kirill_brusilovsky's profile

6 Messages

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162 Points

Thu, Oct 8, 2015 10:24 AM

Why is Adobe treating subscription clients and software buyers differently?

I think, that promoting Creative Cloud by treating software buyers as second class clients is unjust and completely unacceptable!
I have always acquired the newest version of the software and have my reasons against the subscription-based model. Adobe Lightroom 6 is basically the same software as СС, but Adobe refuses to include the improvements into Lightroom 6 updates. The time I have bought Lightroom 6, there was no warning by Adobe, that it will be so.

Responses

1.3K Messages

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22.5K Points

6 y ago

It's in order to comply with their accounting and reporting procedures, US Federal Law and stock exchange requirements. They have been very clear about this over the years.

6 Messages

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162 Points

6 y ago

What does one have to do with the other, John?

248 Messages

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4.1K Points

6 y ago

I'd love to see you say that with a straight face John :*)

1.3K Messages

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22.5K Points

Be careful what you wish for, Rory! What I explained does sound dead pan, sure, but you won't know that I do have professional experience in this area (CPA equivalent and recent Sarbanes Oxley compliance consulting). I have no special knowledge of Adobe's compliance procedures, so I would only talk in generalizations, but I have not seen anything unusual in how Adobe are handling new features. So yes, it is parroting the company line, but I'm too kind-hearted to want to bury you in heaps of densely-worded accounting principles and procedures ;)

That doesn't mean there aren't alternatives, of course. For instance, they could sell each dot release as an upgrade and book the $29.97 in that quarter. Would anyone be happier?

Champion

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6K Messages

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103.7K Points

6 y ago

As a public company, Adobe is obligated to follow very complicated accounting rules intended to provide investors with apples-to-apples comparisons of how all public companies are performing. These accounting rules can have a huge impact on how companies report their performance and how the stock markets interpret those reports. As a consequence, the accounting rules can have a big impact not only on how companies report their performance but also on how they structure the sales and delivery of their goods and services and even on the goods and services themselves. A key issue for Adobe, as with any software company, is how to account for revenue from perpetual (stand-alone) licenses, software-as-a-service / cloud subscriptions, and hybrid stand-alone / service models.

If a company sells a simple widget for $100, the company gets to tell the public that it received $100 in sales revenue that year. But if the sale contract includes promises for warranty repair for the next three years, then the company may need to defer recognition of part of the $100 into the succeeding years. For example, it might recognize (report to investors) $70 from the sale in year one for the widget itself, and then recognize $10 per year for three years for the warranty repairs it will have to do in each of those years (on average). Such revenue deferral is intended to help investors understand that the company has future obligations (costs) from a sale today, and that $100 may not contain as much profit as you might naively think.

Applying this principle to the software industry results in rules that are incredibly complex. Just Google "software revenue recognition" and wait for your head to explode. For example, if a perpetual license to version 5 entitles the user to a stream of bug fixes and feature updates for three years, how much of the initial sale revenue should be attributed (deferred) to the later delivery of bug fixes and new features? Should bug fixes be treated differently from new features? How do you account for the steady stream of updated virus definitions in anti-virus software that the license promises you'll receive for x years? Should updates to new cameras in Adobe Camera Raw be treated more like a stream of updated virus definitions or more like unspecified feature updates? If there is a cloud service that comes with the installed software (e.g. LR Mobile), what fraction of the sale revenue should be attributed to the ongoing delivery of that service?

Making this even more complicated, the US and international accounting standards bodies have "harmonized" their standards on revenue recognition, targeting 2017 for the new rules. Guaranteed employment for accounting firms.

Every company interprets these rules in the context of their own unique goods and services and sales practices. The interpretations have a huge impact on a company's reported results. In 2010, Apple changed the way it accounted for software updates to the iPhone, and the company's results exceeded analysts' expectations by billions of dollars. Given such huge impacts, it's natural that the accounting rules will have a big influence on how a company structures its goods and services and sales.

In casual discussions over the years, a couple of senior Adobe managers told me that Adobe decided long ago to deliver bug fixes but not new feature updates as part of the perpetual licenses. One significant consideration, according to them, was Adobe's interpretation of the accounting rules. The Creative Cloud and Marketing Cloud change this game entirely. By charging monthly subscriptions, Adobe gets to recognize revenue from improvements to the services immediately without deferring as much to later years.

