If you need proof that a company can successfully transition to the cloud, look no further than Adobe, the creative software company that announced it was moving to a cloud subscription model in 2013 after 27 years selling boxed software.
Just this week, Adobe reported record revenue of $1.46 billion, a 20 percent year over year increase. This represented the tenth straight quarter of record growth for the company, an astonishing streak of cloud success. Perhaps more importantly from a cloud subscription perspective, recurring revenue grew to a record $1.80 billion.
That last data point is significant because it illustrates the beauty of the subscription revenue model. You don't just get paid once and that's the end of the transaction. You keep getting paid, month after month, and over time, that adds up to big bucks, as Adobe has clearly shown.
What makes this even more dramatic, is that there has been an ongoing debate about the subscription model, mostly because it doesn't fit with traditional accounting methods. Companies can't report recurring revenue, the same way they can when they sell a widget, and this continues to confuse some on Wall Street. As a consequence, some cloud stocks have taken a hit over the last 12-18 months.
While Adobe has made this transition look easy, it quite clearly is a huge challenge to make a full pivot like this. Consider that IBM, an admittedly much older and larger company, has tried to make a similar transition to the cloud, and has experienced 17 straight quarters of revenue decline. That makes Adobe, the anti-IBM, the little engine that could.
It's time to make a change
For years, Adobe sold software licenses the old-fashioned way, then in 2013, it decided it was going to change things up and become a cloud-subscription company, completely abandoning the boxes and the licenses. It was a shock to users, at least at first, but in a way it made sense.
Adobe software was expensive, running between $1200 and $2500, and like many licensed software companies, there had been large releases every few years with new features and sometimes an entirely new interface. You paid big bucks each time you upgraded (even though Adobe rewarded loyal customers with a lower upgrade price), and you had to learn all the new ways of working at once.
With the subscription model, that all changed. Instead of waiting three years for the next upgrade, or skipping it altogether because the previous version seemed good enough, you pay a fixed monthly price and you get regular updates delivered via the cloud.
It has certainly worked out for Adobe. They are on a remarkable run, and the company is projecting another record next quarter. As for users, they know what they're paying and it ensures they always have the most recent version. Sounds like everyone's a winner.