Macromedia, Inc.

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Macromedia, Inc.

600 Townsend Street
San Francisco, California 94103-4945
U.S.A.
Telephone: (415) 252-2000
Toll Free: (800) 756-9603
Fax: (415) 626-0554
Web site: http://www.macromedia.com

Public Company
Incorporated: 1992
Employees: 1,880 (2002)
Sales: $75.6 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: MACR
NAIC: 511210 Software Publishers

Anyone who uses the Internet knows Macromedia, Inc.’s products well, if not necessarily by name. Macromedia’s Flash, Shockwave, FreeHand, Director, and other software have helped to define multimedia content, applications, and interactivity on the Web. AOL Time Warner (Netscape), Microsoft, and Apple have integrated Macromedia’s technology into their products, ensuring widespread use. Web developers depend on Macromedia’s suite of Web design, development, and media player products to design and deliver compelling, interactive content on the Internet. The company also strives to promote the Web as a premiere media content provider. To that end, the company’s Shockwave.com Web site provides millions of users with media content, including games and films.

Emerging from the Primordial Multimedia Ooze

Macromedia formed in 1992 when Authorware and Macro-Mind/ParaComp merged. Authorware was a multimedia authoring software company started by Michael Allen in 1985, and MacroMind/ParaComp was a multimedia, design, and visualization software company created by the merger of ParaComp and MacroMind in 1991.

During its early years, Macromedia was establishing a foothold in the media-design authoring software field while streamlining the merger. They purchased Altsys Corp., maker of the then-popular FreeHand illustration and desktop publishing software. They also acquired Altsys’ Fontographer program. The purchase marked the company’s foray into illustration and design, though it worried some users who were accustomed to Macromedia’s strong suit in multimedia software.

In 1995, Web-browser pioneer Netscape incorporated Macromedia software into its Web browser, creating a substantial user base. A year later Macromedia unveiled its Shockwave product, which would soon become the company’s most successful creation and was synonymous with the Macromedia brand. Shockwave allowed Web users to view animation and movies through standard browser technology.

Despite the early success of Shockwave, Macromedia found itself in debt by 1997. CEO Robert Burgess, who joined the company in 1996, began shifting the focus of Macromedia from CD-ROM software to Web tools, and cut 10 percent of the workforce. However, the many acquisitions early on still meant debts. The company suffered further blows when shareholders filed class-action lawsuits accusing the company of insider trading.

In the latter part of the decade the company continued to focus on its Web and animation products while completing more acquisitions. In early 2001, they bought Seattle-based AtomFilms, creating AtomShockwave. AtomFilms promoted short films that were delivered on the Internet and to independent distributors. Later that year Macromedia also bought Allaire, a Web site development software firm, for about $360 million.

Macromedia Strives to Become “Darling of the Internet”

Macromedia’s biggest strength in the beginning was its Director and Authorware tools, programs used by developers to create educational and entertainment CD-ROMs. They then focused on the illustration and design fields in 1994 when they bought FreeHand-maker Altsys Corp. Macromedia kept the Altsys headquarters in Richardson, Texas, but renamed the organization Digital Arts Group of Macromedia. CEO James Von Ehr became a Macromedia vice-president until 1997, when he left to start another venture. The purchase saved the print page-layout FreeHand product, since an earlier acquisition of Altsys by Adobe (maker of the market leading PageMaker software) threatened its existence. Macromedia promised to promote FreeHand, despite some analysts’ concerns that a graphics company could not adequately manage a print production product. Other analysts pointed out that a print production product rounded out Macromedia’s offerings.

Moving on, Macromedia then began its focus on establishing itself as an Internet software company. This was a tough endeavor, as Macromedia was a strong player in desktop applications but would have to face stiff competition on the Web with powerhouses such as Oracle, Microsoft Inc., and Sun Microsystems, Inc. Still, the company planned to move away from CD-ROM-based applications to develop software that would both be distributed on and for the Internet.

Macromedia Establishes Itself on the Web

Shockwave was the company’s answer to broadening multimedia for Web use. The new software would work with Macromedia’s Director program to compress multimedia applications to be run over the Internet. This piece was significant because up to this point, multimedia was difficult to transmit over the Internet. Compression meant that Director file sizes could be reduced about 60 percent; this also added security to user downloads. Not only were the multimedia pieces themselves smaller, but Macromedia claimed that Web pages with Shockwave technology were smaller than Web pages without any multimedia files at all.

To get the word out, Macromedia planned to ship its new Shockwave software free of charge, hoping that it would boost other sales of Macromedia software. They also worked with both Sun Microsystems and CompuServe. CompuServe became the first company to integrate Macromedia software into its products; in the meantime, Sun worked with Macromedia to enhance its Java Internet programming language and tools to work with Macromedia’s multimedia software. Under their agreement, Macromedia would license Java and incorporate it into their multimedia products.

The partnerships with Sun Microsystems and CompuServe were a boon for the company in establishing itself among the big players. Eric Schmidt of Sun said their deal gave Macromedia a “serious presence on the Web.” The announcement of a Sun alliance made Macromedia stock rise 6 points in October 1995. The company stock had more than doubled in less than six months during this time.

