Adobe’s Winding Road to the Recurring Revenue Interstate

Adobe’s Winding Road to the Recurring Revenue InterstateAs the Wall Street Journal alluded to recently, Adobe’s much bally-hooed shift to recurring revenue has had its fair share of opportunities and challenges. Yet, while the headline states that Adobe is “exploring” its move nobody at Adobe is moving anywhere but full steam ahead. And with good reason: earnings rose 16% during the last quarter, with recurring revenue providing a strong contribution.

The move has not only fattened up Adobe’s coffers, it’s been a win for their customers. Think of it as going from a diet of bread and water to gorging on a price and product smorgasbord. Yet, “having it your way” can also create some indigestion.

The biggest challenge, according to Adobe Chief Information Officer, Gerri Martin-Flickinger comes from updating their accounting system to handle a variety of new pricing plans and packages. How hard can it be? According to Martin-Flickinger it’s even harder than moving from a waterfall to an agile development process, which requires a giant shift in developer thinking and often a 12 x acceleration in cadence. (And I’ve seen how hard that is.)

As Martin-Flickinger states, “… gone is a single easily reported SKU.” In its place are multiple plans, which can be based on tiers, duration, consumption, region or a combination of any of the above. But there are additional complications that John Pora, Aria’s head of professional services, detailed for me:

Most existing systems are built for reporting a custom bundle but aren’t equipped to split the bundle up and then recognize the revenue from multiple bundles over infinite and varied time intervals. In a recurring model, how and when you recognize revenue becomes more complicated and subject to a variety of factors like billing cycles, mid-cycle changes and promotional offers, etc. Plus, all this information must be communicated to the multiple systems (accounting, ERP, CRM and the like) so that you have a complete record of transactions through delivery. In short, to record accurately you must account for variability but most systems aren’t set up to do that. And if you can’t slice and dice the data, it’s pretty hard to make much use of it.

The road to managing recurring revenue can take you down a winding country lane versus the high-speed interstate. Most companies can still make the trip; it just takes planning to get logistics down.

Efficiency and integration will come in time.

Wall Street, who is tracking and profiting from Adobe’s success, and Adobe’s customers, who are getting better products at ever enticing plans, will both demand it.

Parker Trewin