If you’ve read this column for long, you know I tend to be the skeptical sort — especially when it comes to talk of fixes for Android’s long-standing upgrade problem.
The reason is simple: I’ve tracked Android upgrades closely from the start, and I’ve seen numerous attempts to get device-makers to step up their game. There was the short-lived Android Update Alliance, announced to much fanfare at Google I/O 2011 and then never mentioned again. There was the launch of the Android preview program in 2014, which was hailed by many as being the long-awaited answer to slow and unreliable upgrades. And then there were the efforts to make the preview program more effective each subsequent year, with increasingly early previews and extended windows of time between the initial and final releases.
And yet, with each passing year, the majority of manufacturers’ performance with OS upgrades has only continued to get worse — to an almost comical degree, as of late.
So here we are, in 2018, with Android Pie fresh out of the oven — and again, we’re hearing talk about how this will be the year it all gets fixed. This time, the answer comes in the form of Project Treble, an ambitious effort to create a modular base for Android that separates the hardware-specific code — the bits related to the processor and other lower-level elements — from the rest of the operating system.
“Treble is one of a set of efforts going on in parallel that, together, we put under the umbrella of updatability — with the objective of resolving this version fragmentation issue that Android has,” explains Iliyan Malchev, a Google engineer and Project Treble architect who agreed to sit down for a frank discussion about Treble’s goals, the realistic impact it’s likely to have, and where things go from here.
My biggest question was simply how much difference Treble could realistically make. After all, while the notion of separating the lower-level code from the rest of the operating system is certainly sound, it still leaves the device-maker with a fair amount of work to prepare each new OS release for its devices. And historically, as we’ve established, most Android manufacturers haven’t exactly shown themselves to be motivated to move quickly on such tasks.
Project Treble and the Android upgrade process
To think about the impact Project Treble could have on the Android ecosystem, we first have to step back and take a moment to understand what, specifically, it accomplishes.
Years ago, HTC created an “Anatomy of an Android OS Update” chart that nicely sets the scene for what we’re seeing take shape today. As the chart shows, the first step in the upgrade process — after a new Android version is announced — actually occurs along two simultaneous paths: On one side, the phone-maker starts looking at the code and evaluating how it might fit in with its products. And at the same time, the chipset vendor assesses the release and, if it decides to support it, creates the necessary bits of code that allow it to run on its silicon — the heart of those devices.
It’s only when the chipset vendor finishes its work that the phone-maker is able to start integrating the software with its own additions and crafting the rollout-ready result.
“From that open-source push to an actual device that you hold in your hand, there’s a long road to be traveled,” Malchev says.
From Google’s perspective, an OS rollout is actually a three-stage process — starting first with Google, then progressing to the chipset vendor and finally to the phone-maker before reaching us, the users. In looking at those areas, Google realized it had an opportunity to streamline the process and make it more efficient.
And that’s where Treble began. With Oreo, Google laid the foundation by separating Android at the source level and creating a boundary between the main operating system and all that lower-level stuff. With Pie, Google filled in some missing pieces and worked closely with the chipset vendors to make sure they were ready for the new arrangement.
You can think of it like, well, a pie: In the past, all of Android was mixed together, and that meant each ingredient had to be updated and baked into the batter from scratch every single time an OS update came along. With Treble, all the hardware-specific elements exist as a crust — and that crust then remains in place for the life of a device. The phone-maker can then just focus on its part of the process without having to worry about waiting for someone else to provide and mix in an updated base with each new release.
“[The Android Open Source Project] is a building that is modular in nature,” Malchev says. “With Oreo and with P, we defined a firm foundation for that building — but because the building is extensible, we needed to enable silicon manufacturers to extend the foundation of the building as well.”
Pie + Treble = ?
All right — so back to my big question: Practically speaking, how much difference will all of this make?
Gauging by my discussion with Malchev, Google’s realistic goal seems to be more about making things at least a little bit better — lowering the amount of time, on some level, from when an Android version is released to when it appears on a typical handset — as opposed to implementing any sort of idealistic fix in which every manufacturer suddenly starts delivering day-one upgrades.
And all of that revolves around Treble’s improvements to that second phase of the process — the one that’s all about the chipset vendors.
“By working with the silicon manufacturers behind the scenes, we absorbed that lead time between [the open-source code drop] and what the OEMs get from companies like Qualcomm so that the OEMs can start working right away,” Malchev explains.
So how much time are we talking about being saved, exactly? In Malchev’s estimation, it’s about a quarter of a year — three months, give or take.
Let’s do a little math, then: By that explanation, if a phone-maker previously took seven months to get an Android release onto its current-gen flagship phone — as was the case with Samsung and its U.S.-based Galaxy S8 device for Oreo — with all other factors equal, it’d now take four months to get the update rolled out. If a phone-maker previously took just over three months — as was the case with HTC and its 2017 flagship for Oreo — it might be able to get the update out within a few weeks of its release.
The important thing to remember is that there are still variables involved, and every manufacturer is not on equal footing. One variable is the level of effort required to implement a phone-maker’s higher-level modifications to Android — the visual changes and feature additions so many companies are fond of making. Google, in fact, sees that as the biggest variable to consider moving forward.
“The amount of time it’ll take an OEM to adapt Android to their own devices is a function of the amount of change they introduce into Android,” Malchev says.
But then we also can’t forget about the underlying factor of motivation. Plain and simple, most Android phone-makers don’t seem to view post-sales software support as a priority — and on a certain level, it’s tough to blame ’em.
Think about it: Despite the fact that they’re investing time and money in managing software upgrades, most Android manufacturers don’t make a dime of revenue directly off of those efforts. In fact, providing fast and frequent OS updates to existing devices arguably works against most phone-makers’ financial interests — as if anything, such timely and ongoing improvements will make you less likely to feel the need to upgrade to a new phone. As a company that makes the bulk of its money from ads and the services that support them, Google is the sole exception to this rule — and it’s probably no coincidence that it’s the sole Android-connected company to consistently make timely and reliable upgrades a priority.
Treble, for all its positives, doesn’t do anything to address that part of the equation. And remember, too: Even with Treble taking a chunk of labor out of the process, manufacturers like Samsung and LG still have a good bit of work to do to incorporate the numerous interface changes and feature additions they bring into the base Android software. The level of effort and resources involved is certainly less substantial than it was before, but it’s by no means negligible.
Still, Malchev believes the impact could be significant — and that Google is on the right path.
“Fragmentation is a difficult and messy problem, and it’s the result of organic growth,” he says. “The solution isn’t a magic wand, and it doesn’t present itself with the push of a button. It’s a lot of work — not only engineering-wise but also in working with our partners.”
Malchev also says Google has other efforts in place to work alongside Project Treble, though he wasn’t able to elaborate on most of them since they haven’t been publicly revealed yet. But he believes they’ll ultimately all work in tandem to create some meaningful momentum — a “snowball or avalanche effect,” as he puts it. And beyond that, he says there’s plenty more fine-tuning to be done before we see Project Treble operating at its full potential.
“It feels to me like we’ve built the machine,” Malchev tells me. “We’ve put the pieces together. Now, we need to run the process to completion.”
From the outside, all we can do is wait and see — with a close eye not only on the current flagship devices but also on the more easily overlooked previous-gen flagships and companies’ commitments to continuing support. As I’ve observed before, there’s every reason to be cautiously optimistic — but given the context around this, there’s also every reason to be at least a little bit skeptical.
One thing’s for sure: Any amount of improvement in this area can only be a positive. And based on how far most Android device-makers have fallen with their upgrade performance over the past several years, we can only hope that, at last, things will only go uphill from here.
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Since 2010, the tech giant teamed up with companies such as Samsung, LG and Motorola to create that would serve as marquee devices for its mobile operating system, Android. Known as Nexus phones, they ran the newest Android version available at the time, in hardware built and branded by these other companies.
