Macromedia is going to play through, even though the odds might seem long.

Irwin Soonachan correspondent HostingTech | isoonachan@hostingtech.com

It's not that unusual, if you're a golfer in San Francisco, to find yourself on an indoor putting green on a chilly January morning. It's slightly more unusual to line up a putt on a large swath of Astroturf as you stand in the break room of a publicly traded corporation. Such is life at Macromedia.

The putting green, merry-go-round, pool table, video game arcade, and laundry room (no quarters needed) help make Macromedia (www.macromedia.com) a paragon of the San Francisco tech culture. The environs fit even better with the traditionally quirky culture of graphic design, of which Macromedia is an integral part.

Graphic designers and Web developers across the world have relied on Macromedia products such as Flash, Dreamweaver, Director Shockwave Studio, and Fireworks to build some of the most stunning designs on the Internet. At the very least, their software probably powered the coolest Web page that ever inspired you to hit the "skip intro" option. With so much success, what more could a company want? A slide to take you from the third floor to the second? Macromedia already has one, but do not be fooled by the child-like accoutrements and hipper-than-thou interior design. The playhouse veneer belies a corporate drive for more influence, more products, and more money.

"Over the last 10 years we've evolved from being a freewheeling software company into a serious business," says Tom Hale, Macromedia's senior vice president of corporate strategy. "We started left of center 10 years ago, but we're probably a little right of it now."

Sketching the outline
Macromedia was formed in 1992 by the merger of Authorware and MacroMind-Paracomp. Founded in 1987, Authorware produced self-titled authoring software for building learning applications. Paracomp was a late-1980s concern that built high-end graphics tools for Macs. The earliest beginnings of Macromedia, though, stretch back to 1984, when MacroMind was founded to bring multimedia experiences to PCs. At the time of its IPO in 1993, Macromedia was a leader in the growing CD-ROM market with Director, its multimedia design and development tool. But within three years, the company found itself at a crossroads.

In 1996, Macromedia's chief executive officer, Bud Colligan, stepped down. Colligan, who had been the chief executive officer of Authorware, had kept Macromedia on the CD-ROM route, but the company, like the CD-ROM industry, saw its revenue dropping. Colligan's replacement, Rob Burgess, was ready to take a deep breath and risk it all on the Internet.

To his credit, Colligan (who declined to be interviewed for this piece) had left Burgess, formerly vice president of Software at Silicon Graphics, with a few products with which to start in a new direction. Chief among these products were Shockwave, a tool for viewing animation clips over the Internet, and FreeHand, a design tool acquired along with its parent company, Altsys. Burgess, though, was not content to tack on a piece here and a plug-in there to Macromedia's Internet-oriented offerings.

"Rob Burgess said, 'It's not just one product team or one effort around the Web; it's the whole company,'" Hale says. "He gave the company a dramatic new focus to start new product initiatives to go after the Web. It wasn't, 'Let's evolve what we've got,' it was 'Let's find new products for this opportunity.'"

While other companies that had success marketing pre-Web design and development tools tried to adopt their products for the Internet, Burgess looked for new-school, best-of-breed answers, and what he couldn't build, he bought.

Under Burgess, the company launched Dreamweaver and Fireworks, now mainstays in the Web design world. In 1997, Macromedia purchased FutureWave, a company that had a product called FutureSplash Animator. Macromedia decided to relaunch it with a slightly catchier name: Flash. The rest, of course, is Internet history.

Though now struggling to turn a profit during the recession, Macromedia's income at its peak hovered around $400 million per year, and it employs more than 1,500 people. But the recession is not the only problem facing Macromedia. Recession or not, the company is at another crossroads.

For several years, Macromedia has tried to break out of its Web design mold and venture into the application server and development markets that form the foundation for its products. In the future, they envision businesses turning to Macromedia for a nearly complete website building package. For Macromedia, this is a much wider - and more profitable - scope than just site design and graphics applications.

The company has made several forays in this direction. UltraDev evolved from a product called Drumbeat, which Macromedia purchased from a smaller company, and it consistently receives high marks in the trade press. Other products, like Sitespring and Spectra, have been as forgettable as their names. As yet, Macromedia has not scored a major hit with this new initiative.

"Macromedia has been trying for a long time to get out of being seen just as a Web page development company and into being a website development company," says Meta Group analyst Craig Roth (www.metagroup.com; Stamford, Connecticut). "They've constantly pushed in that direction, but they haven't been able to get any traction."

Adding ColdFusion
Enter Jeremy Allaire (Q&A on p. 44). Allaire and his brother J.J. formed their own company, eponymously called Allaire, behind ColdFusion, one of the original application servers for the Internet. Allaire also developed JRun, a popular Java runtime environment. In 2000, Allaire recorded a respectable $119 million in revenue.

In early 2001, Macromedia acquired Allaire, the company, for $360 million, and acquired Jeremy Allaire, the person, as its chief technology officer. It is hard to say whether the product line or the man will have a greater impact on Macromedia, but one thing is certain: Macromedia is deadly serious about growing the scope of its business.

