2017, Magento raised $250 million in funding from Hillhouse Capital. Let’s assume that $180 million of that is still in the bank. If we do a simple back-of-the-envelope calculation, we can subtract this $180 million from the $1.68 billion, and determine that Magento was valued at roughly $1.5 billion, or a 10x revenue multiple on Magento’s trailing twelve months of revenue. That is an incredible multiple for Magento, which is primarily a licensing business today. Compare that with Shopify, which is trading at a $15 billion dollar valuation and has $760 million of twelve month trailing revenue. This valuation is good for a 20x multiple.”
How will this affect Absolunet’s partnership with Magento? Will Absolunet automatically become an Adobe partner?
We expect more details to follow once the deal closes, though drastic changes would be very surprising.
Absolunet is a Magento Enterprise partner and no change is planned for the time being.
Matt Asay, the head of Adobe’s developer ecosystem, had this to say:
“In announcing the acquisition of Magento, a leading commerce platform, not only are we recognizing the importance of giving brands a way to make every moment personal and every experience shoppable, we’re also underscoring the critical role that a robust global community of partners and developers plays in driving innovation. With more than 300,000 developers, 800 technology partners, and 350 system integration partners, Magento brings the power of its community to the Adobe Cloud Platform.”
To be honest, we’re very excited about the prospect of working more closely with the clients that Magento now has access to, as a part of the Adobe ecosystem.