With Flash Under Fire, Adobe Shares Charm Analysts

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Overdone or not, concerns over Flash are putting pressure on Adobe to improve the software that it says is used to create three-quarters of Internet video clips and 70% of online games. On Feb. 16, Adobe released to developers a test version of its upcoming Flash Player 10.1, which is designed to run well on smartphones and other mobile devices.Adobe senior director Danny Winokur says Flash 10.1 "is producing excellent performance on a wide variety of devices that are no less powerful than an iPhone." Adobe is also improving the security of its software, which had been vulnerable to computer viruses.

Is Apple protecting iTunes?

To compete with Flash, Apple and Google (GOOG) are backing technology called HTML 5, whose proponents say that it better combines online video with information from other parts of the Web. Analysts say Apple doesn't want another company's software between its customers and the content sold through the iTunes store. "They don't want Adobe to own the media distribution business," says Ted Schadler, principal analyst at Forrester Research (FORR). Apple's big customer base and its ability to set the agenda for software developers could put Flash's lofty market share at risk.

Apple may also be trying to prevent Adobe and other vendors from creating online stores that compete with iTunes, says an executive who was once involved in discussions between Adobe and Apple over including Flash on the iPhone. Apple's Final Cut video-editing software competes with Adobe's Premiere product. Apple also has an incentive to promote its own QuickTime video playback software rather than Flash as a way to make Macs more compelling than computers running Microsoft (MSFT) Windows.

Speaking in an interview with Bloomberg News in Barcelona on Feb. 17, Adobe Chief Executive Shantanu Narayen said that Adobe has a "powerful ecosystem" of partners for Flash and that Apple is "trying to maintain a proprietary lock" on the technologies used in its products. Apple spokeswoman Natalie Kerris declined to comment, as did Adobe spokeswoman Jodi Sorenson.

Flash may prove difficult to displace. The HTML 5 technology is still nascent. It lacks copy protection and other features important to commercial distributors of online video. Adobe has long fended off competition from bigger rivals, including Microsoft and Apple, analysts say. And Adobe, a maker of products prized by Web designers, video editors, and other creative professionals, won't rise and fall on the fortunes of Flash. "Is Adobe under some level of duress from these industry shifts?" says UBS analyst Thill. "Absolutely. But they've been in these waters before and they know how to navigate them."

Ricadela is a writer for Bloomberg BusinessWeek in San Francisco.

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