But after launching the Nexus 6P with Huawei five years later, Google flipped the script. It decided to make a new phone without any outside partnerships. Another company would still assemble the device (a task that HTC picked up), but Google alone would engineer, design and sell it.
Designing the Pixel, as the phone would be called, however, would be like creating a phone for Goldilocks. It had to have premium hardware without compromising its style. It had to appeal to the masses without turning its back on the loyalists. And it needed to visually differentiate itself without coming off as too gimmicky. In other words, it had to look just right.
All the right curves in all the right places
Since the original Nexus One, the Nexus brand had largely appealed to Android loyalists who wanted a powerful phone they could customize. It was a devoted, but niche audience.
With the Pixel, Google wanted to attract more people than it ever had to the Nexus series, and expand beyond just the “techies.” To do that, the phone had to give off the impression that it was more like a friend, and less like a machine.
Brian Rakowski, Google’s vice president of product management for software, says most people don’t want their phones to look intimidating. “You want your phone to be something that helps you, and that you can trust, and [will help you] get things done.”
Making the Pixel look less overwhelming began with softening its corners and smoothing its harsh edges. Contoured angles appear more welcoming and are easier on the eyes, while sharper edges are aggressive and can be alienating to some users.
Even the angled curves that outline the phone (known as “chamfered edges,” a common carpentry term), couldn’t bend at too strong a degree. After studying how people held and carried their phones, the team settled on a chamfered curve that was comfortable to hold, but still made the Pixel look thinner.
One curve Google’s industrial design team wanted to avoid, however, was around the camera lens. It wasn’t the team’s main priority to create a phone without a camera bump, but it would be an added bonus if they could pull it off.
Besides being unsightly, a bump prevents a phone from laying flat on a surface. But the Pixel’s camera sensor proved to be a problem: It was large, which was good for letting in more light, but it still needed to fit in the Pixel’s thin body.
So, the team wedged the Pixel’s profile. By thickening just the top half and tapering the bottom, they could keep the camera they wanted, avoid the bump, and cram in a bigger battery to boot.
“We wanted that sensor, but we didn’t want to compromise,” said Jason Bremner, Google’s vice president of product management for mobile phones. “Because it’s wedged, we fit a bigger battery in this design,” he said. “So, we got kind of a twofer.”
Details to obsess over
In 2008, Jared Spool, the founder of the Massachusetts-based firm User Interface Engineering, wrote: “Good design, when it’s done well, becomes invisible. It’s only when it’s done poorly that we notice it.”
For the Pixel’s design team, that meant poring over every detail even if people wouldn’t notice each one consciously. As long as users walked away feeling that the phone was holistically well designed, the thinking goes, the team remained successful. And there were plenty of minute details that they could overlook.
“A lot of time people might not notice those details, but they appreciate it’s a nice device,” said Rachael Roberts, an industrial designer on the team.
Consider, for example, the Pixel’s textured power button, located on the right edge of the phone. The team explored different groove patterns before deciding on a final one. In general, grooves let you locate the key by feel alone, and help distinguish it from the volume rocker. The team was careful not to choose anything too rough, but they also knew that anything too smooth would be pointless. After going through several iterations that included diagonal lines and triangles laid out in different patterns, Google landed on a diamond, crosshatch pattern.
Designing the glass panel (or rather, what lies beneath it) on the Pixel’s backside wasn’t straightforward either. The panel itself is easy to spot, as it gives the phone a distinctive two-toned look between the glass and the aluminum. It also has a functional benefit of providing the phone’s six antennas with more surface area to receive and send signals.
But beneath the glass on the Pixel’s blue and silver versions is a thin film that makes the glass reflect a soft yellow tint. Called a dichroic effect, it’s similar to the natural multicolored sheen of soap bubbles. You’ve likely come across dichroic glass in art, jewelry and architecture.
Adding this yellow reflection was an entirely aesthetic decision. The only reason the team left it off the black version of the Pixel was because it simply didn’t look right. Similarly, the sand-blasted treatment of the black model’s aluminum encasing received a different finish. Unlike the satiny feel on the blue and silver, the black Pixel is grainier, rougher. The reason, again, was purely aesthetic.
“We felt the blue and the silver’s smoother finish suited them. And this black one just looked… cool,” said Villarreal.
Letting gut feeling guide decisions is not unusual for the team. Sometimes, that’s the way design goes. You can bring in focus groups, conduct surveys and do hours of research. But at the end of the day, if something feels right, you have to trust your instincts.
Feeling ‘really blue’
Most phones are black. Sometimes, phone makers will offer a white or silver version. And once in a while there’s a one-off color, like the gold iPhone 5S or the fiery red model of the Nexus 5. These fun “pop” colors are useful for marketing the phone, and they often sell out quickly, partly due to their novelty but also because fewer of them are made.
The Pixel has a showcase color too, simply known as Really Blue. Like the other colors, Very Silver and Quite Black, the name is intentionally tongue-in-cheek.
It arose after Google’s marketing team pitched the typical assortment of overused color names (ocean blue, slate, graphite). After hearing such unoriginal suggestions, the product team was less than impressed.
“We were like, ‘This is lame,'” said Rakowski. The marketing team tried again, with a more sarcastic and self-aware approach, eventually arriving at the names we now use. With that, everyone was on board. “It definitely felt on-brand,” Rakowski said. “We like poking fun at ourselves a little bit.”
Agreeing on cheeky names was one thing. Selecting the exact colors of the phones, too, was a collaborative endeavor that required lots of deliberation — especially with regards to Really Blue.
In its quest to find the perfect showcase color, the team brought in focus groups to evaluate different color samples and mock-ups. Dozens of colors were proposed, including an emerald green, a dusty purple, a deep yellow and a delicate baby blue.
But it was the dark, brazenly jewel-tone blue that prevailed, and it resonated well across genders and age ranges. More fine tuning was necessary, of course, which involved more focus testing and more mock-ups. But the team’s own taste factored in too.
“To find that color wasn’t easy, we went through a lot of iterations,” said Villarreal. “We saw that one, and it was like, ‘Wow, that’s the one.’ It had so much energy in it.”
Depending on the light, the blue Pixel ranges from a bright royal blue to a rich cobalt. Though it’s generally seen as a safe brand color for Google (for instance, both of the Gs in its logo are a similar shade of blue), it can still be tricky to pull off if it isn’t done right.
Joann Eckstut, a color consultant and coauthor of “The Secret Language of Color” says that blue is unique in its polarity. It can represent both the working class (“blue collar”) and the very rich (“blue blooded”). It’s omnipresent in the sky and seas, but is still rare to find in nature. And though it’s largely considered a masculine color today, blue was more of a feminine color up until the 1940s.
In the end, Really Blue walked that thin line. It was just the right amount of funky, yet wasn’t too “out there” to discourage interested buyers.
“It connotes to me rarity, something exclusive,” said Eckstut. “It’s for the unique person.”
Ready for the big time
When Google finally unveiled the Pixel to a San Francisco audience last October, it didn’t know what to expect from the public. Having tested the phone internally for more than half the year, the team was nervous. What will users think? Did they overlook anything? Was there still room to improve?
“Sometimes when you’re that close to a product, the simple things get lost,” said Bremner. “You get so close to the details and you see all the things that you coulda, shoulda, woulda.”
And while there’s no guarantee that the Pixel would please every Goldilock (for instance, there were observations afterward that its design borrowed too heavily from others, like Apple‘s iPhone, or the device’s own assembler, HTC — a speculation both Google and HTC deny), Google did everything it could to deliver a phone it’d be proud to call its own.
From fretting over button textures and avoiding cliched product names to making sure a yellow reflection doesn’t clash with certain shades of aluminum, the Pixel was a result of big ambitions coupled with relentless give-and-take.
