Magento CEO Mark Lavelle and others provide context around Adobe’s planned acquisition of Magento for $1.68 billion.

The $1.68 billion planned acquisition of open-source e-commerce platform Magento by Adobe Systems Inc. will help Adobe “complete the commerce loop” it offers retailers, Magento CEO Mark Lavelle said in an interview Tuesday with Internet Retailer.

And, for Magento, the purchase will help the company meet the demand it’s been encountering recently from enterprise organizations spanning insurance, financial services, wholesale and entertainment companies. “We knew we had a great product,” Lavelle says. “But we are a tech company first and foremost. We were getting so much demand from a broad range of industries. From a market perspective, this will help us build enterprise sales and scale. [Adobe] is a massive cloud company with a lot of resources and technology.”

In an interview late last year, Peter Sheldon, vice president of strategy at Magento Commerce, said Magento added “well over” 600 new customers in 2017 and is profitable. Part of the reason for that is the deals it has secured recently with much larger online retailers including many B2B businesses. “When we look at our deal size, our annual contract value, we’ve seen a significant move up market,” Sheldon said.

Magento Commerce Cloud, which Magento launched in 2016, is one reason Magento’s contracts are growing larger. The cloud-based system is more expensive than its older on-premise platform because it offers many more built-in features such as a content delivery network. Additionally, many Magento customers buy the full suite of Magento products, in addition to its e-commerce platform, which includes Magento Business Intelligence—which offers analytics and dashboard reporting honed from its 2016 acquisition of analytics firm RJ Metrics—and Magento Order Management. Such offerings are attractive to enterprise clients, Sheldon said. Clients with more than $10 million and more than $100 million in revenue are “up significantly,” he said. “We are being invited to RFPs we wouldn’t have been invited to before.”

The acquisition will help Magento develop in the enterprise market, both from a product and a sales perspective,” says Jason Daigler, research director, digital commerce for Gartner Inc. “Magento has had recent success in the enterprise market, and the order management and B2B offerings they introduced in the last two years also make them a more complete solution than they were a few years ago. This fits well with the gaps Adobe was looking to fill.”

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Adobe and Magento had been in acquisition talks for “the past couple months,” says Lavelle, noting Adobe was seeking to buy a company that could help it complete the commerce experience.

Adobe is adding Magento commerce capabilities to digital media products that made it one of the world’s largest software companies. The deal is slightly smaller than Adobe’s 2009 purchase of Omniture for $1.8 billion, which made the company a player in digital advertising.

Adobe works with consulting and advertising firms, including Deloitte, Capgemini and MRM McCann, and it kept hearing from such partners it needed to offer the full suite of e-commerce technology, Lavelle says.

“[Adobe] offers so much on the creative side about what drives people to buy and around consumer intentions about brands,” Lavelle says. It can deliver all the way up until checkout. Now, Magento can take over at checkout, and we offer help with shipping and fulfillment as well.”

Magento recently added features that extend beyond direct e-commerce site functionality. One is a shipping portal, which enables retailers to leverage same-day, next-day and overnight shipping and fulfillment options and helps them fulfill orders from stores. The portal integrates with Magento admin, the back office of a retailer’s store where orders, product catalog, content and configurations are managed.  The portal can manage multiple carriers and also integrates with Magento Order Management.

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“Despite partnerships with more than a dozen commerce platforms, Adobe has had a gap in digital commerce for a long time—they couldn’t offer a native commerce platform as part of their suite, so this fills a gap for them,” Daigler says.

On a conference call announcing the acquisition, Adobe CEO Shantanu Narayen said that consumers and businesses today “…expect every interaction to be shoppable—whether on the web, mobile, social, in-product or in-store. The addition of the Magento Commerce Cloud will enable commerce to be seamlessly integrated into Adobe Experience Cloud, delivering a single platform that serves both B2B and B2C customers globally.” Many retailers  in the Internet Retailer 2018 Top 1000 use Adobe for a range of services including for analytics (263) and rich media (117).

Magento’s customer base

Magento, the e-commerce platform provider for 167 retailers in the Top 1000, is an open-source platform, which means it allows web developers to create and share their own custom features or tweak the existing ones themselves because it offers access to underlying source code. In a survey of merchants by Internet Retailer conducted in November, 12% said they were using Magento as their current e-commerce platform.

Magento launched the newest flavor of its platform, Magento 2, in 2015. It also launched its first cloud-based platform, Magento Commerce Cloud, in April 2016, which allows retailers to access software hosted on the web by the vendor. Magento says most new Magento clients choose the cloud-based version of Magento and the percentage of clients who choose that version—hosted using Amazon Web Services—is rapidly increasing.

50% of new Magento Commerce customers choose Magento’s cloud offering, Sheldon told Internet Retailer in January. As of late 2017, around 20,000 customers use Magento 2, split between about 2,000 using the paid version—Magento Commerce—and 18,000 using the free version, which used to be called the Community edition but is now called Magento Open Source. Magento says there is still a sizable base of live Magento 1 merchants, but there is now a rapid migration flow from Magento 1 to Magento 2.

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Magento mainly competes with e-commerce platform providers BigCommerce and Shopify that, unlike Magento, have always solely offered cloud-based e-commerce platforms. Both BigCommerce and Shopify also mainly serve small and midsized businesses and neither are open source.

“[The deal] gives Magento a more compelling offering for the enterprise space than BigCommerce and Shopify,” Daigler says. Shopify has 32 e-commerce platform retail clients in the Top 1000; BigCommerce has 16.

Lavelle says adding the might and resources of a company like Adobe will help Magento build out its relatively new cloud offerings.

A conflicting culture?

However, Magento’s open-source roots give the company a reputation of having a sort of grassroots mentality that is open to tweaks and improvements from its community of more than 255,000 developers—more than 7,500 of whom are certified.  That collaborative environment may be at odds with a large corporation like Adobe, experts say.

“Adobe stated that it is committed to supporting this community,” Daigler says. “However, it will be interesting to see how the vast Magento community, who frequently develop features, which are incorporated into the Magento core platform, will react to that core platform now being owned by a large corporation.”

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Daigler adds that some Adobe products like Adobe’s Experience Manager enterprise content management system are seen as enterprise-grade products that are not used as frequently in the mid-market and below, and Adobe will need to “…embrace Magento’s focus on the mid-market in order to continue Magento’s success there.”

Lavelle says the two companies have a good cultural fit. “They understand our community approach and value of our ecosystem,” he says. Lavelle also notes that Adobe has acquired open-source-based companies in the past including Nitobi Software, which operated PhoneGap, an open-source platform that allows developers to build mobile applications using HTML5 and JavaScript. “They don’t talk about [open source] much,” Lavelle says. “But they understand that the way to develop software is through open platforms and communities.”

Lavelle says the deal is still pending regulatory approval, and the two companies haven’t finalized the organizational structure of how they will work together but that they plan to reveal details on that in the coming weeks.