Apple and Adobe Software: Together

[Bill Davis]

Aindreas,

It’s not Dennis’s fault. The fault is with the executive suite. Let’s keep the blame focused where it’s deserved.

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[Aindreas Gallagher]

[Bill Davis] “The fault is with the executive suite.”

I sort of thought that for a bit, but I think people are under-recognising how mad things are lately. Companies like Adobe are fixated now on existing assets and the profit they can derive from them. They don’t want it to happen through sales any more. They want rentier relationships now.

If you think Apple is different, I would direct you to their new rolling rent iphone sales programme, their rental music service, and their rental icloud storage system backing up the entire iOS system. There is a difficulty growing in the entire social relationship.

https://vimeo.com/user1590967/videos http://www.ogallchoir.net promo producer/editor.grading/motion graphics

[Bill Davis]

We’re not that far apart on some of this thinking – BUT – guys like Dennis don’t make the decisions that cause these problems. These are executive decisions. Beyond that actually, they are political decisions. In the sense that society has allowed corporations to have statutory requirements to put investor interests over those of customers or workers. Without rules otherwise, capitalist competition usually means charge as much as the metrics will allow – and pay as little as you can for materials and labor – then divert as much margin as possible to your investors. It’s how capitalism works for better or worse.

Know someone who teaches video editing in elementary school, high school or college? Tell them to check out http://www.StartEditingNow.com – video editing curriculum complete with licensed practice content.

[Aindreas Gallagher]

hey totally – I know. I’m just giving him stick because he’s the poor guy left here representing adobe.

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[Andrew Kimery]

Sorry for the slow response, but got pretty busy at work this week.

[Bill Davis] “If any company says they MUST do something because of the threat of a fine – that nobody actually ever pays – they are being irrational – and so there must be another valid reason they choose to behave the way they do.”

Your opinion about Adobe is pretty clear but you haven’t said much about Avid or Apple. If these accounting regulations don’t matter then why did Avid withhold filings from the SEC, get delisted from NASDAQ, sit back as their stock tanked and possibly open themselves up to a class action lawsuit from the segment of the investor class that invested in Avid? Why not just keep doing business as usual? Or if they want to switch gears (dumping the old upgrade model in favor of a subscription option and an annual support contract option) then why not just switch gears like Adobe did with CC?

Why voluntarily go through all this headache?
https://www.streetinsider.com/Corporate+News/Avid+Tech+(AVID)+Unlikely+to+Regain+Compliance+with+SEC+Filing+Requirements%3B+Names+New+Audit+Firm/9034033.html

“As previously reported, the Company is in the process of restating its financial statements for the fiscal years ended December 31, 2011, 2010 and 2009 and for its quarterly periods ended September 30, 2012 and 2011, June 30, 2012 and 2011, and March 31, 2012 and 2011. The restatement relates to the Company’s accounting treatment of certain upgrades, enhancements and compatibility extensions (collectively “Software Updates”) it previously made available to certain of its customers at no-charge. The Company has determined that such Software Updates should have been accounted for as implied post-contract customer support (“PCS”) under U.S. Generally Accepted Accounting Principles (“GAAP”). As a result of the pending restatement of prior financial results, the Company is not current in its periodic report filing requirements with the SEC.
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Company has made significant progress toward completion of the restatement, including evaluating transactions over an eight-and-a-half year period, encompassing a review of approximately 5 million transaction lines and 700 software releases.
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The Company cannot at this time estimate the full impact of the adjustments of revenue and costs, and the related impact on income taxes, on any previously issued financial statements for any individual reporting period, although it may be significant. “

With regards to Apple, I’m trying to think of the end game for charing iPod users for iOS updates (but not iPhone users), for charging to enable 802.11n wifi on Macs with 802.11n radios (initially disabled because the spec wasn’t ratified before the Macs went on sale), and for requiring Mac users at one point to buy FaceTime for 99 cents from the Mac App store. One the surface it seems rather arbitrary and not like Apple, but if you look at it through though the prism of this discussion you might notice a pattern (and a lack of subscriptions).

I stumbled across this article from 2007 about Apple and charging for the wifi upgrade. It says many of the things Tim has already said in multiple threads, but it’s still worth reading.
https://www.cnet.com/news/apples-802-11n-accounting-conundrum/

“‘During the past several months Apple has shipped some Macs with the hardware to support 802.11n, but the draft of the 802.11n specification was not complete enough to create the required software,” Apple spokeswoman Lynn Fox said in an e-mail to CNET News.com. “Now that the draft specification is complete, we are ready to distribute the software to make the 802.11n hardware in these Macs come to life.”‘

But because the company has already recognized all the revenue from the sales of those computers, it has to now charge customers at least a nominal fee in order to establish the value of its software upgrade and satisfy an obscure accounting regulation known as SOP 97-2, said Fox.

