$3B for Flash instead of $10M
Updated: Apr 14, 2020
Ok, here’s my favorite story from all my years in the software industry.
In 1993, I co-founded FutureWave Software with the most incredible programmer I’ve ever known, Jonathan Gay. We actually started out making a vector drawing program for the Penpoint operating system and the EO tablet. (Short version: the world wasn’t yet ready for a clunky tablet with very short battery life.)
When that disappeared, we had to pivot. We ported the drawing program, SmartSketch, to Mac and Windows. But, that didn’t get traction quickly. I saw that the World Wide Web was going to be the next big frontier. I said to Jonathan that we needed to do something that was related to making web pages.
He responded immediately that, since going to a recent SIGGRAPH, he had been thinking about a cell-based animation editor with a playback engine for web pages. I said, if it’s for web pages, we can get sales.
When we released the animation editor, which contained all of the vector graphics editing of SmartSketch, it was well received. Disney stopped using Macromedia Director and started using our editor for online stuff. It was really well suited for cartoon like graphics and balloon text.
But, sales were still small since we did not have a big marketing budget. Jonathan expressed an interest in having the backing of a major company to really do it right, and I was fine with that. To me, this company was all about Jonathan, I had made a lot of money selling my first company. So, we started talking to a few companies about acquiring us, even though we knew it would be a relatively small deal as it was still very early. It would be, as they say in the biz, a technology buy.
We figured Adobe would be a natural fit. There were two executives there who I knew, one really well. I contacted him, and he was able to set up a meeting. Much to my surprise, it would include high level execs and John Warnock himself, the CEO. For a first meeting!
My friend told me how it would go. Warnock would watch our presentation of the product and listen to our spiel. All the execs wouldn’t say a word. Then, if Warnock got interested, the execs would start saying, hmmm, yes, interesting. If Warnock wasn’t interested, they would be going, hmmm, not so interesting . . .
So off to Silicon Valley we go. We did a demo. The plug-in which rendered the animations on a web page was still a little slow. Warnock wasn’t overly impressed. But really, there were two things going on that day. One thing that we were told was that Adobe was preoccupied with the acquisition of Frame Technology (the product was FrameMaker).
The other we only learned of much later. It turns out that Warnock was fixated on Adobe Acrobat. He didn't think people needed the World Wide Web, they would only need Acrobat (remember, this was right at the start of the web). And Warnock thought that if animation got going, Adobe could simply add it to Acrobat. So, he didn’t get interested, which was abundantly visible and, as predicted, the execs were also not positive.
Not long after that, Macromedia came calling on us, unsolicited. Disney had told them that they weren’t using Macromedia Director anymore. That got Macromedia's attention, big time. They acquired FutureWave and Jonathan went to Macromedia. He was the lead and visionary on Flash, even becoming CTO. Macromedia did an incredible job of taking our simple version 1 and making Flash one of the most important pieces of software in the world.
A decade later Adobe finally realized that they really needed Flash. They acquired Macromedia for $3.6 billion dollars. Jonathan did not stay on. On the phone, we joked that Adobe probably paid a billion dollars for Flash.
Years later, I was talking on the phone with the person who was the decision-maker on that acquisition by Adobe. He was one of the execs in the room that day when we presented to John Warnock. I mentioned that Jonathan and I joked that Adobe probably paid one billion for Flash. He immediately said, “No, I assigned .6 billion to all the other products, it was 3 billion for Flash.”
Wowzer. Of course I immediately called Jonathan to tell him that we were wrong about one billion. I don’t think he was surprised. Adobe could have bought Flash for around $10M (I say that because that was the lowest number Jonathan and I had agreed upon to say yes to a sale).
So did Adobe, ahhh, I mean John Warnock make a mistake? One can’t really say that. Adobe always has a lot of cash to throw around. (I had already learned that fact when my first software company tried to acquire the rights to Photoshop, but Adobe gave them a million up front, something we couldn’t do.)
Maybe it was just as well for them to wait and see if Flash would actually become significant. One thing I do believe is that Adobe would not have done anywhere near as good a job of ramping up Flash if they had bought it at that time. Macromedia was exactly the right company to make Flash, a company focused on the web.
Whatever the answer, Jonathan and I still get a good chuckle out of this story to this day.