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Adobe Acquires Magento Commerce CMS Platform for $1.68 Billion USD

Magento Commerce Cloud to Power B2B/B2C Solutions to Enterprise & SME Clients Globally

Adobe sealed one of the biggest deals in the open source CMS and ecommerce platform ecosystem this year with a $1.68 billion USD acquisition of the Magento Commerce codebase, including their attendant customer support services, cloud platform, and paid subscription customers.

Mark Lavelle, the CEO of Magento Commerce, summarized the logic behind the deal on his blog, writing: "As Content + Commerce capabilities have become inextricably linked, commerce plays a more integral part of the consumer experience than ever before. With Magento’s position as the world’s most popular commerce platform and Adobe’s leadership in designing and delivering great digital experiences, we will enable every business to create and deliver compelling real-time experiences, engage with customers across every touchpoint, and transact anywhere across the entire customer journey for both B2C and B2B." Adobe management stated in their press release that Magento will be "seamlessly integrated" into the Adobe Experience Cloud for "commerce enablement and order orchestration for both physical and digital goods across a range of industries, including consumer packaged goods, retail, wholesale, manufacturing and the public sector." Magento has over 300,000 developers on their open source platform, and shares enterprise customers like Coca-Cola, Nestlé, & Cathay Pacific with Adobe. Industry analysts generally cited the deal as a win for both companies, enabling Adobe to increase competition with Salesforce, Shopify, Oracle, & SAP.

Magento Commerce Cloud to Power B2B/B2C Solutions to Enterprise & SME Clients Globally

Financial Analysis of the Adobe-Magento Deal by Trade Media Pundits & Tech Experts

As TechCrunch reported, this is not the first time that the Magento Commerce platform has been bought and sold by third-party investors. "Magento was founded in 2008 and purchased by eBay in 2011 in a deal reported to be just $180 million. The company went private again in 2015 with help from Permira Funds, which sources say paid around $200 million." According to Dries Buytaert, the founder of the Drupal CMS & Acquia, "We also know that in early 2017, Magento raised $250 million in funding from Hillhouse Capital. Let's assume that $180 million of that is still in the bank. If we do a simple back-of-the-envelope calculation, we can subtract this $180 million from the $1.68 billion, and determine that Magento was valued at roughly $1.5 billion, or a 10x revenue multiple on Magento's trailing twelve months of revenue. That is an incredible multiple for Magento, which is primarily a licensing business today. Compare that with Shopify, which is trading at a $15 billion dollar valuation and has $760 million of twelve month trailing revenue. This valuation is good for a 20x multiple. Shopify deserves the higher multiple, because it's the better business; all of its business is delivered in the cloud and at 65% year-over-year revenue growth, it is growing much faster than Magento. Regardless, one could argue that Adobe got a great deal, especially if it can accelerate Magento's transformation from a licensing business into a cloud business." Bloomberg verified that the Magento Commerce platform is used by online businesses to generate a total of $155 billion in gross merchandise volume annually. Nevertheless, some industry analysts expressed views that Magento has lost customers and developer support with the launch of Magento 2 and that this was a strategic sale intended to maximize value due to the consequences of platform decline.

Financial Analysis of the Adobe-Magento Deal by Trade Media Pundits & Tech Experts

Market Share Analysis of Popular Open Source and Proprietary Ecommerce Platforms

Data on the market share of different ecommerce platforms is not altogether consistent. For example, Cloudways (using the Builtwith service) reports that Magento has about a 9% market share in the sector with Magento Enterprise totaling an additional 3% globally. Data from Alexa, surveying the top 1 million websites globally by popularity, shows Magento with a market share of around 19% of ecommerce websites, compared to WooCommerce with approximately 18% of the total. WooCommerce is developed by Automattic as a plugin for the WordPress CMS. The other major enterprise-level ecommerce platforms are Shopify, a Canadian start-up currently traded on the New York Stock Exchange, Demandware (now part of the Salesforce Commerce Cloud), ElasticPath, SAP Hybris, PrestaShop, OpenCart, Virtuemart, IBM Websphere Commerce, BigCommerce, osCommerce, and Squarespace Online Stores. All of these ecommerce platforms offer similar services such as being able to list products & inventory in online catalogs with different themes available for customization, integration with payment gateways, and inclusion of a shopping cart for online orders made through a web browser. Where they differ is in self-hosted vs. cloud hosted services, the degree of openness available for code customization, the variety of programming languages/databases employed with the system, and the ability to scale to support enterprise-level web traffic. Magento Commerce has traditionally been viewed as the most robust of all of the open source ecommerce platforms, allowing businesses to run a website similar to Amazon.com in complexity with an inexpensive path to launch a feature-rich ecommerce store. The current trend is to make all of the ecommerce platforms available in the cloud as SaaS products, simplifying the ease of operation and management of the software, where Magento will now be integrated into the Adobe Experience Cloud for enterprise corporations, small businesses, and individual entrepreneurs to deploy.

