Adobe 2011 Annual Report Download - page 37

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our traditional perpetual licensing model may cause license revenue to decline more quickly than anticipated. Under a subscription
model, downturns or upturns in sales are not be immediately reflected in our results of operations. Subscription pricing allows
customers to use our products at a lower initial cost when compared to the sale of a perpetual license. Although the subscription
model is designed to increase the number of customers who purchase our products and services and create a recurring revenue
stream that is more predictable, it creates certain risks related to the timing of revenue recognition and reduced cash flows.
As a result, the subscription-based revenue we report each quarter results from the recognition of deferred revenue relating
to subscription agreements entered into during previous quarters. A decline in new or renewed subscriptions in any period may
not be immediately reflected in our results for that period, but may result in a decline in our revenue in future quarters. If we were
to experience significant downturns in subscription sales and renewal rates, our results of operations might not reflect such
downturns until future periods. A subscription model could also make it difficult for us to rapidly increase our revenues from
subscription- or SaaS-based services through additional sales in any period, as revenue from new customers will be recognized
over the applicable subscription term. Further, any increases in sales under our subscription sales model could result in decreased
revenues over the short term if they are offset by a decline in sales from perpetual license customers.
Additionally, in connection with our sales efforts to enterprise customers, a number of factors could make our revenue less
predictable, including longer than expected sales and implementation cycles, decisions to open source certain of our technology
initiatives, potential deferral of revenue due to multiple-element revenue arrangements and alternate licensing arrangements. If
any of our assumptions about revenue from our new businesses or our addition of a subscription-based model prove incorrect, our
actual results may vary materially from those anticipated, estimated or projected.
We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue
and operating results.
The SaaS business model we utilize in our Digital Marketing business unit typically involves selling services on a subscription
basis pursuant to service agreements that are generally one to three years in length, and subscription agreements for other products
and services may provide for shorter or longer terms. Although many of our service and subscription agreements contain automatic
renewal terms, our customers have no obligation to renew their subscriptions for our services after the expiration of their initial
subscription period, and some customers elect not to renew. We cannot provide assurance that these subscriptions will be renewed
at the same or higher level of service, for the same number of seats or for the same duration of time, if at all. Moreover, under
certain circumstances, some of our customers have the right to cancel their service agreements prior to the expiration of the terms
of their agreements. We cannot be assured that we will be able to accurately predict future customer renewal rates. Our customers'
renewal rates may decline or fluctuate as a result of a number of factors, including their satisfaction or dissatisfaction with our
services, the prices of our services, the prices of services offered by our competitors, mergers and acquisitions affecting our
customer base, reductions in our customers' spending levels, or declines in consumer internet activity as a result of economic
downturns or uncertainty in financial markets. If our customers do not renew their subscriptions for our services or if they renew
on less favorable terms to us, our revenues may decline.
Our future growth is also affected by our ability to sell additional features and services to our current customers, which
depends on a number of factors, including our customers' satisfaction with our services, the prices of our services and general
economic conditions. If our efforts to upsell to our customers are unsuccessful, the rate at which our business grows might decline.
Uncertainty about current and future economic conditions and other adverse changes in general political conditions in any of the
major countries in which we do business could adversely affect our operating results.
As our business has grown, we have become increasingly subject to the risks arising from adverse changes in domestic and
global economic and political conditions. Uncertainty about current and future economic and political conditions on us, our
customers, suppliers and partners, makes it difficult for us to forecast operating results and to make decisions about future
investments. If economic growth in the U.S. and other countries slows or does not improve, or if the U.S. or other countries in
which we do business experience further economic recessions or sovereign debt crises, or if current economic conditions in Europe
do not improve or deteriorate further, many customers may delay or reduce technology purchases, advertising spending or marketing
spending. This could result in reductions in sales of our products and services, longer sales cycles, slower adoption of new
technologies and increased price competition. Deterioration in economic conditions in any of the countries in which we do business
could also cause slower or impaired collections on accounts receivable which may adversely impact our liquidity and financial
condition.
Financial institutions may continue to consolidate or cease to do business which could result in a tightening in the
credit markets, a low level of liquidity in many financial markets, and increased volatility in fixed income, credit, currency and
equity markets. There could be a number of effects from a financial institution credit crisis on our business, which could include
impaired credit availability and financial stability of our customers, including our distribution partners and channels. A disruption
in the financial markets may also have an effect on our derivative counterparties and could also impair our banking partners on
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