Adobe 2014 Annual Report Download - page 40

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routes to market we use to license our creative software to targeted customers. Adoption of Creative Cloud has transformed our
business model and we continue to expect this to drive higher long-term revenue growth through an expansion of our customer
base by acquiring new users through a lower cost of entry and delivery of additional features and value, as well as keeping existing
customers current on our latest release. This model drives our revenue to be more recurring and predictable as revenue is recognized
ratably.
We continue to implement strategies that will accelerate awareness, consideration and purchase of subscriptions to our
Creative Cloud offering. These strategies include increasing the value Creative Cloud users receive, as well as targeted promotions
and offers that attract past customers and potential users to try out and ultimately subscribe to Creative Cloud. Additionally, in
May 2013 we announced we would exclusively deliver new creative product innovations and features to Creative Cloud subscribers,
and that Adobe Creative Suite 6 (“CS6”), which was released in May 2012, would be the last major update we provide for perpetual
licensees. In the first half of fiscal 2014, we announced the removal of general availability of CS6 on a perpetual licensing basis
from legacy shrinkwrap and volume licensing channels. We still offer CS6 through our Adobe.com website and in certain markets.
Because of the shift towards Creative Cloud subscriptions and ETLAs, perpetual revenue for CS6 has declined, and by the
fourth quarter of fiscal 2014 revenue from perpetual licensing of our creative professional products was immaterial.
During fiscal 2014, we continued to experience strong adoption of our Creative Cloud subscription offerings which has
caused our Creative Cloud subscription revenue to increase as compared to the year-ago period.
To assist with an understanding of this transition, we are using certain performance metrics to assess the health and trajectory
of our overall Digital Media segment. These metrics include the total number of current paid subscriptions and Annualized Recurring
Revenue (“ARR”). ARR should be viewed independently of revenue, deferred revenue and unbilled deferred revenue as ARR is
a performance metric and is not intended to be combined with any of these items. We plan to adjust our reported ARR on an annual
basis to reflect any material exchange rates changes.
For our Creative business, we define Creative ARR as the sum of:
• the number of current subscriptions, multiplied by the average subscription price paid per user per month, multiplied
by twelve months; plus,
• twelve months of contract value of ETLAs where the revenue is ratably recognized over the life of the contract; plus
• twelve months of Adobe Digital Publishing Suite contract value where the revenue is ratably recognized.
We exited fiscal 2014 with 3.454 million paid Creative Cloud subscriptions, up 140% from 1.439 million at the end of fiscal
2013. Total Creative ARR exiting fiscal 2014 was $1.68 billion, up from $801 million at the end of fiscal 2013.
Our Digital Media segment also includes our Document Services products and solutions, including Acrobat, Acrobat cloud
services and EchoSign e-signing solution. In fiscal 2014 we continued to drive solid adoption of our Acrobat family of products
primarily through license agreements with enterprise customers. We also drove strong adoption of subscription-based services
including our Acrobat cloud services. Combined, adoption of Acrobat through ETLAs and our Document Services subscription
offerings helped grow Document Services ARR to $271 million exiting fiscal 2014, up from $143 million at the end of fiscal 2013.
Total Digital Media ARR, which we define as the sum of Creative ARR and Document Services ARR, grew to $1.95 billion
at the end of fiscal 2014, up from $944 million at the end of fiscal 2013, demonstrating the progress we have made with the
transformation of our business to a more recurring, ratable and predictable revenue model. Our reported ARR results in fiscal 2014
are based on currency rates set at the start of the fiscal year and held constant throughout the year. Revaluing our ending ARR for
fiscal 2014 using currency rates at the beginning of fiscal 2015, our Digital Media ARR at the end of fiscal 2014 would be $1.88
billion or approximately $72 million lower than ARR reported above.
We are a market leader in the fast-growing category addressed by our Digital Marketing segment. Our Adobe Marketing
Cloud includes six solutions addressing the expanding needs of marketers, the newest of which is Adobe Campaign—a cross-
channel campaign management tool that we added to our portfolio with the acquisition of Neolane during the third quarter of fiscal
2013.
Revenue from Adobe Marketing Cloud increased 15% during fiscal 2014 compared to the year-ago period. Helping to drive
this performance was strong adoption across our portfolio of Adobe Marketing Cloud solutions including solid growth of our
Adobe Experience Manager (“AEM”) and Adobe Campaign offerings.
AEM and Adobe Campaign have historically been licensed by our customers as on premise offerings where license revenue
has been recognized at the time of the transactions. During fiscal 2014, we saw increased customer adoption of term-based licensing