“It was trial and error,” said Bremner. “Building a phone is honestly a product of compromise. It’s all on tradeoffs and trying to find that sweet spot.”
Americans are enrolling in computer coding “boot camps” in record numbers, but a CBS News investigation uncovers problems at Woz U, one of the field’s newest and most recognizable programs. Woz U was created by Steve Wozniak, best known for founding Apple with Steve Jobs in 1976.
Last fall, Wozniak rode a Segway into a packed ballroom near Phoenix to launch Woz U, an online education company promising “Education. Reprogrammed.” The project, from a bona fide Silicon Valley celebrity, generated thousands of inquiries from potential students. Among them was Bill Duerr.
“This is the Woz… you get kind of caught up in the excitement of that,” Duerr told CBS News correspondent Tony Dokoupil.
A former nuclear specialist with the Navy, Duerr came across the website last fall. “The Woz” said call now.
“You call them. What’s the sales pitch like from there?” Dokoupil asked.
“Hey, we’re so excited, we’re getting ready to launch this, like you probably can’t feel how excited we are here but let me tell you,” Duerr recounted.
The 33-week program wasn’t cheap at $13,200 – including more than $7,000 in federal student loans. At that price, Duerr said he expected quality. That’s not what he got.
“When you’re doing code and you’re following along, and there’s a typo, and you get an error, you don’t have any idea why you got the error,” Duerr said. “And you’re like how can – did somebody not proofread this? Did somebody not make sure it worked?”
Duerr said typos in course content were one of many problems. So-called “live lectures” were pre-recorded and out of date, student mentors were unqualified, and at one point, one of his courses didn’t even have an instructor.
“I feel like this is a $13,000 e-book,” Duerr said. While it was supposed to be a program written by one of the greatest tech minds of all time, “it’s broken, it’s not working in places, lots of times there’s just hyperlinks to Microsoft documents, to Wikipedia,” he said.
CBS News spoke with more than two dozen current and former Woz U students and employees with similar complaints about the program.We also reviewed complaints posted by students on the Woz U Slack channel: “I do not understand why we can’t get good quality for what we are paying for,” one message read. “The lessons are extremely flawed!” another said.
Tim Mionske was one of the “enrollment counselors” charged with selling Woz U to prospective students.
“It is drive, drive, drive the sales,” Mionske said.
“How did people respond when you would tell them, ‘Well, I work for Woz U. Do you know who Steve Wozniak is?'” Dokoupil asked.
“A lot of folks would know that, who he is, and then you get some folks who don’t know who he is, and then you can really give them the excitement of who he was,” Mionske said.
After the launch, Mionske said the sales force expanded from 16 to 60 and management ratcheted up pressure to enroll students.
“Your job’s on the line,” Mionske said.
“So even when you started to have qualms and questions and concerns about the program, you’re pushing people through,” Dokoupil said.
“Everyday,” Mionske said, nodding.
With his enrollment numbers dwindling, Mionske was laid off last June.
Asked whether he regrets working for Woz U, Mionske said, “I regret in the aspect to where they’re spending this money for, it’s like rolling the dice. … But on the reverse side, I have to support my family.”
“In this case, do you feel like you had to do something that wasn’t right?” Dokoupil asked.
“At times I did,” Mionske responded.
We wanted to talk to Wozniak about all this, but he declined multiple requests for an interview, so we tracked him down at a conference in Miami.
“I’ve had some calls, but here’s the trouble, I’m in the busy part of a speaker’s life,” Wozniak said, when Dokoupil approached him. A woman called for security. “Come on, don’t make statements and pretend like they’re questions,” Wozniak added, walking away.
“What do you want Steve Wozniak to hear, and to know?” Dokoupil asked Mionske.
“I would want him to really look more into – is this really education or is this really about profit?” Mionske said.
In a statement, Woz U President Chris Coleman acknowledged errors in course content and said they have implemented a quality control system to catch them. He also said Wozniak reviews the curriculum. As for the program’s sales tactics, he denied students are pressured to enroll.
In a surprise move, Google has halted its business operations with Huawei, one of the leading mobile phone manufacturers in the world, effective immediately — a report by Reuters notes. The halted business streams include anything in relation to the transfer of hardware and software products except the open source ones. If accurate, this can send shockwaves across the world and massively impact Huawei users and businesses all over the world.
According to Reuters,
“Huawei Technologies Co Ltd will immediately lose access to updates to the Android operating system, and the next version of its smartphones outside of China will also lose access to popular applications and services including the Google Play Store and Gmail app,”
Last Thursday, Trump administration had added Huawei in their trade blacklist and owing to that it will be extremely difficult for Huawei to do business with US companies. Google is one of the US companies with the highest number of consumers in the world using its open-source operating system Android.
The move will put the users of Huawei smartphones in limbo, they won’t be able to get any new Android updates, security patches and even will lose access to Google Play Store which makes a huge portion of Android phone experience. The list of smartphones includes the recently launched high-end flagships of Huawei including P30, P30 Pro, Mate 20 Pro, and the list continues.
Huawei, in just the recent quarter of 2019, shipped more than 59 million smartphones which makes a huge chunk of devices powered by Android Operating System. A source closer to the matter mentions that Google was forced to end ties with Huawei as a result of trade blacklisting of Huawei in US. Otherwise, Huawei was expected to become the biggest seller of Android-powered devices in the world beating Samsung and other Chinese smartphone manufacturers by a good margin.
Huawei will continue to have access to the licensed open source version of the Android operating system, which is available for everyone to use.
Huawei has not yet commented on the development. But in a recent interview to a Japenese publication Nikkei, Huawei’s CEO Ren had mentioned, “Huawei’s growth might slow under the U.S. restriction, but only slightly.”
The recent move by Google is going to change the power game between different smartphone manufacturers but only time will tell how Chinese smartphone companies and Chinese establishment will react and respond over this.
Take a tour of the evolving Tahoe Reno Industrial Center east of Reno. Jason Bean, RGJ
Nevada taxpayers will help technology giants such as Tesla and Google pay for a 13-mile pipeline that will carry water to an industrial park in Storey County.
The Legislature’s 21-member Interim Finance Committee voted unanimously in favor of authorizing $35 million in bonds to finance the project. Storey County would issue the bonds which would then be purchased by the state. Companies benefiting from the pipeline would repay the cost through a special assessment district.
In a second action with six dissenting votes, the committee authorized the creation of a special tax increment area that would redirect new tax money generated by developments in the area to reimburse businesses in the area for assessments they paid to fund the pipeline project.
“I am really struggling and continuing to struggle in asking the state to pay for it, so I will be opposing the motion,” said Sen. Pete Goicoechea, R-Eureka, who voted against the reimbursement.
The proposal now goes to the Storey County Commission which would need to approve another ordinance to move the project along, said Paul Anderson, director of the Nevada Governor’s Office of Economic Development.
Backers of the pipeline and reimbursement plan said the benefits of the project would far outweigh any costs.
They said the pipeline will help the region stretch water resources further and boost economic development.
The pipeline would stretch 13 miles from Sparks to the Tahoe Regional Industrial Center, home to major developments from companies such as Tesla, Google and Switch, among others.
It would carry municipal wastewater from a treatment plant to the industrial park where private companies would, at their own cost, treat it further for use in industrial applications.
In addition to the $35 million in bond funding through the state, the project will require an additional $100 million or more in private funding to move, store, treat and distribute the water after it moves from the pipeline into the industrial park, according to a presentation from pipeline backers.
Effluent diverted to TRIC
Vaughn Hartung, a Washoe County commissioner and chairman of the Truckee Meadows Water Authority board of directors, said diverting wastewater to users instead of returning it to the Truckee River, the region’s primary water source, is good for the river and the economy.
