Microsoft, Adobe Merger Seems Unlikely, but Could Bring Gains

Microsoft and Adobe met to discuss a possible merger and the best way to compete with Apple, according to The New York Times. But some analysts see a merger as unlikely.

Microsoft has no comment on rumors that it's interested in acquiring Adobe Software, but that hasn't stopped some analysts from mulling over the implications of such a move.

"Microsoft and Adobe have been around for a very long time, and their software products can be found on just about every PC, but of late these vendors have been relegated to the chorus line with Google and Apple now occupying center stage," Richard Edwards, principal analyst for Ovum, wrote in an Oct. 8 research note. "The mobile 'apps' business is now the place to be for software development companies, and Microsoft and Adobe have yet to make any real or significant impact in this market."

Were Microsoft and Adobe to merge, Edwards wrote, "then it would have to be the mobile apps market driving the deal, as this is where both companies need to score big-time."

Edwards added: "It would certainly strengthen Microsoft's position in the 'prosumer' market if the company were to acquire Adobe, and the enterprise market would benefit too if Adobe LiveCycle (the company's back-end business integration platform) became fully integrated with Microsoft SharePoint."

Nonetheless, speculation about a possible merger seems to be cooling. "We'd like the premium that Microsoft would likely pay to acquire Adobe," reads an Oct. 8 quote from Janney Capital Markets analysts in The Wall Street Journal . "However, we do not believe a deal is likely."

That speculation followed an Oct. 7 report in The New York Times , suggesting that Microsoft CEO Steve Ballmer and Adobe CEO Shantanu Narayen had met at Adobe's headquarters to discuss the possibility of a Microsoft acquisition. The two companies had also reportedly discussed best strategies for competing with Apple.

"Adobe and Microsoft share millions of customers around the world, and the CEOs of the two companies do meet from time to time," an Adobe spokesperson reportedly told The Times. That spokesperson did not deny a meeting had taken place, but declined to comment on any possible discussion points between the two executives.

Adobe found itself pushing back against Apple earlier this year, after Steve Jobs aired his reasons for banning Adobe Flash from devices such as the iPhone. In the wake of Jobs' attack, various competitors wasted no time touting Flash on their own devices as a competitive differentiator. For example, Samsung executives have boasted of their Galaxy S smartphones' and upcoming Galaxy Tab tablet PCs' ability to browse "the complete Web" thanks to Flash, which is used to render rich content on many of the Internet's most popular Websites.

Microsoft's upcoming Windows Phone 7 smartphones will compete against Apple for market-share, giving Ballmer more than enough reason to meet-and possibly negotiate-with any of Cupertino's enemies.

When contacted by eWEEK Oct. 8, a Microsoft spokesperson declined to comment on whether an Adobe-Microsoft meeting had taken place, or whether the two companies had ever talked about how to best optimize Adobe products for Windows Phone 7.