Despite the agreements, Sun Microsystems still remained a competitor, as did Netscape, with whom Macromedia had made a deal earlier. However, Sun felt they could still work together since multimedia technology and the Java programming language was complementary to each other. Java technology was better suited for large applications such as databases; Macromedia’s software was designed for longer streams of media such as video clips. Under the Netscape deal, Netscape would also incorporate Macromedia’s technology into their Web browser, further broadening Shockwave’s Web presence.

But success did not quite come so fast for Macromedia with Shockwave. The stock jumped from $30 to $63 in October, but it had dropped back to $50 in December when brokers downgraded the shares. Microsoft’s Net strategy announcements also hurt share sales.

A further setback was the delay in releasing Shockwave for the Macintosh public. The company demonstrated a version at the MacWorld trade show in San Francisco in January 1996, but announced that the product would not be available for Mac users for six more weeks. The product was released for Windows 3.1 and Windows 95 platforms as a plug-in with Netscape’s Netscape Navigator 2.0. Users who were used to Macromedia’s focus on Macintosh software development up to this point were disappointed that the company chose to release a Microsoft Windows version first.

But the Windows version was proving to be a real success since its debute in December 1995. Hundreds of Shockwave sites had popped up, offering multimedia games, animations, and user interfaces. The company admitted it failed in communicating the delays to Macintosh developers, but reiterated that they were trying to establish themselves as a cross-platform company.

They then got to work developing the next version of Shockwave, which was to include support for streaming audio, media-specific compression, and the ability to download large movies in pieces.

More New Products

Continuing their Web development software strategy, Macromedia unveiled a new product in 1997. Dreamweaver was the developers’ bridge between high-end Web authoring tools and WYSIWYG (What You See Is What You Get) applications.

Web developers would not use WYSIWYG—an environment in which one can develop a Web page by creating it onscreen instead of by writing lines of computer code—because those editors lacked the ability to control the code. Most WYSIWYG editors at this point added unnecessary code to Web pages that, while helping people design Web sites with no programming knowledge, constricted Web gurus at the same time. Dreamweaver based its technology on both these offerings; its WYSIWYG editor did not add code and allowed developers to design in either environment.

Company Perspectives:

Macromedia enables the most effective user experiences. Our mission is to make the development of dynamic content more efficient, more affordable, and more accessible to millions of customers. With products that range from Web development and graphics creation to server software that powers innovative Internet businesses, Macromedia bridges the gap between Web design and development. With an open, integrated, and approachable product line, a customer base of over two million Web professionals, and a business defined by broad distribution of server, development, and player software, Macromedia enables its customers to realize what the Web can be.

What made Dreamweaver initially successful was that Macromedia did not try to position it against existing WYSIWYG editors (Microsoft’s FrontPage was an example of one), but targeted it against bare bones HTML (hypertext markup language) editors. Dreamweaver offered the best of both worlds; developers could hard-code HTML and then see the results in the WYSIWYG window.

In addition to Dreamweaver, Macromedia found success in its Flash product. While Shockwave was proving successful in the more-advanced development applications, it was also too bulky and complicated for ordinary Web use. The company hoped its new Flash product would be the key to streamlining multimedia Web use. Flash was born from a product called FutureSplash Animator, made by FutureWave Software Inc. Macromedia bought the company in January 1997 and incorporated the FutureSplash product into its line, renaming it Macromedia Flash. By again utilizing Sun Microsystems’ Java technology, Flash could be used to deliver multimedia on any machine regardless of platform. In 1997, Macromedia teamed up Flash with RealNetworks to produce RealFlash, a client-server streamlining product that enabled full-length presentations with synchronized audio and sound.

Trials and Tribulations

Macromedia was not without its trials during this intense growth period. By 1997, Macromedia was the creator or licenser of several products: the design and development tools Shockwave, Director, Dreamweaver, and Fontographer; the print production platform FreeHand; media players Shockwave Player and Flash; and their learning development application Authorware. But while the stock had reached an all-time high of $63 in 1995, by March 1997 it had plunged 20 percent to $15 before steadily dropping to about $8 a share. The plunge was due to a much-publicized delayed release of Director6 and lagging sales of Macintosh computers. The company reported a loss of $15.3 million for the 1997 fiscal fourth quarter.

To combat the financial troubles the company shifted some executives around; Bob Colligan resigned as CEO but remained chairman; Rob Burgess then took over as president, phasing out the CEO position. Burgess had several plans. First, he reorganized its Products divisions and cut the workforce by 10 percent. Next, the company as a whole focused on eliminating any future financial surprises. Part of that plan was to reorganize into more focused market segments. The effort to move away from desktop software to Internet-based applications continued, as well as a shift from a focus on the Macintosh sector to the PC market. Macromedia did have several good things going for it at the time; it was the leader in developing desktop media tools; graphic artists coveted their applications; and the company had no debt on the books in early 1997. Based on these factors, though the stock was at an all-time low, analysts were starting to make noises that Macromedia might be a good buy.