“The effluent management in the region is growing, we are moving it from a liability to an asset,” Hartung said. “This is an absolute asset to our region.”
The pipeline plan, if fully enacted, would divert as much as 1.3 billion gallons, or 4,000 acre-feet, of partially treated effluent away from the river and toward industrial users.
The diversion will reduce the levels of nitrates in the river which could benefit native fish near the Pyramid Lake Paiute Tribe’s reservation and help the region stay within Clean Water Act limits on nitrates.
“This is a good investment for the state to participate in,” said Sen. Ben Kieckhefer, R-Reno.
In order to maintain legally mandated flow rates in the Truckee River, the agreements behind the pipeline deal include provisions to use undeveloped water rights to replace the diverted effluent.
Those include an estimated 1,500 to 2,200 acre-feet of rights owned by the Nevada Department of Transportation and privately held rights to about 1,500 acre-feet of water the developers of the industrial park say they will leave in the river.
“They could divert that water out of the Truckee River, instead they are providing it out of the return flow,” said John Enloe, director of natural resources planning and management for TMWA. “So, they leave that water in the river and use the effluent instead.”
If the water rights described on paper don’t materialize as actual water flowing into the river, the quantity of effluent water diverted to the industrial park would be reduced.
“The Truckee River has been one of the most adjudicated rivers in the Western United States,” said former Southern Nevada Water Authority and Las Vegas Valley Water District General Manager Patricia Mulroy, a consultant on the pipeline project. “There will be a one-for-one replacement of actual freshwater in order to keep that river whole.”
Financing for the project will come from state-issued bonds that would be repaid through tax assessments imposed on the property owned by companies benefiting from the pipeline.
The assessments are structured to generate enough money to cover repayment plus financing charges and build a reserve fund.
If a company can’t or won’t pay the assessment, it would have its property foreclosed upon and sold to cover the amount owed. The buyer would then be responsible for payments.
If foreclosure and reserve funds were unavailable to cover bond costs, taxpayers in Storey County could be on the hook. If the county’s general fund fell short, liability would shift to state taxpayers.
“Every one of those property owners is electing to say we are essentially willing to pay our portion of the pipeline project,” consultant Jeremy Aguero of Applied Analysis told the committee. “They each are individually responsible for their share of that project.”
Although the deal is structured to ensure assessments on the businesses cover front-end costs, taxpayers will be asked to carry some of the burden on the back end.
That’s because the committee’s second vote approved the special taxing area that repays the companies for their pipeline costs.
According to projections presented at the meeting, development in the special tax area will generate as much as $1.3 billion in new tax revenue over its first 25 years. About $61.4 million from the newly generated taxes could go toward reimbursing the companies.
Water rights deal criticized
The use of tax revenue to reimburse companies drew criticism.
“The taxpayers of Storey County are not excited or in agreement with using future tax revenue to reimburse billion-dollar global companies for an infrastructure that will do nothing but support their businesses,” said Sam Toll of Gold Hill during the public comment portion of the meeting.
Assemblywoman Teresa Benitez-Thompson, D-Reno, who voted against the reimbursement motion, also characterized the use of NDOT water rights to offset the loss of treated effluent from the river as a giveaway by the state.
“In a state where water is everything … I have never heard of water just being given away,” Benitez-Thompson said. “We are essentially giving this water, we will not be getting any compensation for this water.”
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Adobe Systems Incorporated (NASDAQ:) Citi Global Tech Conference September 5, 2018 8:25 AM ET
John Murphy – CFO
Mike Saviage – VP, IR
Walter Pritchard – Citi
Welcome everybody for the first keynote session of the 2018 Citi Global Tech Conference. I’m Walter Pritchard, software analyst. Very happy to have with us Adobe. John Murphy is the CFO and Mike Saviage is the VP of Investor Relations. So I’m going to go through some questions that I have. Just want to mention, we will take questions in the audience. We’re not going to talk about Q3 or financial results, given the proximity of earnings. So keep the questions higher level and go with that. Thanks.
And Walter if I can just add a little bit.
Yeah. So as Walter mentioned, we’re in a quiet period. We report earnings next week. We also have a Financial Analyst meeting coming up on October 15. If you’re not on our distribution list, send an e-mail to email@example.com. But given it’s our quiet period as Walter mentioned, we’ll be sticking to high level topics and no tone of business, targets, numbers type questions today.
Thanks for reiterating that, Mike. So John, maybe you’ve been with the company here about 18 months, spent about 6 months in the CFO seat. Adobe has got these two businesses. You’ve got the creative business, I think, we’ve all known or digital media, we’ve all known forever and more recent — last ten years or so, entering into the digital marketing space. Could you talk about the characteristics of the two businesses, how do you manage the company overall, given what appears to most people to be a very high margin digital media business in a more investment mode in the digital marketing space?
Yeah. Sure. I think when you look at the digital media business, the document cloud and creative cloud side of the business coupled with our experience cloud on the digital experience side of the business, creates a really strategic offering for our customers. So, I’m trying to look at them as two separate businesses, but look at the digital media side of the business, our core or what we may be able to do and we continue to extend value into those products and services. Here, it is really all the way through to our experience cloud business, because it gave us an entry into companies because we were really engaged with the CMOs and the marketing departments for a long time and the creative side of these businesses.
So now, we’re able to move beyond content creation and delivery to understanding how customers can actually use this medium to engage with customers and understand how customers are using their own products as well. So, you’ve got content creation, delivery and then you’ve got insights and you’ve got personalization, you’ve got monetization now. So it’s an — it’s a way that we are able to kind of extend the value proposition for our customer, end to end with a unique set of strategic platforms and solutions.
And can you talk about what you’ve done on the product side to sort of bring that complete vision together and any examples of customers that are successes across the entire portfolio?
Oh, yeah. There are a lot of customers that are successes across the portfolio, because most of the content that’s created today is really created using Adobe solutions of the creative cloud. And the document cloud business as well as at the center of companies that are trying to automate old paper based processes, so when you couple those together, moving over to the experience cloud, they’re actually end to end, linking those together. So you could take many different customers, whether it be in the automotive space, whether it be in the consumer products space. I don’t know if there’s anyone to call out specifically, but there are a lot of large ones that are using our products for a long time.
Got it. And as we think about just investments in the business across the board, can you talk about where you’re making investments and ironically, the two business lines have been growing in similar zip codes, but could you talk about sort of pace of investment across the business and where you’re making most of those?
Yeah. I mean, we look at the large opportunities in front of us. So whether it be in the digital media side or the digital experience side of the business, we’re continuing to invest in both and where there are opportunities for us to add value, so in creative cloud, we continue to invest in products and services that will expand the market for those products and certainly on the digital experience side, recently, with our acquisition of Magento as well as our investments in our Adobe cloud platform and things like that are really kind of balancing the whole portfolio of investments. So, the goal is really to continue to add value on all sides of the business and strategically invest for that.
And we’ve looked at this year when the tax reform, we knew that we would have this benefit and we would end up having large EPS growth, just from tax reform. So, when we looked at the opportunity of either returning that directly to bottom line or actually using that as an opportunity for us to invest, we did end up in the second quarter as we talked about investing in certain aspects of the business, to take advantage of that opportunity. So whether it be Sensei or machine learning and AI platform or whether it be [indiscernible] cloud platform or whether other features and functions across all the three clouds.
Can you talk about sales and marketing? And how important that is from an investment perspective?
Oh, yeah, without a doubt. The enterprise — the world class enterprise sales force is important. It’s typical of the enterprise based, capacity based models. So when we look at the opportunity in large TAM in the enterprise space, we want to make sure that we’re able to meet the demand of that market. We also have many, many partners that we work with as well. So from that perspective, we balance the investment in our own sales force as well as through partnerships.