Market Share Analysis of Popular Open Source and Proprietary Ecommerce Platforms

Magento 2: " Magento 2 has a highly-improved admin interface, allowing non-technical users to accomplish more without having to rely on their developers. Improvements to the admin interface include:

  • An overall new look and feel, with optimization for a wide array of screen sizes (merchants who use iPads or tablets to work will find this upgrade valuable)
  • Admin menus have been highly improved
  • Product creation is much easier
  • Magento 2 improved admin interface

With platforms like Shopify Plus on the rise, the necessity of a friendly UX for non-technical users is a very important element for any ecommerce platform solution. Magento has a very large and active development community, however the company has chosen to embody the idea of making Magento a 'business tool for business users' with version 2. By recognizing that all business users aren’t developers and orienting their solution toward that user type, Magento 2 has become easier to use." Learn More About Magento 2.

Market Share Analysis of Popular Open Source and Proprietary Ecommerce Platforms

Magento Turpentine: Run Ecommerce Sites Faster with Varnish Cache & Nginx

Nexcess is a popular web hosting company that has made a business model out of offering optimized web servers to run Magento Commerce at faster speeds. The company has also developed the plugin Magento Turpentine, hosted on GitHub, which facilitates integration of the CMS with Varnish Cache. "Turpentine is a full page cache extension for Magento that works with Varnish, a very fast caching reverse-proxy. By default, Varnish doesn't cache requests with cookies and Magento sends the frontend cookie with every request causing a (near) zero hit-rate for Varnish's cache. Turpentine configures Varnish to work with Magento and modifies Magento's behaviour to significantly improve the cache hit rate." With Turpentine, website owners can also run Magento on Nginx servers for faster speeds with full page caching, cluster server support, block template & AJAX caching, including SSL/TLS support for site-wide encryption of user data transfers. There are also a huge number of customized third-party extensions available for Magento Commerce available both free and under paid licensing agreements on the platform's Marketplace. At the moment, it is still unclear what the Adobe acquisition will mean for Magento's development partners in the open source community. Learn More About Magento, Varnish, and Turpentine.

Magento Turpentine: Run Ecommerce Sites Faster with Varnish Cache & Nginx

Adobe + Magento: Effect on Independent Website Owners & Ecosystem Developers

Because Magento does not earn any real income from independent businesses using the open source code to self-host their own websites, the future of the platform is considered to be as a SaaS product with monthly or annual licensing fees as part of the Adobe Experience Cloud. In this manner, the Magento acquisition is part of an ongoing effort by Adobe to shift their product line over to a subscription basis that is more mobile-friendly and cloud-centric. Magento's investment partners Permira and the Hillhouse Capital Group are the biggest winners in the deal, while open source developers and programmers building tools for the platform are concerned that they will be marginalized by the takeover. Ironically, Matt Asay (Head of Developer Ecosystem at Adobe) posted on Medium that “open source, and open development, is in our DNA,” quite strange considering the company is most famous for the Photoshop, Illustrator, Premiere, Dreamweaver, & Flash product lines. Nevertheless, Asay summarized the dynamics of the deal succinctly by writing:

Active engagement with open source communities and standards has been an increasingly vital tenet of our engineering culture as we become a platform company. Adobe actively supports open standards like WCAG 2.0 and standards bodies like W3C; we rely on some of the industry’s best open source software, including MongoDB, Apache Kafka, and CentOS; and our employees also contribute to a broad array of open source projects, including Apache Spark, Brackets, and many more... Magento is a hugely popular commerce platform. At the heart of that popularity is an army of developers collectively focused on improving and extending the platform’s core capabilities and performance at unprecedented scale and speed. This community of innovators is continually adding new capabilities while improving the quality and security of the platform.

Nicholas Panagopoulos of TransPerfect suggests that the Adobe-Magento cloud offering will likely lead to greater integration with Microsoft Azure, as Adobe has shifted the majority of their services to the platform. Web developers and ecommerce site owners will need to watch details in this sector closely to see what changes will come about with the launch of Magento 3.


Adobe and Microsoft:

Plans for a strategic partnership to help enterprise companies embrace digital transformation and deliver compelling, personalized experiences through every phase of their customer relationships. Together, the two companies will enable businesses to dramatically strengthen their brands through solutions with Microsoft Azure, Adobe Marketing Cloud and Microsoft Dynamics 365.

Learn More About the Adobe + Microsoft Partnership.

Adobe + Magento: Effect on Independent Website Owners & Ecosystem Developers