But another snag hit the company when investors filed a class-action lawsuit in August 1997 accusing the company and five executives of insider trading. The suit claimed Macromedia misled the stockholders on products success and health while engaging in insider trading during the last half of 1996. Macromedia settled the suit in August 2001, paying $48 million and clearing itself of any admission of liability.

Adapting Multimedia for the Web Environment

Macromedia’s Universal Media Initiative launched in October 1998 was designed to increase the usability of its software in Web environments. The Initiative’s goal was to adapt the multimedia authoring tools such as Shockwave and Flash to Web standards such as Java and Dynamic HTML. In this way users would not need special plug-ins to view Shockwave and Flash animations, and could create Web-based animation using HTML.

This was important as it allowed Flash and Shockwave to proliferate even further in the Web environment. Designers had more freedom in their Web sites because their choice of design tools would work on any user’s browser; likewise, users did not need special software to view any Web site.

In keeping with the Web application theme, Macromedia also launched the successful Shockwave.com Web site in early 1998. It featured games, music, cartoons, and interactive media and drew 60,000 daily visitors. By 1999 the Web site alone was generating $3.3 million in advertising on the site.

Key Dates:

1992:: Macromedia forms from a merger of MacroMind/ParaComp and Authorware
1993:: The company’s revenues hit $37 million and an initial public offering (IPO) is made
1994:: Director4 is released; and the company grows to 155 employees
1995:: The company acquires Altsys and renames the organization Digital Arts Group of Macromedia; and FreeHand and Shockwave are released
1996:: Rob Burgess joins as CEO
1997:: Macromedia Flash, a product that streamlines multimedia Web use, is introduced; and Dreamweaver, a Web page development platform, debuts
1998:: Fireworks debuts; the company launches its Universal Media Initiative to increase the usability of its software in Web environments; Shockwave.com, featuring games, music, cartoons, and interactive media is launched
1999:: The company acquires Elemental Software; and introduces CourseBuilder
2000:: Macromedia University is founded
2001:: The company acquires Allaire, a Web site development software firm; acquires AtomFilms, a short films maker that creates AtomShockwave; Home-Site5 is introduced; and ColdFusion5 debuts
2002:: Flash MX, an expanded Web development program, and Flash Player 6 are released; the company launches a learning initiative with SmartForce to develop e-learning content based on Macromedia software.

The focus on Internet product direction was attributed to Macromedia’s success in 1998. In one year the company bounced back from an all-time stock low to almost its high again. Revenues in 1998 reached $114 million and then rose to $153 million in 1999. Flash3 and Dreamweaver accounted for 20 percent of the company’s sales, and deals with both Microsoft and Netscape allowed Flash to be bundled with their respective Web browsers.

During this year Macromedia also decided to get out of the video editing business; it discontinued its weaker xRes and Extreme 3D products and then sold its never-released digital video technology to Apple.

Focus on Product Improvement

During the last part of the decade and into the new century Macromedia continued to build on the success of its products, especially its popular Flash products. Flash reached Version 5.0 by 2001 and was bundled on both Apple Macintoshes and PCs, ensuring that 98 percent of the public could view Web pages with Flash animation. Likewise marketers could build ad banners and Web sites using Flash; Jupiter Media Metrix reported that 54 percent of all deployed online advertising was created using it.

For 2002, Macromedia released Flash MX, an expanded Web development program that promised to increase usability for both developers and end users. This version of Flash was promoted to let users develop for the Internet as a business-oriented application rather than a static, content-oriented tool. Macromedia hoped that Web developers would use the newest version of Flash together with Macromedia’s other Web development tools to create “rich Internet applications.”

Branching out into the entertainment industry, Shockwave.com bought short films maker AtomFilms in 2001. The Seattle-based film company distributed digital films online. The combined company, named AtomShockwave, reached 15 million unique users every month and produced 2,000 game, film, and animation titles.

Despite another stock drop in early 2002 and the overall decline in the Internet economy, Macromedia was poised to continue driving the Web-based application movement and to keep their products at its forefront. The company also launched a learning initiative with SmartForce, who agreed to develop more than 100 hours of e-learning content based on Macromedia software. Worldwide, Macromedia was making a name for itself as well; in February, 2002 Finnish Telecom company Nokia decided to work with the company to integrate Flash into Nokia’s Mediaterminal information/entertainment device. By 2002 Macromedia had more than 20 products and 30 offices in 13 different countries; and with the rapidly changing face of the Internet and general Web use, they could expect those numbers to only grow.

Principal Subsidiaries

Allaire Corporation; AtomShockwave Corp.; Macromedia Canada Ltd.; Macromedia Ireland (Pty.) Ltd.

Principal Competitors

Adobe; Microsoft; Quark; Accrue Software; Corel; iEntertainment Network; Loudeye Technologies; RealNetworks; SGI; Sonic Foundry; Viewpoint; ImaginOn; Aptas; Internet Pictures; Bitstream; Apple Computer.