Adobe 2011 Annual Report Download - page 36

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If we fail to successfully manage transitions to new business models and markets, our results of operations could be negatively
impacted.
We plan to release numerous new product and service offerings and employ new software delivery methods in connection
with our diversification into new business models and markets. It is uncertain whether these strategies will prove successful or
whether we will be able to develop the infrastructure and business models more quickly than our competitors. Market acceptance
of these new product and service offerings will be dependent on our ability to include functionality and usability in such releases
that address certain customer requirements with which we have limited prior experience and operating history. Some of these new
product and service offerings could subject us to increased risk of legal liability related to the provision of services as well as
cause us to incur significant technical, legal or other costs. For example, with our introduction of on-demand or cloud-based
services and subscription-based licensing models, we are entering markets that are not yet fully mature. Market acceptance of
such services is affected by a variety of factors, including security, reliability, performance, customer concerns with entrusting a
third party to store and manage their data, public concerns regarding privacy and the enactment of laws or regulations that restrict
our ability to provide such services to customers in the U.S. or internationally.
Additionally, customer requirements for open standards or open-source products could impact adoption or use of some of
our products or services. To the extent we incorrectly predict customer requirements for such products or services, or if there is a
delay in market acceptance of such products or services, our business could be harmed.
From time to time we open source certain of our technology initiatives, provide broader open access to our technology,
license certain of our technology on a royalty-free basis, and release selected technology for industry standardization. These
changes may have negative revenue implications and make it easier for our competitors to produce products or services similar
to ours. If we are unable to respond to these competitive threats, our business could be harmed.
We are also devoting significant resources to the development of technologies and service offerings in markets where we
have a limited operating history, including cloud-based computing and mobile and non-PC device markets. These new offerings
and markets require a considerable investment of technical, financial, compliance and sales resources, and a scalable organization.
Many of our competitors may have advantages over us due to their larger presence, larger developer network, deeper experience
in the cloud-based computing and mobile and non-PC device markets, and greater sales, consulting and marketing resources. In
the mobile and non-PC device markets, our intent is to partner with device makers, chipset and OS vendors, manufacturers and
telecommunications carriers to embed our technology on their platforms. If we are unable to successfully enter into strategic
alliances with device makers, manufacturers or telecommunication carriers, or if they are not as productive as we anticipate, our
market penetration may not proceed as rapidly as we anticipate and our results of operations could be negatively impacted.
The increased emphasis on a cloud strategy may give rise to risks that could harm our business.
To accelerate the growth of our business, in November 2011, we announced a strategy to offer subscriptions to certain of
our products as part of our Creative Cloud offering. As a result, we expect to derive an increasing portion of our revenues in the
future from subscriptions to our cloud-based offerings. This subscription model will alter the way we price and deliver our products.
These changes reflect a partial shift from perpetual license sales and distribution of our software in favor of providing our customers
the right to access certain of our software in a hosted environment or use downloaded software for a specified subscription period.
If our customers' purchases trend away from perpetual licenses toward subscriptions, we will experience a deferral of revenues
and cash received from customers. This cloud strategy will require continued investment in product development and cloud
operations, and may give rise to a number of risks, including the following:
• if new or current customers desire only perpetual licenses, we may not be successful in selling subscriptions;
• although we intend to support our perpetual license business, the increased emphasis on a cloud strategy may raise
concerns among our installed customer base;
• we may be unsuccessful in achieving our target pricing;
• our revenues might decline over the short or long term as a result of this strategy;
• our relationships with existing partners that resell perpetual licenses may be damaged; and
• we may incur costs at a higher than forecasted rate as we expand our cloud operations.
Revenue from our product and service offerings may be difficult to predict.
As previously discussed, we are devoting significant resources to the development of product and service offerings as well
as new distribution models where we have a limited operating history. The addition of a subscription licensing model to augment
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