Case Study: Adobe Had Always Been ARTS PDF's Best Partner, Then Everything Changed

Was going head-to-head with the industry giant the best move?

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For 10 years, Karl De Abrew and Sam Chandler had a happy, productive relationship with Adobe, developing plug-ins to enhance Acrobat PDF software and consulting with the software giant, based in San Jose, California, on developer support. And Adobe seemed just as happy with ARTS PDF, De Abrew and Chandler's Melbourne, Australia-based company; it even sponsored ARTS PDF's online community of PDF users, Planet PDF. By 2003, ARTS PDF had 30 full-time employees and half of its $3 million in annual revenue came from Adobe-related projects.

But the two partners were plotting a move that once would have seemed insane--severing the relationship and instead competing with Adobe with a PDF product of their own. The problem was the way Adobe had begun treating third-party developers like ARTS PDF. Since the release of Adobe Acrobat in 1993, such developers had been key to Adobe's strategy. The company created the application with an open standard, giving any developer access to the software's specifications and a free license to create applications to extend its capabilities. Hundreds of third-party developers had based their businesses on Acrobat. ARTS PDF, for example, scored a big hit with a plug-in that, among other things, allows users to activate Web links in PDF documents, and sells the software on its own website, PDF Store.

But Adobe's CEO, Bruce Chizen, who took over from co-founder John Warnock in 2000, had grown wary of working with outsiders. Warnock used to refer to the hundreds of third-party developers as Adobe's "ecosystem." Under Chizen's leadership, however, the company began reengineering the third-party plug-ins itself, incorporating them into new and increasingly complicated versions of Acrobat. That sparked concern among developers. If consumers could buy Acrobat software loaded with the latest extras, they would no longer need plug-ins.

De Abrew and Chandler were as tuned into the PDF community as anyone, and they knew what was coming: Their plug-in business was disappearing before their eyes. At the same time, they sensed that there was a market for an Acrobat alternative. People were changing the way they used PDF applications. Instead of using the software simply to create and read files, more businesses were embracing the PDF format as a collaboration tool to let workers share digital documents, inserting revisions and comments along the way. Acrobat can do all those things, but the cost can sting when a company needs to push out the software to large groups of employees. What's more, many companies don't need Acrobat's whiz-bang graphics capabilities, which tend to slow down performance.

De Abrew began asking customers what they thought about Adobe. Their responses backed up his hunch. He says he heard complaints from many executives who were tired of paying between $350 and $450 per user to license the software. Acrobat, they said, was sometimes overwhelming and confusing. They wanted a cheaper version that was faster and easier to use. And if ARTS PDF built it, they'd buy it.

De Abrew and his colleagues had been kicking around the idea of creating an alternative to Adobe for years but had never seriously pursued it. Now it seemed like a good idea. Adobe was huge, with revenue of $700 million. But a 2003 research report found that the PDF market had the potential to reach $1 billion. De Abrew and Chandler were confident that ARTS PDF had the industry knowledge and engineering chops to pull off a cheaper, scaled-down version of Acrobat. What's more, the open PDF standard meant anyone could develop applications to compete with Acrobat, so there was little possibility of a lawsuit.

The way De Abrew and Chandler saw it, they had two options. They could stick it out and hope that Adobe reconsidered its approach toward third-party developers, the chances of which seemed pretty slim. Or they could try to get a slice of the PDF market for themselves. That would mean alienating their biggest partner. It would also mean refocusing most of their limited resources on developing the new product and all but abandoning the plug-in business that had been so profitable. The stakes couldn't be higher: If the competing product failed, Adobe wasn't likely to let them return to the fold. There would be no turning back.

The Decision

One muggy afternoon in December 2003, in the 100-plus-degree heat of the Australian summer, De Abrew and Chandler sat down with their four-member board of directors at the company's headquarters and began sketching out a strategy for going up against Adobe. The mood was tense, but as the group looked out a conference room window at the city's skyline, they knew there was nowhere to go but forward. "We decided we'd rather have our own Acrobat and a shot at a growing market than a slice of a declining one," De Abrew recalls.

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