seems to be taking to heart the adage that the best person to be in a war is the arms trader.
No, the software company isn't transforming itself into a defense contractor, but in striking a distribution deal with
on Wednesday -- nearly two years after reaching a similar agreement with
-- Adobe is now in the precarious position of arming opposing sides of the ongoing Web search wars.
That's not a bad position for Adobe to be in as long as its customers are happy and still demanding its services. Considering the widespread popularity of Adobe's Reader, Shockwave and Flash (the programs through which it's offering the toolbars), there likely won't be a problem.
"This is great for Adobe," says one buy-side analyst, who asked not to be named, but whose firm is long the stock. "It's free money," the analyst says, adding that the revenue Adobe will generate from the deal -- estimated by JPMorgan analysts to be about $30 million in 2007 -- will go almost entirely to the company's bottom line.
As part of the deal announced Wednesday, San Jose, Calif.-based Adobe will distribute with its Shockwave software Google's toolbar, which works inside a Web browser and enables users to tap into Google's search engine without directly going to the company's homepage.
Shares of Adobe closed Thursday's regular session up 91 cents to $30.70, Google shares dropped $2.18, and Yahoo! was off 38 cents to $30.68.
The deal with Google replaces one that Adobe had with Yahoo! to distribute Yahoo!'s own search toolbar with Shockwave.
But under a separate deal struck in 2004, Adobe will continue to offer Yahoo!'s toolbar with its Reader and Flash programs.
Yahoo!'s deal to distribute its toolbar with Shockwave has expired, said Katie Juran, an Adobe spokeswoman. Juran declined to comment on whether Yahoo! attempted to renew the deal or on the negotiations involved with Google.
Juran also declined to say when the other distribution deal with Yahoo! that involves Reader and Flash would expire.
But Adobe doesn't see a conflict in working with both Yahoo! and Google, she said, adding that the two toolbars are offered on separate products. And Adobe continues to work with Yahoo! in other areas, including integrating its Flash into some of Yahoo!'s products, including Yahoo!'s map feature, she said.
"We consider Yahoo! to be a strategic partner for us. We cooperate with them in a lot of areas," said Juran.
Yahoo! spokeswoman Kristen Wareham declined to comment on Google's deal or Yahoo!'s reaction to it. She also declined to say whether Yahoo! plans to renew its existing deal with Adobe.
"For now, we still have a deal with them," Wareham said. "Yahoo! will continue to work through
its contract with Adobe."
Google spokeswoman Courtney Hohne said her company didn't have problem with Adobe distributing both its product and its rival's.
"We really leave it up to users to decide on which tools they like the best," Hohne said. "If people choose use the Google toolbar ... great. If they have an affinity for Yahoo!'s ... great."
Indeed, for all the jockeying between Yahoo! and Google, Google and Adobe likely had a mutual rival in mind in striking their deal:
The upcoming update of the software behemoth's Windows operating system could pose a challenge to both Google and Adobe.
Not only does Microsoft plan to tie in its own Web search engine closely to Windows Vista, it also plans to incorporate into it technology and software that could challenge Adobe's PDF document format and Adobe's picture editing software.
Give that, Adobe might want to maintain good relations with both Google and Yahoo!, since both are challenging Microsoft on the search front. It's a case of "the enemy of my enemy is my friend," says the analyst, whose firm is long Google but has no positions in Yahoo! or Microsoft.
"Adobe looks at Google as giant heat shield in the battle with Microsoft," says the analyst. Given the challenge from Microsoft, in terms of the rivalry between Yahoo! and Google, "maybe Adobe wants to spread its bets and not pick a winner," the analyst adds.
Funny, that's just how an arms trader might see things as well.