Other than these discussions, I have no inside view into Adobe's thinking on the issue. Lacking such detailed understanding and, lacking the advice of a public-company accounting firm, I can't really say whether Adobe has struck the right balance in its interpretation of the accounting rules and how it structures its licensing. But it's undeniable that they have had a very large influence on its policies for perpetual licenses and monthly subscriptions.

15.1K Messages

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195.8K Points

Lots of hand waving, but that covers the basics of the problems.

Champion

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6K Messages

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103.7K Points

What may be"hand-waving" to you are core issues that few people in these forums have ever really thought about before.

15.1K Messages

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195.8K Points

Yes, it is important. And yes most people haven't thought about all the details. I guess I'm just way too close to the problems, and have enough background to dig into the details and understand them.

248 Messages

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4.1K Points

6 y ago

In a past life I watched tax and government regs cause the tail to wag the dog so I'm sure this is indeed a factor. However, I remain skeptical about Adobe's motives in this regard, as they try to move all their customers to the rental model.

322 Messages

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7.5K Points

6 y ago

I guess that explains why Apple charged for all those additional features and enhancements added to Aperture 3 over it's five year lifespan ... and why they have done the same with FCP X for 4+ years ....

I guess the IRS and SEC regs are different in San Jose than they are in Cupertino .... considering how far apart those locales are.

Much like all of accounting and tax law ... it is all filled with loopholes open yo interpretation that they can be twisted to fit any corkscrew of choice as needed.

Though I do wonder ... when Adobe arbitrarily removes features and capabilities without warning ... are end users entitled to a partial refund?

1.3K Messages

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22.5K Points

Yes, the application of law and regulations can produce different treatment of apparently-similar revenue streams and result in different internal procedures. Hold the front page!

Champion

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6K Messages

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103.7K Points

Also, I'm not sure that Aperture is a good example to point to, given its failure in the market :->

322 Messages

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7.5K Points

What does the choice of software have to do with pointing out the differences between the choice of accounting method? I was merely point out, Adobe used the accounting method they chose ... not necessarily compelled to use.

1.3K Messages

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22.5K Points

Apple's corporate revenue recognition policies probably reflect that they mainly sell hardware, and Aperture was probably "immaterial" to their results anyway. Adobe's accounting procedures will based on software being their business, and an exception for Lightroom might be harder to argue. It was possible when it was new, but now it's probably more material to Adobe's financial results. TBH, you don't want to encourage those kinds of exceptions.

322 Messages

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7.5K Points

Frankly .... I could care less about Adobe's accounting procedures ... I am more concerned with my own. I find all this ironic justification for their policies purely hypocritical as compared to their executive and managerial decision making. Pure hokum most of the time.

248 Messages

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4.1K Points

6 y ago

If I understand it correctly, LR 6.2 includes the new import module, but not the dehaze tool. So their accounting procedures make it okay to make some changes but not others.

Champion

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6K Messages

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103.7K Points

Yes, it would be "fun" to hear an insider's analysis of the decision to include the new Import module in LR 6.2. Though it removed functionality, wouldn't the radically new user interface count as a new feature in itself? Unfortunately, I don't think we'll ever get such inside information.

248 Messages

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4.1K Points

I guess I just don't deal well with hypocrisy...

Champion

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6K Messages

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103.7K Points

When it comes to big companies, I always come back to Hanlon's Razor: https://en.wikipedia.org/wiki/Hanlon%...

248 Messages

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4.1K Points

Gotta agree with that John :*) Explains most conspiracy theories.

1.3K Messages

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22.5K Points

The explanation is simple. There's a difference between changing an existing feature and adding a new one. It might also be argued in not providing new functionality ;)

Champion

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6K Messages

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103.7K Points

6 y ago

It's undeniable that Adobe, Microsoft, Apple, and other large companies have differing interpretations and that they factor those interpretations differently into their different goods and services and business models. But these interpretations are generally driven by the large public accounting firms, not by bean counters in the back room secretly scheming to screw customers. As John Beardsworth indicated, there's nothing to indicate that Adobe is out of the mainstream in its interpretations.

Do I think Adobe attaches proper financial weight to the long-term opinions of its customers and uses that weight to balance other factors like accounting? No, I think Adobe is very short-sighted on that score. In the creative space, Adobe has little competition and acts like it. Companies that act that way typically remain small or end up losing their dominance sooner or later.

