With its plan to acquire Magento Commerce for $1.68 billion, digital media and marketing products company Adobe Systems Inc. is moving to reach a wider customer base of mid-size as well as larger companies with a fuller suite of technology that covers e-commerce. But if the deal closes as expected sometime in the third quarter, having a broader technology and services platform won’t by itself be enough win over more customers of all sizes, industry analysts say.
The key for success for Adobe and Magento is leveraging each company’s products and services—Adobe’s digital media and Magento’s e-commerce software—expertise into a unique technology suite, industry experts say.
Adobe, which focuses on large corporate clients, will gain entry into the mid-size company market that is Magento’s core customer base. And if it can successfully help Magento grow its technology and services, it will also expand its reach among smaller companies as well as large enterprises, analysts say.
“Magento gives Adobe entry into the mid-market and credibility in B2B e-commerce, and Adobe will bring Magento up-market to handle larger companies,” says Ray Wang, CEO of technology research and advisory firm Constellation Research.
“Adobe really needed to get into the commerce game to provide a full solution and compete with SAP, Oracle, IBM, and Salesforce,” adds Brian Beck, senior vice president, e-commerce and omnichannel, at web design and development firm Guidance. “Magento makes a great fit to complete the package, particularly given Magento’s recent and significant investments in B2B e-commerce capabilities. Adobe will continue to pull Magento up market.”
The most immediate impact of the Adobe-Magento deal, however, would likely be in the mid-sized company market. That e-commerce technology market has long been divided among a diverse group of niche vendors. But that gives Adobe and Magento an opportunity to step in with a more complete suite of e-commerce and marketing technology and services. Adobe will be able to introduce Magento’s e-commerce software to its broad channel of companies already familiar with its digital media and marketing products.
“That mid-market space has traditionally been quite fragmented, and acquiring customers has been like herding cats,” says Andy Hoar, CEO of consulting firm Paradigm B2B. “But with Adobe’s mid-market sales channel and Magento’s e-commerce technology, there will be a viable large-scale vendor in the mid-market B2B space. This creates a whole new playing field.”
Adobe and Magento complement each other well in the mid-market, he adds. While Magento provides Adobe an e-commerce solution, Adobe provides a strong network of mid-market technology partners and sales reps that Magento has lacked, Hoar says.
The two companies will also better positioned to compete with technology providers that target smaller companies. With Adobe’s backing, Hoar says, Magento will be in a strong position to better compete with other vendors down-market “in a meaningful and compelling way.”
Going forward, Adobe will also need to help Magento further develop cloud technology, Hoar says. Magento is still transitioning its software to the cloud, to let customers subscribe to it as needed under a software-as-a-service, or SaaS model, without having to run it on their own web servers. “Adobe and Magento will need to figure out how to fully ‘subscription-ize’ a Magento-led e-commerce solution,” he says.
In addition, Adobe needs to figure out how to expand on the Magento platform if it wants to enter the e-commerce technology market for the large enterprises that make up its core market. “Historically, much of Magento’s appeal has been to small businesses,” Hoar says, adding: “If Adobe wants to win in the large enterprise commerce space, it will need to ‘road-map’ and deliver that.”
Prior to the pending deal, for which Adobe says it will pay cash, the two companies already had customer synergy. Magento customers include manufacturers Canon Inc., Helly Hansen, Curt Group and Gabor Shoes. Adobe and Magento share joint customers including The Coca-Cola Co., Warner Music Group, Nestlé and Cathay Pacific, Adobe says.
Now the challenge will be to price turn-key cloud-based B2B marketing and e-commerce services in ways and packages that appeal to a wide array of businesses, Hoar says. “Together one plus one could equal three if they execute well by marrying their products over time, integrating their partner networks.”
Magento offers a diverse suite of e-commerce tools and includes services such as pre-built extensions, including for payment, shipping, tax and logistics. The Magento platform is supported by a community of more than 300,000 developers. That diversity, coupled with Adobe’s digital media products and marketing services, gives the combined organization a better way to sell to specific e-commerce market segments, Beck says.
Magento has made some notable changes recently to its technology platform. At its annual Imagine conference last month, it launched technology features designed for B2B as well as retail e-commerce sites. Of particular interest to many Imagine attendees was Magento’s launch of its Progressive Web Applications Studio, a set of tools for building online stores with app-like interactivity.
While making the PWA Studio available now to site developers, Magento says it will also build it into Magento Commerce version 2.3, which will launch in late summer 2018 as an upgrade to the current version 2.2. Version 2.2 is the first version of Magento Commerce—formerly known as Magento Enterprise for larger companies—to include built-in features for B2B e-commerce, such as the ability to set multiple purchasing authorizations according to the roles of individual buyers.
The Adobe-Magento deal also has ramifications for other technology vendors, issuing in a new level of competition and sparking more consolidation, analysts say. “This will cause more consolidation in the e-commerce technology market,” Wang says.
Paul Demery contributed to this report.
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