Okay. Okay. Maybe drilling down a little bit into the creative side, I think, you’ve — Adobe has sort of written a textbook on a transition of that business. Could you talk about where you feel like you are in that transition? What have been the growth drivers on the creative side and what you see as the growth drivers going forward feeling that business?
Yeah. Sure. I would say the transition is over. We’re – it’s happened about five years ago really and now we’re really in that humming of this business and figuring out how we can actually expand subscription growth across the creative cloud or document cloud. And in the creative space, there are many different ways that we can drive growth. So, earlier, the distributor do a price increase, that’s just one lever, there is certainly seed expansion both in the enterprise and in education market.
In the enterprise for instance, we’re certainly embedded in the market departments and creative departments, but there are other folks across different departments that are creating content. So they may not be using the product every day or 10 hours a day, but they’ve been using the products for 10 hours a week or 10 hours a month. So engaging with those customers, building that extension across the enterprise is really important.
The other thing is on new products, based on new media types that are coming out. So whether it be AR, VR, 3D, those are areas that we’re investing in as well as other geos and things like that.
And just building on that, this is one of the common questions we get is, how we can keep driving growth. John touched on a number of those areas. In market expansion, also, we’ve moved into categories like hobbyist and consumer. Our mobile apps, we’ve had over 100 million people create an Adobe ID just to access our mobile apps and they become part of our funnel on how we drive awareness, trial use, ultimately subscriptions and there’s not only the existing products we’ve been licensing, but there’s been some new things and we’ve — just over the last few months, we’ve announced a couple of new projects to perhaps monitor.
We announced Project Aero, A-E-R-O. Aero is a new augmented reality content creation tool that we’re working on and Apple had us on stage at WWDC a few months ago to showcase that with them. And more recently, we announced Project Rush, which is a whole brand new, call it, video authoring tool for the YouTube generation that wants their content to look very professional, but they need a very simple, easy-to-use tool. And so as we tap into these new areas where content creation is happening, it does two things for us. Number one, of course, it creates incremental opportunity, but for our existing customers in the subscription model, it shows that we have their back in terms of thinking about where the market’s going, where they’re going to need to add skill sets to create more content and then knowing that Adobe is investing in these areas that helps drive things like retention or upsell from one product to two or two products to the entire creative cloud offering. So all of this is helping to drive not only today’s business, but also investing for future growth.
Maybe just drilling down a little bit further, you brought up pricing. Could you talk about the experience you’ve had in that price increase? What you’ve learned from it? And just longer term, how do we think about pricing as a driver of the growth in that business?
Yeah, absolutely. We get asked about this a lot, some subscription models obviously have annual price increases and we’ve said and we continue to say that we don’t want to be that type of — and we don’t use that lever in that way at an annual price increase, want to raise prices where it makes sense. A price increase that we did in North America earlier this year was after five years where we added a lot of innovations and different features across that period in addition to five new products that we launched at MAX last fall. So it’s really a value proposition.
So, and that’s how we’ll optimize on pricing, as we deliver the value, customer seems to resonate whether they don’t necessarily react negatively to it. When we announced the price increase MAX, it didn’t roll out obvious until spring. We didn’t get a lot of pushback. We’ve had experience with price increases around the world when we adjust for FX. And so we have a good understanding of what the elasticity is and certainly with the value proposition that we’re able to offer.
So it’s more about product delivery rather than a timeframe?
It’s not in every three years, every two years, every one year and so forth.
Yeah. If there is enough value based upon what we’ve been investing and we deliver to the market and we feel that customers are resonating with the value, we’re just pricing accordingly.
Another example of that is the photography plan, being able to get Photoshop and Lightroom, two very popular tools from Adobe at $10 per month has brought a lot of people in. We introduced last fall a brand new version of that offering at double the price and we didn’t force customers into the new offering. We said you can stay with your existing plan or if you want some of these new features and innovation that we’ve added to the new offering, you can self-select to essentially double the price you’re paying. And so that’s an example of how we can drive higher ARPU without sort of forcing customers into a higher price point.
Got it. Another lever on the ARPU that you touched on a little bit has just been adding things on a new Adobe stock, for example, it’s been something that’s been sort of pushed into the base. Maybe you talk about Adobe stock, specifically, how we should be thinking about penetration of that and then other things that are sort of add-ons into the creative base like that offering?
Yeah. So Adobe services certainly are important for our customers and drive more value out of the core offering that they’ve subscribed to. So, stock is great. We’ve got millions of images that can be utilized by the career professionals seamlessly within the creative cloud. And so having that as a service has resonated well with our customers.
Individually, it’s a small distributor, but it’s a — it really is a larger contributor on the broader scale of the creative cloud offering, similar to signed and document cloud, this is a very similar situation there.
And other things like that, this is a major area for investment and there are others you could point to that are maybe in the earlier stages that we might look at down the road as more meaningful for revenue.
Yeah. Another example would be Adobe XD, which is a brand new tool for screen design, which has been out roughly a year, but I bring that up only because, when you think about Adobe’s stock, we think of images or graphics as being things that creative professionals might buy as part of the process. With Adobe XD, you can also buy or access templates and other types of content. So — or if you’re a video author creating video content, you can access 4K video in the platform. So it really is synergistic to how we’re rolling out new products.
We roll in capabilities into things like Adobe stock or into the community where we have services and features online that help our customers learn our products. It all works together to build understanding, awareness and adoption and then retention of the offering over time. And with something like stock, I mean, if you’re paying us 50 plus dollars a month for creative cloud and you add Adobe stock, the most popular subscription is $30. So now we’ve gone from 50 to 80 per month with the user. It’s a substantial increase in the opportunity.
Got it. And on the — so you mentioned we’re sort of through the transition, which I think most of us model, see that. When we think about just the unit growth, we talked a lot about sort of the price, P times Q, the price side of it, from a quantity side of it or unit side, I feel like I covered Adobe back when it was a sleepy sort of population or a workforce growth. You’ve been growing units much faster than that. Can you talk about maybe what have been some of the drivers of unit growth and which of those you see as sustainable?
Yeah. So, I think the — certainly on a subscription based model, you get the lower price point of entry, right. So you end up attracting more people to the platform that maybe couldn’t or wouldn’t necessarily part with a much higher price point. In addition to that, you’ve got — the fact that we’ve got storage and collaboration capabilities that are based on the cloud and can be accessed from multiple devices I think is also driving usages. People [indiscernible] not necessarily in a place of, a physical place of work, they’re working all over the place. So I think those aspects are driving adoption.
Plus, the constant innovation, I mean, people who come to view Adobe as or coming to a stock and a stock to innovate on our products and deliver what the customers are asking for in terms of making their work more effective and then also their productivity. So, our investments in machine learning and AI are really important, because it’s able to increase the productivity of the creative professional as well as make it easier for the casual creative or the hobbyist to actually use our products.
And is that still, but that’s still not — that’s not driving conversion as much or is it still driving conversion of the casual user that maybe wasn’t on subscription plan?
Oh, yeah. It certainly is. I mean, you’ve got, there’s certainly a number of Creative Suite users out there today that are, we still target to from creative cloud. It’s probably not as big an emphasis today as it once was, but certainly, internationally, it falls a little bit later than it did in the US and in terms of Germany and Japan, but there are obviously other geos that we’re able to target there to get customers convert and we still have piracy, but it’s hard to quantify.
Yeah. I was just going to add that last point, really two things. One, there’s category growth that’s really happening in a bigger way than ever before, because of the amount of content being created in the world. There’s more people entering that as an opportunity or job for their future. So, just the number of creative professionals or content creators in the world is growing substantially.