Apple didn’t have to do it this way, say accounting experts. But the company most likely faced difficult choices in relation to the upgrade: It could have held off on shipping the new Macs until the upgrade software was ready. It could have skipped the 802.11n capabilities altogether. Or it could have deferred revenue from the new Macs until the software was ready–all unlikely and unpalatable options.
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That means a company in this situation would have to defer all the revenue associated with the product until it can establish the value of the Wi-Fi upgrade, or until it delivers the complete set of software, said Brett Trueman, a professor of accounting with the Anderson Business School at the University of California at Los Angeles. So, Apple would have had to defer all the revenue for Macs sold with the 802.11n chips from September until it delivers the upgrade in February, and that’s not a realistic option.
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There’s absolutely nothing in the GAAP requirements that says Apple must charge its customers for that software upgrade. The only requirement imposed by GAAP is that Apple must account for the separate value of the 802.11n capability, said MIT’s LaFond.”

That last part goes back to the point that of course no one forced Adobe to go subscription only, but the laws are different if you sell a subscription vs sell a production.

Just for a bonus, he’s a bit I found about why software companies are always vague about upcoming features/roadmaps.
https://blog.bi101.com/revenue-recognition/roadmaps-and-revenue-recognition-for-software-companies

“Although sales may like roadmaps, accounting does not. According to GAAP rules on revenue recognition for software companies, producing a roadmap can be viewed as a commitment to provide the customer all of the services and enhancements listed. If the contract is construed in such a way that the roadmap appears to be a commitment to provide future services, all revenue has to be deferred until the enhancements have been delivered.”

Besides not really talking about Avid or Apple you also haven’t really spoke to other related things I’ve brought up like the rise of subscription, ad supported and/or freemuim business models across many different types of software. I don’t think it’s a coincidence that the business models for selling/monetizing IP (software, music, movies, TV shows, etc.,) have really diversified over the last 5-10 years. The landscape is shifting and it many cases it’s being driven by consumer behavior. Look at music sales for example. A decade ago it was all about the iTMS, and subscription streaming services like Rhapsody were pin-head sized blips on the radar. Now downloadable music sales have leveled off and the big growth sector is streaming music services.

With regards to companies longing to get your CC #, I agree and it’s why Apple routinely trumpets that it has hundreds of millions of active iTunes users with credit cards on file. That certainly makes it an attractive looking business partner since getting customers to open up their wallets can be a big sticking point.

Since the broader economic/political discussion seems unavoidable, I generally agree with what you have said Bill though sometimes a cigar is just a cigar.

-Andrew

EDIT: Fixed some spelling errors. Sure there are more.

[Robin S. kurz]

[Andrew Kimery] “Of course a bit of irony is people loving Apple and Blackmagic’s business model […] the inexpensive-software-that-requires-our-hardware approach”

I personally have yet to hear of anyone buying a Mac for the sole purpose of using FCP X, as opposed to people already owning a Mac and deciding to use FCP X. So whether it requires a Mac or not really becomes pretty irrelevant in the vast majority of cases I’d say.

And how do I require BMD hardware to use the software? I use both Resolve and Fusion and have no BMD hardware whatsoever.

– RK

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[John Davidson]

[Robin S. Kurz] “I have yet to hear of anyone buying a Mac for the sole purpose of using FCP X, “

You have now. Our Mac Pros and my 5K iMac were purchased specifically with FCPX in mind, all the way to contacting Apple about which options provided the best FCPX performance.

John Davidson | President / Creative Director | Magic Feather Inc.

[Robin S. kurz]

[John Davidson] “Our Mac Pros and my 5K iMac were purchased specifically with FCPX in mind”

Then I guess I should have been more specific: Anyone that didn’t have a Mac before. Ever. And would have otherwise not considered getting one. As in moved from Windows or elsewhere exclusively for the sake of using FCP X. Something I’m assuming wasn’t the case with you? Because as far as that’s concerned, I myself obviously buy my machines to best suit to my most common workflow demands too, yes. Or rather, even if I were still on Avid or PPro I’d still be buying a Mac even though Windows is an option.

– RK

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[Dominic Deacon]

Not FCX but I bought a Mac for Final Cut Pro 5 back in the day. Never had one before and won’t be buying one again. Of course back in those days everyone told you up front that you had to have a Mac to edit. Certainly not the case but a very widely held view at the time.

[Robin S. kurz]

Well, if you don’t even know what it is you in fact need and just buy blindly, anything you get will be wrong. The OS being the least of your worries.

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