Executive Briefing: Adobe ETLAs

Adobe consistently frustrates customers: they are notoriously inflexible to do business with; their prices are ambiguous and constantly increasing. We’ve come up with a list of four specific challenges and ways to address them, to help our clients improve the overall quality of their dealings with Adobe.

More than half of all the Adobe deals we inspect are in the Digital Media space, which consists of the company’s Creative Cloud and Document Cloud offerings.

Adobe’s Enterprise Term License Agreement, or ETLA, is the most popular vehicle for purchasing Digital Media products such as Photoshop, Dreamweaver, Acrobat, and Adobe Sign. These are 3-year term license agreements that allow customers to negotiate volume discounts, custom terms and conditions. We use a score card to assess ETLAs which focuses on product pricing, true-up language, renewal terms, product rights that govern upgrades and conversions, commercial terms that dictate what happens if your organization goes through change in control event, and finally, general terms that spell out access rights, termination rights, assignment, and audit clauses.

This brings us to challenge number one: Adobe’s high annual true-ups.

The market standard for annual true-ups is 0-10% premium over the negotiated product unit price. With ETLAs we have observed true-up premiums that range from 0% to 100%. For example, the unit net price for your Photoshop is quoted at $300/user/year, but your true-up table lists it at $400, which is 33% higher. This means that once committed volumes of Photoshop are exceeded, you will be required to purchase additional Photoshop subscriptions at $400/user/year on annual basis. We always advise proactively reviewing your true-up tables and checking your price holds, as this is one of the ways Adobe will look to make additional revenue during the ETLA, as many customers do exceed quantities during the three-year term. Ideally, your true-up premium should be 0 to 20% of your ETLA price.

In addition, we advise paying close attention to how you will be required to pay for true-ups the first year when you report them. The standard Adobe language is “billed in arrears 50% of the true-up for each additional deployment”, which means that you will be automatically charged for 6 months use the first time you report it. We advise either capping it to a lower percent, such as 10% to 25%, or negotiating pro-rated use charge, which will allow you to pay from the time access was given.

The second challenge is there are no renewal caps in your ETLA.

Unlike most SaaS providers, Adobe doesn’t negotiate renewal caps in their agreements, so if the market dictates 3-7% renewal increases, Adobe’s standard practice is not to include them at all. Unfortunately, this results in hefty renewal fees for many of our customers, as Adobe will boldly apply 100% price increases to ETLAs. Adobe’s justification for these uplifts is continuous improvement, maturing and enhancement of their products, but the truth is, Adobe gets away with this because of the increasing value delivered by the product, and the fact that they have a monopoly in the Digital Media space. Our recommendation is to insist on renewal caps for the 4th year or negotiate a wind-down term option that will allow you slowly get out of the ETLA at a fraction of the annual cost (usually 3-6 months after the ETLA expires). Even if you don’t plan to move off Adobe, these provisions buy time to think about your next renewal, if you didn’t build in a deal negotiation period prior to expiration of your ETLA.

Challenge number three stems from a misconception that there are no viable alternatives to Adobe.

Although this is mostly true for the Creative Cloud products, viable alternatives do exist for Acrobat, Adobe Sign, and Adobe Stock. There are many competitors in the PDF space, such as Nitro, Nuance, Bluebeam, and Foxit. And guess what – the pricing is at least 50% cheaper than Acrobat. In terms of e-signature market, there are many companies that give Adobe a run for their money, with DocuSign leading the pack. Adobe is still trying to play catchup and solidify themselves as a leader in E-signature market space, so they will respond very well to competition. Lastly, even though Adobe Stock is not one of the most expensive products in ETLAs, playing up alternative options comes in handy when you want to prevent Adobe from becoming a strong incumbent at your company. GettyImages, 123RF, and iStock are all viable alternatives to Adobe Stock.

The fourth challenge has to do with Adobe’s intransigent sales approach.

Unlike other IT suppliers, Adobe’s sales teams are not motivated by fiscal year ends or quarters, proactive in negotiating renewals, or willing to work with customers. To win against them, we advise clients to start deal negotiations at least 8 months before they plan to execute and prepare for multiple rounds. Adobe’s sales teams are tough, and sometimes it takes more than four rounds to get them moving in the right direction.

In addition to starting early, you should come to the table prepared with your Adobe product roadmap and Plan Bs. One of the most powerful strategies you can deploy is to challenge the Acrobat standard. Do you know that on average, Acrobat makes up 40% of the total ETLA cost? If you do your homework ahead of time and show Adobe that you have explored the competitive landscape and willing to give your business to Nitro or Nuance, they will hear the message loud and clear. Using a competitive threat, especially one that can leave a big dent in the sales person’s quota, is the most effective way to get Adobe to comply.

Having a thorough understanding of your product demand and roadmap is also key to winning with Adobe. First, it will eliminate the risk of Adobe inflating your deal, and second, it will allow you to leverage products that are strategic to Adobe. For example, Adobe has put emphasis on their Document Cloud revenue, so you can leverage investment into their pdf, e-signature, or creative stock solutions in exchange for better commercial terms and pricing. In addition, tying in Experience Cloud purchase, such as Analytics, Marketing, Advertising, or Commerce Cloud could be very powerful, because Adobe’s goal to grow this product segment by 34% by the end of 2019. We suggest playing an executive card if you are planning to tie Digital Media and Experience Cloud products together, because the sales teams are not cross functional, and it would require a higher-level discussion with senior Adobe sales team members to make the strategic necessity of your investment resonate.

For more information on this subject, you can listen to our webinar on Adobe by clicking here, or you can contact your ClearEdge representative.

Tanya Lutsyuk is a Principal Analyst at ClearEdge Partners.