And then what John just mentioned, I was going to add, which is fighting piracy. It’s very hard to quantify in terms of numbers the amount of piracy, but we know it exists. And we know also just looking at our run rates in geographies where there’s high piracy rates, we’re growing our business there. It’s because of the low entry point of price, it’s because it’s tougher to steal the product when it’s tethered to the cloud and all those values being serviced to the desktop product from the cloud. And so those are also helpful drivers in thinking about the growth trajectory for the business.
Got it. Great. And maybe switching over, talking about document cloud a bit, you’ve seen that subscription transition is to some degree lagging. The creative side, it has picked up steam in the last year. Could you talk about what’s really motivated the accelerated growth of — really accelerate conversion of the document cloud — to the document cloud business.
I think we said in the past that we’re focused on the transition for creative cloud. We may be taking our foot off the gas although of document cloud, but certainly now, looking at the different services we’re able to add, we’re able to kind of put a little bit more gas on that, use the same playbook that we did with Creative Suite and creative cloud and start to migrate customers over to document cloud from just the standalone Acrobat. And so the unit growth that we’ve seen in the last four quarters has been fantastic and continues to be a focus of ours as we go forward. So again, it’s a lower price point. It’s the full features, set of services that are in the cloud. It’s all the other add on services that we’ve been able to enhance Acrobat with. And so that’s where some of our growth has been. I think we’re really satisfied with it.
And in the enterprise, in document area, you do see a lot of casual usage of that product. How do you feel about, you mentioned on the creative side that some of these and the new product 10 hours a week is more of a target for you? On the document cloud side, does subscription do anything there to help or how are you attacking the expanded user opportunity in that market?
Yeah. I mean, if you think about, just even as individual users, how many different engagements have you had with paper based documents and so if you can actually leverage that paper digitally and then fill out a form and sign it and all those things and use that on a somewhat ad hoc basis as an individual or maybe as a small business, then you’ve got great opportunities to kind of digitally transform your own life in that sense.
Got it. And you talk about sign, I think, there’s now an independent public company that’s exclusively focused on signing. Could you talk about your, just the state of your business there. I think, actually a lot of investors are trying to understand how big is it, how fast it is growing. I know, you’re not breaking it out, but any sort of color around that business would be helpful?
Yeah. DocuSign, obviously great story there in terms of entering the market and creating business around really one feature sort of the Acrobat. And so from our perspective, we didn’t look at it as a point solution or a sign product is fully integrated in to our Acrobat offering. And so we end up with a little bit more robust offering in that sense. So we’ve been pretty happy with the growth of sign attached or document services.
There’s another area too where we’re investing and we think mobile is a whole new frontier for us in terms of how we can add more value and services to businesses to just general users that want to take a paper based document or workflow and turn it into something digital. So, we launched Adobe Scan about a year ago, just over a year ago, which basically turns your phone into a high end, high quality scanner and turns your document on your desktop into a full-fledged OCR and PDF. And so we’re doing things like that to just augment or add to what we’ve been doing with the Acrobat and the document cloud offering.
And when you think about the reach Adobe has, we have over 1 billion copies of the free Adobe Reader out there on mobile devices and PCs and that becomes a huge opportunity for us in how we leverage the use of PDF everywhere. And then we start to add these new services in these new mobile apps and things and that just builds a bigger opportunity for Adobe broader than just getting a signature on a document.
And on sign, I think one thing in our coverage of DocuSign, we took a look at it, it’s just your website and how many people you are hiring and we didn’t come away from that feeling like this was a super high priority for the companies. Can you help us understand, like, are you investing enough in sign? Is that — it just seems like probably a lot of things on your plate, but curious how you prioritize that area of investment?
Yeah. I mean the thing, if you look at a company like Adobe, we’re a large company and we’ve got investments across our R&D platform, working on a number of initiatives and so we balance those investments across where we think there are really great opportunities. And we do think sign is a opportunity for us. And so from our perspective, I think we’re – we definitely are investing and we continue to evaluate whether we should invest more.
And keep in mind also that a lot of our subscription based business run as digital. We drive traffic, we drive a funnel of people to adobe.com. So our sales force which is driving a lot of our growth is really our team that’s running our outlined properties. We of course have sales people, we have people on the phones, we have partners. That all comes with a business that’s been around 20 years, but now we’ve also leveraged our — the infrastructure we’ve built for creative cloud and how we drive the funnel and the traffic through our website. We do the same thing and that’s been driving a lot of the growth with Acrobat. So that’s not going to show up as Acrobat sales people on the job posting.
Got it. Maybe switching over, talking about the experience cloud. So in that market, you have a number of competitors who have margins that are [indiscernible] willing to invest substantially to drive growth. You’ve driven more of a balanced approach. Can you talk about the tradeoff you’re making there between the growth in that business and the investment level required to achieve that growth? And how you think about that balance?
Yes, sure. There’s a huge opportunity I think in the digital experience business and we’ve talked about pretty substantial TAM that are over $60 billion by 2020. So, it’s a pretty fragmented market as you talked about. There are a lot of competitors in the market, because there are a lot of opportunities too, because we’ve got a unique proposition where we have content creation, content management, content delivery, web analytics, advertising, personalization, TV delivery and monetization. So we’ve got this end to end capability that really doesn’t stack up against any of the competitors. There’s a lot of talk about where we compete with certain other software companies, but in reality, there’s very little overlap.
And so from that perspective, we’ve got an opportunity to continue to capture market share and aggressively invest to do that. And so it’s a, we talk about balancing investment. We’ve been a disciplined operator, as you said, maybe there are other companies with lower margins that are investing more, but we’re very prudent I think in the investments that we make. So whether it be through acquisition, making sure that if we were buying a company that it ends up being the number one solution in the marketplace after we’ve owned it for a little while, so that’s kind of the focus that we’ve.
And would you say in that business, is the rate limiter to your growth, is it on the product side or is it on the go to market sort of sales resource side?
Well, I think on – certainly, enterprise sales is capacity model, right. So, you end up with our own sales force from a partnership. But I think we’ve got really great coverage there. What we’re seeing though is that as customers are engaging in their own digital transformation, they don’t want to necessarily — they may enter into that process with a point solution for an aspect of their business, but as they get into it more, they don’t want to necessarily deal with multiple vendors and multiple products.
So, our goal is really to provide the marketing functions of companies with an end to end solution that gets them to either enter in one or two offerings and then ultimately buy a full suite of offerings. And what we’ve seen over time, particularly with our partnership with Microsoft, we’re able to secure larger deals, multi solution deals and so they’re just a little bit longer sales cycles as we talked about last year. But in the end, they have a much greater value proposition to both the customer and to us in terms of a meaningful investment on their side and certainly a larger engagement on our side.
Got it. I’m just going to pause. We’ll have a few microphones going around, if there’s any questions in the audience. Again, let’s keep the questions in the spirit of what we talk about at the beginning of the session. So, you recently completed the acquisition of Magento, brought you kind of an e-commerce capability in the market. Could you talk about how you’ve, in the early days, integrated that in? How are you taking that to market? Let’s start there and then I have a follow up?
Sure. We always had the capability of commerce before, because we’ve partnered with other commerce providers. So, as customers were looking again to fill out kind of their solution portfolio, some wanted us to have our own solutions. So with the opportunity with Magento, they’ve got a great solution, a good portion of the code is open source, which is actually — helps with innovation, obviously engaging with different types of customers’ existing environments. So from that perspective, Magento was well on its way in developing its products.
They’re certainly focused on mid-markets, we’re moving up to enterprise. That’s where our sweet spot was. So that’s the capability and opportunity that we have to bring to Magento. So, but at the same time, we want to actually still nurture the business that came with the company and that’s a very strong mid-market business that has market leading products and I think they were already transitioning to enterprise solutions as well at the time. So for us, it’s an ability to accelerate that for the company and really add it into the full digital experience.
Got it. We’ll take any questions in the audience if we have any.
