Fotolia Acquired By Adobe – The Contributor Perspective

The news of the day has been that Adobe announced its plan to acquire Fotolia for $800 million dollar in cash  (more here on Stock Photo Secrets). The agreement is expected to close in the first quarter of 2015, and Adobe has already announced that it wants to integrate the Fotolia offer into its Creative Cloud. We want to take a look how this is going to affect contributors in this post.

The background of the acquisition

Adobe has been the de facto standard for the design workflow with Photoshop and Illustrator as its main products. For the last years, Adobe is in the process of moving from selling boxed software towards a subscription model called Creative Cloud. With the Creative Cloud, subscribers are able to use the different software Adobe provides, such as Illustrator for vector graphics and Premiere for video editing, for a monthly fee.

Microstock agency Fotolia was founded by Oleg Tscheltzoff, Thibaud Elziere and Patrick Chassany in 2005 and is one of the top 5 stock agencies worldwide today. Along with stock photos, Fotolia is offering an extensive library of more than 34 million files such as vector illustrations and videos. Fotolia also invested into logo creation marketplace Wilogo and audio marketplace Audiomicro.

The deal comes almost three years after investment company KKR has brought $150 million in funding to Fotolia. With the typical investment cycles of 3-5 years it was already speculated that an exit strategy for the investment would be pursued in the upcoming years.

How is Fotolia worth $800 million (hint Shutterstock is valued at aprox. $2.6 billion at the NYSE)

The valuation of companies during mergers and acquisitions regularly causes confusion. How can a company like Fotolia be worth $800 million? As usual with companies providing digital services, the amounts being paid seem far above what the actual revenue or profit numbers could justify – though we do not know any specific numbers of Fotolia, we can make a comparison with the competition: Shutterstock is valued at aprox. $2.6 billion at the New York Stock Exchange and expects to make a revenue of around $350 million this year. Therefore, it is valued at about eight times its annual revenues. The same range is true for Adobe itself, it is being valued at $36 billion while making slightly more than $4 billion in annual revenues.

How Adobe's acquisition is going to affect contributors?

Obviously, there is a lot of speculation about the expected consequences for contributors now. We have no detailed knowledge about the plans of Adobe and how the Fotolia offer will be integrated.

But we also know that Adobe has won more than 3 million subscribers to its Creative Cloud offer. While there is a low end offer especially made for photographers including Photoshop and Lightroom for $9.99 a month, most of the plans are more expensive: Slightly more than $20 a month for a single app, and about $70 monthly for the whole cloud offer. For all those users, it is already known that they are willing to spend money on Adobe's solution, so a certain percentage is likely to be willing to pay for content as well. When we compare the number of active Adobe CC users with the roughly one million customers Shutterstock claims to have, we can already see that there is a lot of potential in the synergies between Adobe and Fotolia.

Also, Adobe already has payment data available for those users, there is no additional registration and payment needed when those users would buy content through the Adobe Cloud offers. This removes a barrier for potential image buyers who hesitate to give out their payment data to many different services. Future solutions could also include stronger integration of the content offer within the software platforms – already today you can use plugins to integrate microstock libraries into Microsoft Office or WordPress (developed by me).

Also, over the past years we had the impression that Fotolia is strongly connected in Europe but was less successful in North America, one of the most important markets for stock imagery. With the connections Adobe has into the creative community, we can expect Fotolia to become more popular as well.

As said above, all of this is pure speculation at this stage. But from a business perspective, the synergies between the two offers make a lot of sense as they address different needs for the same customer base. For the time being, we can not see apparent negative impacts on the Fotolia contributors. Stay tuned for more news on the acquisition.

Additional Insights – Audio-Interview

Because of major impact of this news, I have decided to create my first (Audio) Interview with stock photo and technology veteran Paul Melcher. We discuss the impact on the stock photo and Microstock market as well changes which might affect Fotolia's contributors. The full interview can be watched below (or on Youtube). I will update this post with a audio player version later. Now tune into the 20min interview and don't forget to tell us your thoughts on the comments below or on Youtube. (NOTE: The video is still uploading, please be patient if it's not loading).

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