Apple CEO Steve Jobs wrote a rare, 29-paragraph open letter on Apr. 29, panning Adobe Systems' Flash video software as having "major technical drawbacks"—and deepening a rift between the companies.
Jobs used the posting on Apple's (AAPL) Web site to outline six reasons Flash shouldn't be used for mobile devices and to say his company has "few joint interests" with Adobe (ADBE). He said the decision to bar Flash from Apple's devices stems from concern over the technology, not to keep from losing business.
Apple's exclusion of Flash from the iPad and iPhone reflects the company's aim to control the way games and other applications are created for its devices, says Charlie Wolf, an analyst at Needham & Co. who has a buy rating on Apple shares. Wolf says Apple's decision "makes sense." The company wants developers "on the same page and using Apple's development tools."
By urging programmers to adopt other tools, Apple threatens the dominance of Flash, used in 75% of online video. "The conflict between Apple and Adobe has been a very big deal," says Chad Bartley, an analyst at Pacific Crest Securities who has an outperform rating on Adobe. "The Flash platform and ecosystem is obviously critical to Adobe and to the success of its creative tools business."
Adobe shares closed down 51¢, or 1.4%, to $34.96 on Apr. 29. Apple rose $7.04, or 2.7%, to $268.64.
This month, Apple released new rules that force application developers to write programs directly for the iPhone operating system, rather than use intermediary software such as Adobe's products. That may have made Adobe less appealing to developers, many of whom view Apple's products as platforms they can't ignore.
HTML5, a standard Apple uses instead of Flash, is a "completely open" technology, Jobs said. HTML5 lets Web developers create graphics and animations without relying on third-party browser plug-ins, such as Flash, he said. "Perhaps Adobe should focus more on creating great HTML5 tools for the future, and less on criticizing Apple for leaving the past behind," he said.
Adobe responded to Jobs' letter with a statement that said Flash "is one of the most pervasive technologies on the planet. …Apple's moves to block Flash and other technologies are designed to protect a business model that locks developers and consumers into a single, proprietary stack." The e-mailed statement from Adobe spokeswoman Holly Campbell also said, "Any attempt to position this solely as a technology issue is a smokescreen."
Michael Gartenberg, a partner at technology consulting firm Altimeter Group, says the onus is on Adobe to respond to criticisms of its product. "The best thing that Adobe can do at this point is not respond with words," he says. "They need to show Flash as a great mobile experience, and show Apple customers what they are missing."
Adobe at Risk
Dean Crutchfield, a senior partner at branding agency Method, which has done work for Microsoft (MSFT) and Autodesk (ADSK), says Apple's attack presents Adobe with "an opportunity to explain itself in a way that would have otherwise cost them millions and millions of dollars." Adobe is on perilous ground, though. "If Adobe has wedded itself to Flash, they better call a divorce lawyer right now," he says.
Adobe highlighted the risks of exclusion from Apple's iPhone and iPad devices for the first time in an April regulatory filing, signaling the snub could hurt sales.
Jobs' letter harms the reputation of Flash, said Hayes Roth, chief marketing officer for Landor Associates, a branding and design firm. "There's unquestionably damage to the brand—whether it's permanent damage is the question," he says. "This letter is now seen by untold millions around the world, who've been told—chapter and verse—what's superior about the technology that goes into Apple's products."
Flash is installed on about 98% of PCs connected to the Internet, according to Adobe. Flash also runs on more than 800 million mobile phones, manufactured by 19 of the top 20 handset makers—all except Apple.
Discussing a Decision
This latest "open letter" from Jobs is the third of its kind and the sort of communication reserved for when Jobs wants to discuss at length his thinking behind controversial corporate and technology decisions. In "Thoughts on Music," published on Feb. 6, 2007, Jobs announced his willingness to sell music on the iTunes Store without copy protection technology attached to it. A second, titled "A Greener Apple," was published on May 2, 2007, and addressed plans to eliminate toxic chemicals used in the manufacture of Apple computers.
By getting rejected from the iPhone, Apple's smartphone introduced in 2007, and iPad, a tablet-style computer that went on sale this month, Adobe is excluded from products that are embraced by consumers and developers. IPhone sales more than doubled last quarter and the iPad sold more than 500,000 units in its first week. Jobs on Apr. 29 said there are 200,000 programs for Apple's devices on its online App Store, proving that developers don't need Flash to create applications such as games.
This month, Adobe CEO Shantanu Narayen released an overhaul of the company's most profitable products, called Creative Suite. Comprising up to 15 applications, the Creative Suite programs rely on Flash to create Web video and make sites more interactive.