6 Messages

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162 Points

6 y ago

I think Adobe behaves like that (I mean treating some customers like s++t) primarily not because they are a public company, but because in many areas they have become quasi monopolists. There is barely a SERIOUS competition to Photoshop in professional field. There are some competitors in RAW procession and to me is is the main reason, why they are yet offering LR 6 on a normal, non-subscription basis.
However Adobe should remember the lesson, they have taught themselves to Quark: over years Quark has been treating clients badly and making little improvements and innovation to their software, abusing its monopolist position in desktop publishing. Then came Adobe with a completely new, better product, and overtook Quark's market almost completely within a few years. Now I wish this fate to Adobe and hope that real competition will return to this software segment soon.

248 Messages

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4.1K Points

6 y ago

A successful competitor will need an equal or better product and they will have to resist Adobe buying them out, which has been Adobe's basic business model.

6 Messages

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92 Points

6 y ago

Then I am so glad I retained my version of CS6, which allowed Adobe to amortize their entire ~$600 price tag income to their shareholders and caused them to pay taxes on the whole amount, so that when I finally am fed up with their bullsh!t methodology of (not) repairing their known bugs over several quarters, I can go back to editing my images without all the whiz-bang features sold to CC users on a monthly basis which truly are nothing more than lipstick on a pig.

I'm glad all the Sarbanes-Oxley crew were finally able to shed some light on the overly burdensome and ever-so complicated financial regulations that Adobe struggles daily with how they are going to monetize their efforts to ignore their customers and users in favor of reporting a couple additional pennies in quarterly dividends to their shareholders.

5 Messages

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190 Points

6 y ago

This reply was created from a merged topic originally titled Truth about dehaze.

I am a paying license holder of Lightroom, for many versions now. I expected Adobe to roll out features to CC members first as a reward for buying into their ecosystem.

What I am annoyed about is now 2 releases later you still have not activated it for perpetual license holders. All the previous posts on this stated that poor Adobe can't just add features to these updates, as that was too hard. Yet amazingly, I can access the Dehaze using presets, so we know it is in the software downloaded to my computer, they just refuse to let us see the control panel.

Now before anyone again repeats the outrageous lie about their inability to add features on minor releases, I will point you to the import tool, that amazingly in my perpetual license version was completely reworked in 6.2 and restored in 6.3. The bottom line is, Adobe is keeping different features away from perpetual license holders to force us into CC.

Tell the truth Adobe, or change the bit from 0 to 1 in the code and allow all users who give you money to access the tools in your software.

1.3K Messages

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22.5K Points

You bought 6, and that is exactly what you still have. When you bought that licence, you paid for updates for new cameras and lenses, but not for future features.

The import dialog in 6.2 would probably not breach Adobe's revenue recognition compliance procedures because an existing feature was changed. Unlike Dehaze, it was not a new feature.

5 Messages

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190 Points

Then why did they change my import tool?

1.3K Messages

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22.5K Points

They expected people would see it as an improvement.

2 Messages

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80 Points

6 y ago

This reply was created from a merged topic originally titled lightroom dehaze feature not available in the perpetual license version that I pu....

poor marking and misleading information on Lightroom 6 functionality, after the trial the dehaze function was not available on standalone versions of the product, yet there is no information given with regards to the differences between the cc version and standalone. Since this was a new version and as an adobe customer you marketed to me as having certain benefits and features, the dehaze feature was on of those features. How can the feature be incorporated into the standalone? I have been an Adobe customer for many years. What is your solutions?

Champion

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1.4K Messages

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24.5K Points

"only Creative Cloud members receive ongoing feature updates."
http://blogs.adobe.com/photoshop/2015...

"Always stay up to date with the latest photography innovations from Adobe" Note the lack of check mark on LR 6
http://feedback.photoshop.com/photosh...

For a period of time there was a popup that appeared on Adobe's site when you attempted to purchase the Stand-alone version that warned you explicitly that you would not receive ongoing feature updates throughout the 6.x cycle but I see it is no longer there.

As for what you can do, Dehaze is interpretable by the LR 6.x versions of the software - there just isn't an interface with which to access. http://www.proloststore.com/products/... offers a set of presets which will apply Dehaze (globally only) that you can use in your stand-alone version.

6 Messages

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162 Points

Thanks, Rikk!
As for dehaze, I can do without it. It is rather a principle question on Adobe's policy. My question was "why?" and my statement was that a a longtime fairhful customer I personally do not appreciate this policy.
Btw, I know for sure that by the time I was purchsing LR6 i have not received any warnings or pop-ups.

Currently I can do all I need with my LR 6 version. In the future, I will watch the further development of Adobe's strategy. We'll see if there will be LR 7 or if LR 6 is the last standalone version. Perhaps there will be a reason to switch to CaptureOne, following many of my photographer friends.