Q – Walter Pritchard
Quiet room. From an M&A perspective, you’ve done a handful of these deals, nothing that’s been sort of blockbuster, really large. As I mentioned, you do have a landscape, especially on the experience side that’s moving very quickly. Some of your peers I think may be willing to do some of those deals that are more blockbuster in nature. How do you evaluate M&A prospects? You’ve got valuation. You’ve got potential synergies, other factors. What are the — what’s the criteria set you’re using to come to the outcomes that you’ve come to so far and how does that play in to the future?
Yeah. We’ve proven to be a very disciplined acquirer. And so, the three main criteria that we looked at is, does it make financial sense, does it make strategic sense and is it a strong culture fit for the company, which is really critical to driving the success through integration and synergies. So those are really the criteria and while we have typically or historically favored more small tuck-in capabilities and we continue to focus on those, Magento was the third largest acquisition that the company has done in its history. So with digital experience, digital marketing in general, so many competitors of very fragmented market, I think there’s definitely a lot of opportunity. And we have a lot of leverage obviously. We have a capability to do larger deals, but I think we’re very disciplined in how we evaluate them and make sure that they make sense for the company.
Got it. Any audience questions out there? So to talk about, competitively, you’ve sort of alluded to this, maybe not a lot of overlap. It does look like you and Salesforce are to some degree kind of coming, they’re building out marketing, you’ve gotten into e-commerce. Can you talk about just generally who you’re seeing competitively, how much of it is contested business with Salesforce versus other players and what the trends have been there?
Certainly, we see them, but I think, as I said earlier, I think a lot of people think that we’re probably more in this path of collision than we really are, because really the overlap is around campaign management and data management and now that we have Magento in commerce with again Salesforce’s Demandware, when you look at the rest of what we offer between content delivery, web analytics, advertising, personalization, TV delivery and, it’s just not as much overlap as it may be perceived. We partner with Microsoft on — with dynamics for CRM solutions when our customers want a choice. But, obviously we’ve been selling into Salesforce environments as well. So, we — there’s some competition, but we actually probably don’t see that as much as people would think from a pure marketing perspective.
Okay. On — you mentioned Microsoft. I guess that partnership was announced I think at MAX, was it last year or two years ago now?
Two years ago. Two years ago right now.
Two years ago. Can you talk about where you are in the sort of putting the strategic steps into action and what tangible results you’ve gotten out of that relationship at this point?
Oh, yeah. It’s well on its way and we continue to find more opportunities to collaborate. As I said, we’re selling in with Microsoft. They’re not selling our product, we’re not selling theirs. We’re selling together. When we’re brought in, we actually end up securing larger deals. Likewise, the fact that we can actually integrate well on an Azure platform with their dynamics product gives us an opportunity to tap into customers that maybe haven’t looked directly at us before. So in that case, I think, from my perspective, I think, it’s going well.
Just to add, I think, it’s not just a, on paper, we’re going to work together. There’s weekly meetings around pipeline. There’s weekly meetings around how we look at things like a data model that can be used across our products. So leveraging Adobe’s investment in the analytics and data management and how that can be used with assets across our portfolio and theirs to provide more value to customers. More recently, the partnership is extended into things like office in the knowledge worker space where Adobe Sign has become the preferred e-signature solution as part of their deployments for office and windows and SharePoint. And we’re continuing to look at more ways to collaborate. So it’s really been beneficial and as we’ve always said, part of the reason it’s successful is there is really no competitive overlap in what we’re doing. They have an agenda, they have goals and things that they’re trying to reach and as are we and both of those lead to a common goal of servicing customers that are looking for value in this space where we can generally provide.
Q – Walter Pritchard
Got it. Again, I’ll pause to see if there is any questions out. Can see up here. Can we get a microphone towards the front?
You mentioned Magento expanding into e-commerce. What do you think about expanding into the service, enterprise service market?
Customer service side of the market?
Customer service side.
Customer service side. Yeah. No. We look at all the adjacent markets and see if there’s opportunities that we can really kind of leverage what our customers are asking for. Services is actually a little bit of an area that there are some good players there, but it’s also a lower margin business where we’re kind of balancing out investments on those types of acquisitions we would be kind of evaluating that against what our current portfolio is rather than maybe hurt margins further.
Okay. Any questions? So on public cloud, you’ve been a early user of public cloud. I think, you’re still operating a lot of your own data centers. Can you talk about the sort of strategy there long-term, impacts on margins or other business impacts you see from public cloud adoption?
Yeah. I think it’s been — it’s certainly been beneficial in the sense that, assuming, there is a lot of opportunities to engage with multiple customers across the world really and so we – obviously, we are partnered with [indiscernible] we are partnered with Microsoft with Azure, we have the Adobe cloud platform as well. So we’ve been intentionally a hybrid kind of approach and model.
And I think just taking that question a step into where we talked about investing on our Q2 call, this Adobe cloud platform, if we think about creative cloud, document cloud and experience cloud, these were all sort of initiatives that were sort of siloed in the early days without a strategy of how do we architect, what would be a common architecture across all of these. So, things like security model, how data is used, single sign on, all these things are very important to customers rolling out the entire offering. And so, we’ve been working not just on which public cloud offering we worked on and we’ve had of course Azure in the last year or two, but now, we also are looking at how can we really create synergy across everything we do.
So that as we move forward, there’s a lot of leverage in that, so that we don’t have to reinvent the wheel every time we move into a new initiative. Same thing, we did with the creative products years ago around Illustrator and Photoshop and all these things. They all had common elements in them and when we invested in that common infrastructure, it benefited all the products simultaneously and I think the same thing is playing out with how we’re investing in the Adobe cloud platform, investing in AI machine learning around that, so that we can really introduce continued magic and value to our customers as part of these initiatives. And then what it’s deployed on, it’s just an output of that investment.
Sure. Got it. So, John, you mentioned obviously on the sales side, you’re making your own investment, you have partnerships there. In terms of the traction with that size, what’s the biggest factor that helps to drive that and where are you in addressing that to get more leverage out of the SIs?
Yeah. So the partnerships that we have with SIs, they have been long going. And so in a sense of whether it be the SIs or whether it even be Deloitte Digital or Accenture, those partnerships are important to us, continuing to service the needs of our customers. And, for us, it gives us the opportunity to continue to focus investment on what our core capabilities are as product and innovation and things like that and allowing them to kind of cover the services side of the business.
And how do you feel about in the future, do you expect to have moved the sales and marketing sort of the expense carried by them or is it — is this balance sort of where you expect it to be and just driving more scale in that arrangement?
Yeah. I mean we’re going to continue to be looking at it. I think, we’re in a good spot right now in terms of that balance that I don’t necessarily think that would see a great desire to shift it dramatically one way or the other. I think it’s kind of balanced at this point.
Yeah. And your need to build out your own services capabilities, maybe you can update us on, deals are getting larger and to some degree, there may be a need to build the services piece out. Has that moved along with the deals getting larger?
We do have a large services organization within Adobe that actually enhances how customers should utilize and drive value out of our products. So it’s a balance of where we play in the services spectrum. So it’s really more in making sure the customers get value out of what they’re purchasing.
Yeah. Got it. Any questions we have in the audience. There is one.
One follow-up question on Magento acquisition. Shopify’s CEO on the last conference call told investors that Shopify is taking market share from Magento. So, are you going to invest more in Magento to improve their position, even at the expense of the Adobe free cash flows?
So the question I think was market share balance in e-commerce space and there’s a notion that Shopify is taking some market share from Magento. Do you need to invest more in the Magento business at the expense potentially of Adobe’s free cash flow?
