No Flash in the pan. Adobe powers on

Shantanu Narayen tells Maggie Lee why his digital-imaging group is leading the way in video coverage on the web

As credit lines tighten, it only takes a stumble in quarterly earnings to turn today's corporate hero into tomorrow's villain. So imagine the additional pressure of running a global public software company that competes with the colossal Microsoft. It is a huge challenge but one familiar to Shantanu Narayen, 45, the chief executive of Adobe Systems.

Not that he is complaining. "Since Adobe started in 1982, we've been changing our revenue models as new technology emerges," he says. "Because we're strong on product innovation and customer segmentation, we understand what the consumer values and so can price flexibly."

His comments are timely as the software industry rides the tide of new revenue opportunities. On the back of the explosive consumption of video content on the internet, companies are increasingly exchanging royalties and licence fees for a share of advertising revenue. They are also giving away products, as they race to become the consumers' system of choice both on the web and mobile handsets.

One of Silicon Valley's hottest properties, Adobe looks well placed in this race. Its applications include the ubiquitous PDF, Photoshop, Acrobat and more recently the online video player Flash, which the BBC uses to power its iPlayer catch-up service. It is estimated that Flash is on 98 per cent of connected computers worldwide, and it is anticipated that it will be on around one billion mobile phones by the end of 2009.

Narayen has been in the Adobe hot seat for nearly a year. In 2007 the company's revenues topped $3bn (£2bn), with more than 50 per cent of sales generated outside the US, and the Indian-born electronics engineer has kept the group on track financially. With three good quarterly results under his belt, he is expected to deliver revenues in excess of $925m in the final quarter.

As for recessions, he attributes Adobe's success to diversification in products and geography. "Emerging markets are important, especially Eastern Europe," he says. "We are also extending our presence in the corporate market [both public and private sectors], and working out ways in which we can move deeper into the web and mobile market."

Narayen is no new kid on the block when it comes to engineering Adobe's growth. He joined its technology division in 1998, went on to head the products division and in 2005 was appointed chief operating officer. Over nine years, he worked closely with Bruce Chizen, the previous boss and the first person to succeed founders John Warnock and Chuck Geschke in leading the company.

Along with Chizen, an accomplished marketer, Narayen orchestrated Adobe's move into web territory, acquiring rival Macromedia in 2005. The $3.5bn deal brought Flash, which also powers video streaming on Google's YouTube, into the Adobe family. It doubled the group's turnover overnight and also propelled Microsoft into action. In 2007, Bill Gates's behemoth launched Silverlight, its rival to Flash, in an attempt to unseat Adobe.

Video coverage on the web has caught on fast, its progress accelerated by the Beijing Olympics. Narayen estimates that more than 40 million video streams were downloaded from the BBC's website alone

Thoughtful and modest about his accomplishments, he has an impressively diverse CV, his track record taking in start-ups and time served with market leaders. After studying electrical engineering in his home town, Hyderabad, he left for the US to complete a masters degree in computer science at Ohio's Bowling Green State University. "You could say I was following in my father's and brother's footsteps: both left India to complete their education. Tech was my passion and America the place to be."

After graduating, he was hired by Measurex, a pioneer of industrial computer control systems, before moving to Apple in 1989. "I was lucky," he says. "Apple sponsored my MBA at Berkeley while I worked. It also taught me the power of good design and aesthetics in delivering excellent software."

He joined Silicon Graphics in 1995, specialising in desktop and collaboration products. A year later, bitten by the dot-com bug, he co-founded Pictra, a digital-imaging company.

"I guess my entrepreneurial genes got the better of me," he laughs; his father founded a plastics company in Hyderabad. "It was an exciting time in Silicon Valley. When I see Adobe budgets, I remember what scrappy start-ups can do with focus and a little money. Size alone doesn't create innovation. It's people that count."

Through a partnership deal with Adobe, he caught Chizen's attention and was asked to join in 1998. The first few years were a baptism of fire: "We had some disappointing quarterly results the year I joined, which led to restructuring. I was surprised and very privileged when Bruce put me in charge of technology worldwide."

Since Adobe's acquisition of Macromedia, it has been blurring the line between internet and PC applications – as demonstrated by the launch of AIR, a platform that bridges the web and the desktop. It's a trend that Narayen believes will continue. "Just look at India and China," he says. "For the young, the mobile is their laptop. There are big opportunities for companies that can integrate the three screens – TV, mobile and PC."

But as a prickly thorn in Microsoft's flesh, how long can Adobe remain independent? "As long as we're focused on driving fundamental innovation, we can exploit our independent position. While our biggest competitor is Microsoft, I worry just as much about small start-ups that might be creating the next disruptive technology. These are the companies we're interested in acquiring. "

And in light of the credit crunch, does he worry about finance? "With healthy cash flows, I don't lose sleep over raising money. I'm more troubled by failing to hire and retain the right people. That's where Adobe's future lies."

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