Adobe 2014 Annual Report Download - page 25

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Successfully managing our indirect channel efforts to reach various customer segments for our products and services is a
complex process across the broad range of geographies where we do business or plan to do business. Our distributors and other
channel partners are independent businesses that we do not control. Notwithstanding the independence of our channel partners,
we face potential legal risk and reputational harm from the activities of these third parties including, but not limited to, export
control violations, workplace conditions, corruption and anti-competitive behavior. Although we have undertaken efforts to reduce
these third-party risks, they remain present. We cannot be certain that our distribution channel will continue to market or sell our
products effectively. If our distribution channel is not successful, we may lose sales opportunities, customers and revenues.
Our distributors also sell our competitors’ products, and if they favor our competitors’ products for any reason, they may
fail to market our products as effectively or to devote resources necessary to provide effective sales, which would cause our results
to suffer. We also distribute some products through our OEM channel, and if our OEMs decide not to bundle our applications on
their devices, our results could suffer.
In addition, the financial health of our distributors and our continuing relationships with them are important to our success.
Some of these distributors may be adversely impacted by changes to our business model or unable to withstand adverse changes
in current economic conditions, which could result in insolvency and/or the inability of such distributors to obtain credit to
finance purchases of our products. In addition, weakness in the end-user market could negatively affect the cash flows of our
distributors who could, in turn, delay paying their obligations to us, which would increase our credit risk exposure. Our business
could be harmed if the financial condition of some of these distributors substantially weakened and we were unable to timely
secure replacement distributors.
We also sell certain of our products and services through our direct sales force. Risks associated with this sales channel
include longer sales and collection cycles associated with direct sales efforts, challenges related to hiring, retaining and motivating
our direct sales force, and substantial amounts of training for sales representatives, including regular updates to cover new and
upgraded systems, products and services. Moreover, recent hires may not become as productive as we would like, as in most cases
it takes a significant period of time before they achieve full productivity. Our business could be seriously harmed if these expansion
efforts do not generate a corresponding significant increase in revenues and we are unable to achieve the efficiencies we anticipate.
In addition, the loss of key sales employees could impact our customer relationships and future ability to sell to certain accounts
covered by such employees.
We also provide products and services, directly and indirectly, to a variety of governmental entities, both domestically and
internationally. Risks associated with licensing and selling products and services to governmental entities include longer sales
cycles, varying governmental budgeting processes and adherence to complex procurement regulations and other government-
specific contractual requirements. Ineffectively managing these risks could result in various civil and criminal penalties and
administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government
business, as well as harm to our reputation.
We outsource a substantial portion of our customer service and technical support activities to third-party service providers.
We rely heavily on these third-party customer service and technical support representatives working on our behalf, and we expect
to continue to rely heavily on third parties in the future. This strategy provides us with lower operating costs and greater flexibility,
but also presents risks to our business due to the fact that we may not be able to influence the quality of support as directly as we
would be able to do if our own employees performed these activities. Our customers may react negatively to providing information
to, and receiving support from, third-party organizations, especially if based overseas. If we encounter problems with our third-
party customer service and technical support providers, our reputation may be harmed and we could lose customers and associated
revenues.
Certain of our enterprise offerings have long and complex sales cycles.
Sales cycles for some of our enterprise offerings, including our Adobe Marketing Cloud Solutions and ETLAs in our Digital
Media business, are long and complex. The complexity in these sales cycles is due to a number of factors, including:
• the need for our sales representatives to educate customers about the use and benefit of our large-scale deployments of
our products and services, including technical capabilities, security features, potential cost savings and return on
investment;
• the desire of large and medium size organizations to undertake significant evaluation processes to determine their
technology requirements prior to making information technology expenditures;
• the need for our representatives to spend a significant amount of time assisting potential customers in their testing and
evaluation of our products and services;