Oh, when we looked at Magento, certainly in the space that they’re playing and there’s certainly some competition. Obviously, Shopify as well, but Magento is actually doing really quite well in the marketplace and again we’re kind of moving more upstream to enterprise level. So we’re able to accelerate that. So the investment that we’re doing in Magento is to continue to drive into the enterprise faster and enterprise being our size enterprise versus being [indiscernible] as a standalone company, but it, like I said, at the same time, we want to make sure that we continue to invest in the core Magento business and make sure that it is — maintains its competitive positioning in the marketplace as well in the mid-size.
Just, it’s always interesting when we get questions which are driven by the IR team about their competitors, where they say they’re taking share. Here, they’re taking share there. We could say the same thing too. I mean, we’re — we bought Magento because our customers wanted it. They felt like the market was under served, the solutions were rigid and they wanted to extend their investment in Adobe, not just up to the shopping cart, but to make every interaction, every digital experience have the ability to run a transaction with that. We’re very excited about what we’ve acquired with Magento, but just like several other acquisitions we’ve done in the past, we have what we have today, but as we invest in that business and integrate it with the rest of our offering, if you look at our acquisition of Day Software, it was an unknown Swiss company that had sort of next generation web content management technology.
Now, it’s the number one offering in the world. If you look at Adobe Stock, everybody said, well, why don’t you buy Shutterstock or Shutterstock said they are taking share from [indiscernible]. Guess what, now that business has been growing over 20% year-on-year every quarter for the last four quarters. So, we’ll invest appropriately and we see a huge opportunity in that space and I think you just have to take what competitors say with a grain of salt because we have entered this space and we’re very excited about how we will take share and grow our business over time.
Any questions in the audience? So on — if you look at the current market, valuations are quite high. Your stock has appreciated a lot. Acquisition targets have appreciated a lot. Any update on how you just generally look at capital allocation and especially in light of where we are in the market cycle?
Yeah. Really, the same as we’ve said. There hasn’t really been a dramatic shift in our thinking. So, obviously, we’re going to continue to invest in our business. We’re going to continue to evaluate the M&A landscape and make sure that we make smart investments and as well as making sure we’re balanced with returning value for shareholders through our share buyback program, which last May we ended up increasing quite substantially an $8 billion program through 2021 that’s going to be funded through future cash flows. So, I think it demonstrates a really disciplined balance in our capital allocation, making sure that we’re returning value and creating value at the same time.
Got it. All right. Let me give the audience one last shot here. I guess John, last question for you. So, you came in again about 18 months ago as Chief Accounting Officer. Obviously, succession was probably in mind at that point. In terms of your focus as CFO, I think investors who have sort of got used to your predecessor who — things went quite well, could you talk about where your priorities are as CFO and what areas you see to make an impact on the organization?
I have been great and fortunate to work with Mark for a year and really being part of the strategy that we’re building up that we’re executing on today. So from that perspective, I’ve been asked before as I got on, what are you dramatically going to change, I was like, I don’t know, the company has been doing pretty well, so I’m not going to dramatically change anything, but what I do bring to the table is, having great experiences coming for Qualcomm and DIRECTV, these are 30 plus billion dollar companies that have scaled through very high growth cycles. And so my focus is really going to be making sure that I can deliver that scaling expertise to Adobe as we continue to grow 10 billion, 15 billion going forward. So that’s going to be a lot of the focus. And then, certainly, I’ve got a fairly extensive background in M&A as well and so that’s an area that I can deliver value for Adobe as well.
Got it. Great, well, John and Mike, thank you very much for coming to the event here and everybody thanks for joining the session.
It’s been a whirlwind past few months for the entrepreneurs behind Jargon, but Tuesday evening marked a high note after the Seattle startup won the first-ever Ubiquity-GeekWire Award at the Alexa Accelerator Demo Night.
GeekWire teamed up with Silicon Valley venture capital firm Ubiquity Ventures for the inaugural Ubiquity-GeekWire Award, a $2,500 cash prize to recognize and reward our winning startup — no strings attached and no equity in return.
Nine startups spent the past three months in Seattle as part of the accelerator, co-led by Techstars and Amazon, honing their pitches and tweaking their business models that incorporate Amazon’s Alexa voice platform.
After the presentations, I huddled with Sunil Nagaraj, managing partner of Bay Area-based Ubiquity Ventures, and Pulse Labs CEO Abhishek Suthan, who participated in the first Alexa Accelerator cohort, to pick our favorite idea. We judged the companies based on the quality of the pitch, business model, and demonstration of deep voice technology integration.
After a thorough debate and discussion, Jargon was our pick for the Ubiquity-GeekWire Award. The Seattle-based startup helps engineers localize voice apps or “skills” that have been built in English so that they’ll work for users in other countries. Jargon also helps non-English-native developers translate their apps for the U.S. market.
“If you find product market fit in one geography, you want to roll it out as quickly as possible to other geographies,” Nagaraj said. “With mobile and PC, you could take your time. But with this rapid voice technology adoption curve, you want a turnkey tool to flip on ten geographies tomorrow. Jargon makes that happen.”
Suthan, whose startup raised follow-on funding from Amazon and Google, said he thinks Jargon can be a big business, particularly if it gets into content management.
“The promise of voice is that it can be leveraged to create a truly personal experience globally,” he added. “It drops barriers from the devices, machines, computers. To be able to do that at scale is the problem that Jargon is solving.”
Jargon CEO and co-founder Milkana Brace gave a polished pitch on Tuesday. She explained how anytime Alexa expands into a new country, Jargon’s market expands. Companies are already spending upwards of $40 billion on localization services for mobile and web products, she added.
“Our strategy is to capitalize on the burning need for voice localization in order to accomplish two goals: to drive wide adoption of the Jargon SDK, and to build a subscription-based customer base,” Brace said during her pitch.
Jargon actually pivoted its business after joining the Alexa Accelerator. The original idea was to create an on-demand interpretation service, but feedback from Amazon mentors who lamented about taking Alexa to international markets helped Jargon switch gears.
“We were really intrigued by their sense of urgency,” Brace told GeekWire after her pitch. “We rebuilt our product from the ground up and our whole story has changed.”
Brace co-founded the company with Jonathan Burstein, Jargon’s chief technology officer. Brace’s background includes jobs at Groupon and Expedia. Burstein has worked at Amazon, Zillow and Microsoft. They’ve added three additional employees in the past 12 weeks.
Flashy new features almost always arrive on the most expensive smartphones first, but Samsung may start taking a different approach. DJ Koh, head of Samsung’s mobile division, tells CNBCthat the company is now focused on differentiating mid-range phones ahead of flagship phones, as sales lag on higher-end models.
“In the past, I brought the new technology and differentiation to the flagship model and then moved to the mid-end. But I have changed my strategy from this year to bring technology and differentiation points starting from the mid-end,” Koh told CNBC.
Koh reportedly said that he had reorganized Samsung’s mobile development team to prepare for the strategy shift. The first phone to follow this new design approach is supposed to be this year’s Galaxy A series phone. Those phones are priced around $400, which puts them far below flagships like the S9 and Note 9, but still well above the type of budget phones that are popular in many markets.
Samsung’s mobile revenues have been sliding over the past couple years, and the smartphone market is changing: while high-end phones play well in the US, other markets are far more price sensitive while still looking for higher-end specs and features.
There are plenty of phones that will offer that balance. Barely a month goes by before exciting new features and designs make their way from flagships to cheaper phones designed for those markets, making it hard for companies stuck in a more traditional product cycle to stand out.
Samsung hasn’t avoided bringing higher-end features to mid-range phones — this year’s Galaxy A series, for instance, included an 18:9 screen and dual front-facing cameras. But it was going up against phones that offered screens with notches, the clear symbol of a 2018 device. That kind of difference makes it harder to compete with companies like OnePlus, which are quicker to bring these features to mid-range phones.
That all said, Koh told CNBC the changes are really just about “focusing on millennials who cannot afford the flagship.”