For its part, Allaire, the company, adds another steady revenue stream to Macromedia. ColdFusion has a long-standing, devoted cadre of users, while JRun has grown thanks largely to its budget-friendly pricing. Moreover, ColdFusion brings an established name.

"ColdFusion has name recognition and therefore power," Roth says.

There are problems, though. In the Internet Stone Age, ColdFusion was built in its own language, CFML. Now users want compatibility with Microsoft- and Java-based tools, something Macromedia plans to add to ColdFusion in the spring. CFML will remain intact, but application deployment on Java- and .Net-based servers, if Macromedia delivers, will soon be possible. Macromedia also has bundled ColdFusion with UltraDev to create a more potent application server.

"Combined with UltraDev, they might be able to do it," says Roth.

Macro hero
Jeremy Allaire might yet prove to be the most important part of the acquisition. According to Roth, ColdFusion, while it provides name recognition, brings little else to the table that Macromedia needs. He thinks the most significant long-term benefit of the deal may have been making Allaire the chief technology officer.

"Macromedia has tried this over and over again, so maybe putting in someone new as the CTO will make the difference," he says. "Because you have to ask yourself, what is different now from the past attempts they made? Having Jeremy Allaire there is the only difference I can see."

Steve Frankel, managing director of the Boston-based investment bank Adams, Harkness & Hill (www.ahh.com) also likes what Jeremy Allaire brings to the table.

"Jeremy Allaire is very sharp and really has a vision about the Web," he says. "He clearly can add value to Macromedia."

Neither Frankel nor Roth is convinced, however, that Macromedia will reap a long-term benefit from the Allaire transaction. Roth wonders if Macromedia only purchased Allaire because it was desperate to broaden its scope and none of the other available companies that could help them accomplish that, such as Silverstream or Bluestone, were within their price range.

"Macromedia just keeps taking shot after shot at trying to expand their development footprint," Roth says. "This was the next shot they had. I don't think they had enough money lying around to purchase a more major Web development company."

With a spotty history and a new product that needs to reinvent itself, analysts have doubts about whether the Allaire deal will take Macromedia where it wants to go. Frankel puts it in a nutshell: "The jury is still out on how much leverage Macromedia can gain from the Allaire transaction. The upcoming release of ColdFusion is critical - can Macromedia build a meaningful presence in server-side software?"

Still long odds?
Not surprisingly, conflicting data points have led analysts to conflicting conclusions.

If Roth were given an imaginary $100 with which to place a bet, and he could bet on Macromedia to succeed in expanding its range, to not succeed, or on the lowly Chicago Cubs to win the World Series for the first time since 1908 he would put $70 on Macromedia not making it, $20 on them succeeding, and $10 on the Cubs. For Roth, the latter two bets both have enough historical precedent to warrant low-risk investments.

Frankel, on the other hand, is betting real money on Macromedia. He has rated the company a strong buy, so Adams, Harkness & Hill clients are hoping Macromedia's new products outperform the Cubs. Even the bearish Roth sees the market opportunity for Macromedia.

"I see a need for a company like this that focuses on the Web database publishing side of things," he says. "It's a market that I think is very underserved. You've got static Web page development, you've got complex, multi-tier Web development, which is where all the app servers are, but there has to be something in between. You've got a database out there, you want to develop a nice, quick application to put the database on the screen, you type in a few fields, you show the answer, and it's up. It's nice quick hit stuff, very good ROI for a company, but no one is focusing on it."

If Macromedia fails to grow its business, at least it won't be for lack of persistent and bold attempts. The company with the arcade and indoor golf area does not fool around when it comes to dollars and cents. The gallery is watching closely, the water hazard looms, and Macromedia is going for the green.

Shocking the Internet

Macromedia Director 8.5 profile.

Kevin Self associate editor | kself@hostingtech.com

Although Macromedia Flash may very well be the most popular Macromedia product, you might want to take a look what Director 8.5 Shockwave Studio and Shockwave Player are bringing to the Internet. Director 8.5 Shockwave Studio is becoming the standard for creating interactive, rich-media content and provides developers with a flexible, content creation solution. The following are two examples of the caliber of work Shockwave is capable of creating:

The "Geep Sim" game (www.gorillaz.com) was created on Macromedia Director 8.5 Shockwave Studio by the London-based developing house, Zombie. The interactive game was enough to catapult Gorillaz's website to one of five sites nominated for the "Web Award" at the MTV Europe Music Awards 2001. The game puts users in the driver's seat of the band's jeep as it snakes around a twisting 3-D highway while the band's latest single provides the soundtrack for the road trip.

Power Puck (www.tampabaylightning.com) was developed at MindComet also using Macromedia Director 8.5 Shockwave Studio. It is an online 3-D interactive game created for the Tampa Bay Lightning hockey team. Perhaps the troubled NHL franchise will have better luck online than they do in the rink.