On 21 May, 2018, Adobe announced the acquisition of digital commerce platform Magento for $1.68bn. The transaction continues the trend of consolidation in the e-Commerce platform industry. The transaction is value at c.11.2x revenue – according to Adobe’s press conference, Magento has c.$150m in revenues.
E-commerce platform industry:
Magento is the largest commerce platforms in terms of number of implementations (Alexa top 1 million websites). As per latest reports, the company has 19.64% market share, followed by WooCommerce at 17.65% market share, Shopify (10.03%), Prestashop (7%), OpenCart (3.43%) and Virtuemart (3.25%).
Overall the global e-Commerce application market was $3.8bn in license, maintenance and subscription revenues. This is expected to reach $4.7bn by 2021 at a CAGR of 4.2%.
Key drivers of the transaction:
Being an open source platform, a majority of Magento implementations are in retail and SME space, which does not generate a lot of license & subscription revenue. However, with the acquisition by Adobe, the platform would look to increase its market share in the enterprise space. In terms of platform related revenue, SAP (with its Hybris Platform) has the largest market share of 15%, followed by Oracle (ATG), Shopify, Salesforce (Demandware), and IBM (Sterling Commerce). Notice that, except Shopify, all the other platforms are acquired by the large ERP and CRM players.
Magento fits in well with Adobe’s Experience Cloud platform. It also allows latter to offer end to end solutions across content, analytics, marketing and commerce. With Adobe’s partnership with Microsoft, the strategy can allow the company to compete effectively with the likes of Salesforce and Oracle, and expand into large enterprise accounts.
What does it mean for IT services companies?
Companies with existing partnerships with Adobe are going to benefit significantly from the acquisition. Niche firms focused on design and content, especially on the Adobe Experience Manager or Adobe Analytics Platform, can expand service offerings to larger digital commerce implementation. This would mean an increase in contract sizes and stickiness of customers.
Ganesh Natarajan, Chairman of 5F World and a Senior Advisor with Chesapeake, said of the transaction, “This acquisition presents a great opportunity for Adobe to make a wider impact on digital transformation. It will also make companies with strong Magento practices more attractive targets for M&A.”