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Apple's Photo Op, Adobe's Frown

Apple's new image-editing software will likely crop market share from Adobe's Photoshop.

Adobe Systems

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may have just experienced a bad case of deja vu.

On Wednesday,

Apple Computer

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introduced Aperture, new digital-image-editing software targeted at professional photographers.

Although Apple touted the fact that the new program will work well with Photoshop, Adobe's program that dominates the photo-editing market, the new software has the potential to carve into Adobe's cash cow.

Adobe has been here before.


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, for instance, recently announced a new suite of programs aimed at design professionals, Adobe's central market.

But, perhaps more pertinently, earlier this decade Apple displaced Adobe in the digital-video-editing market when it introduced a rival program.

"Adobe is just getting slammed" with competition, says software analyst Chris Swenson at NPD Group. Although Swenson doubts Aperture will knock Photoshop off its pedestal, Apple has an opportunity to grab a significant piece of the market.

"Apple is Adobe's most serious competitor in the creative space. They create amazing software," he says.

For now, Adobe is minimizing the potential threat. Aperture is just one of a number of programs developed to handle specific tasks that Photoshop doesn't yet address, Kevin Connor, Adobe's director of product management for digital imaging, said in an email statement.

Instead of being a threat to Photoshop, programs such as Aperture complement it, he said.

"Adobe Photoshop is and will continue to be


software catalyst in the digital-photography revolution," Connor said. "Photoshop has one of the most loyal and passionate user bases in the world, and we see little likelihood of that changing."

Apple representatives were not available for comment. But for now, the company, like Adobe, seems to be playing down Aperture's threat to Photoshop.

In a press release announcing the new software, the company touted the fact that users will be able to send images directly from Aperture to Photoshop for further editing.

And while the company priced Aperture at $500 -- $100 less than Photoshop -- its price point is nothing to sniff at and does not appear to be a move to compete against Photoshop on price, says Swenson.

Still, the stakes are big for Adobe. In the first nine months of this year, Adobe has sold $318 million worth of digital-imaging and video products, which constitutes more than a fifth of the company's total sales over that period.

Additionally, Photoshop is included in the company's creative suite, which accounted for another 39% of its total sales in the first three quarters of this year.

Sectioning Off

Those sales are highly profitable for Adobe. The gross margins on the company's products routinely top 90% of revenue; Adobe's net profit stood at roughly 30% of sales in the first nine months of this year.

Apple's margins are high for the computer industry, but they look puny next to Adobe's. Last fiscal year, the company's overall gross margin was 29% of sales, while its net profit was about 10% of sales.

Investors are expecting continued strong growth from Apple; at roughly 30 times next year's earnings, the company's valuation is significantly higher than peers such as


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. And tapping the software market may be one part of Apple's growth strategy.

"I can understand how this looks very enticing for Apple," says Swenson. "Gross margins are huge for software. ... That's extremely attractive for a hardware company."

Like most of Apple's software, Aperture will only work on the company's Macintosh computers. Sales of Photoshop for the Macintosh have declined in recent years as a portion of total Photoshop sales, according to data from NPD Group.

But in the year to date, the Mac version of Photoshop still accounted for nearly 27% of total Photoshop sales, according to NPD.

Its announcement Wednesday makes it clear that it wants a piece of that action. And it has every reason to believe that it will get it.

The Aperture software appears to be a complete rethinking of the user interface for digital-image-editing software, giving users the option of seeing their photographs laid out like slides or negatives on a light table.

And the software puts particular emphasis on RAW files, a format containing the complete, unprocessed data from a camera's image sensor. According to Apple, Aperture will enable users to edit RAW files in much the same way that they would JPEG files or images in other file formats.

Beyond the program's merits, Aperture's adoption could be boosted by

Apple's network of retail stores. Those stores can act like an ongoing tradeshow exhibition, allowing the company to show off its products to potential customers in a wide range of locations, Swenson says.

That's a marketing tool Adobe just doesn't have, he says.

Apple Infiltrates

Aperture is only the latest move by Apple in the multimedia software space. The company previously offered professional-quality editing software for movies, animation and sound.

Also, it developed iLife, an entry-level suite of creative software that the company offers preinstalled on its Macs.

What has to worry Adobe further is its history in the digital-video-editing segment, Swenson says. In the late 1990s, the company's Premiere program dominated the market for video-editing programs under $1,000.

But Apple's Final Cut program, which the computer company introduced in 1999, changed all that. Apple had taken away such a significant chunk of Adobe's business on the Mac that by 2002, Adobe stopped making Premiere for Apple computers.

Now Apple now has about a third of the market for professional video-editing software, according to Swenson.

"Apple pretty much killed Adobe's video product" on the Mac, says Swenson.

Of course, just because Apple toppled Adobe in video doesn't mean it will do the same with digital images. Photoshop offers many of the same features as Aperture and more, says Swenson.

The new competition will likely push Adobe to match Aperture's features and then some, he says.

Even without adding anything to it, Photoshop looks all but unstoppable in some ways, says Swenson. The product has about 96% of the U.S. market for professional image-editing products, according to NPD, and has beaten off nearly all of its previous competition, Swenson says.

But Apple could benefit from a dynamic of the creative industry, he says. Unlike customers of office suites or operating systems, professionals who buy imaging or graphics software often purchase more than one program for a particular task, even if the features of the programs overlap.

So Apple may be able to find a place on customers' desktops for Aperture even if the program doesn't displace Photoshop, says the analyst.

"Creative professionals buy multiple tools. If one tool does one thing very, very well, they will buy that tool," Swenson says, adding that he can see Apple growing the market for imaging software on the Mac.

Still, he says, the Premiere example likely remains a bad memory for Adobe.

"Aperture's launch will give them more impetus to innovate," Swenson says. "This is going to be a very interesting battle going forward."

Shares of Apple closed the regular session Wednesday up $2.73 to $54.94; Adobe rose 60 cents to $30.96.