Adobe is ripping off European customers

An executive summary of Adobe's excuses is now available.

29 March 2007

Adobe has recently announced the release of upgrades for its line of software worldwide. The CS3 versions of its applications will become available through 2007. As in the past, Adobe is charging customers in Europe (and elsewhere) much more for these titles than customers in the US/Canada.

How much does Adobe charge customers in Europe and the US?

Obviously, there are a number of factors that affect the cost of a product over and above its base price. These include sales tax, profit margins in the supply chain, cost of language variations, and distribution costs. These variables need to be taken into account when comparing the price of goods in different countries. There are also other factors, such as corporation tax, which are more difficult to account for on the basis of pricing alone.

Let's take a look at a selection of prices announced in the Adobe online stores in the US, UK, Germany and Switzerland. Since these are from the Adobe online stores, they exclude variations due to the third-party, downstream distribution chain.

All prices quoted are exclusive of national purchase tax (e.g. VAT, MwSt), and all versions are in the English language, to exclude language variation costs.

Therefore, the cost differentials here are solely related to Adobe's pricing structure based on geography.

Prices are higher across the board in European countries, although the UK seems to be worst hit in this sample of products and countries. After Effects costs $1000 in the US, but Swiss customers are expected to pay an extra $620, in Germany they pay an extra $730, and in the UK it's an extra $795. The $1800 Creative Suite Design Premium costs almost $1000 more in the UK.

Is this standard practice?

By comparison let's have a look at another US-based software company that sells direct to customers through online stores in Europe and the US, Apple. Apple doesn't appear to allow language selection at the online stores, so the prices are for the default language version offered, except Shake which is only available in English.

The $1300 Final Cut Studio is $200 more expensive in the UK compared to the US, whereas Adobe's similarly priced ($1200) Creative Suite Standard Edition is $550 more expensive. Logic Pro and After Effects are the same base price in the US ($999), yet UK customers are expected to pay an extra $795 for Adobe's software compared to $170 for Apple's.

Analysis

Rows of absolute numbers like this may not be easy to comprehend, and it's difficult to spot trends when the base price varies so much between titles. So let's look at the price differentials between the US and Europe in relative (percentage) terms.

The table to the right shows the price of software in Germany, Switzerland and the UK in terms of percent extra cost above that in the US. Therefore, a value of 40% means that the price is 40% higher than in the US.

It's clear that both Apple and Adobe charge more for their software in Europe than in the US, and there may be numerous reasons for this. But the difference in the two companies' relative pricing structure is remarkable.

In the three European countries examined, the price of Apple's software is between 6% and 23% higher than that in the US.

Adobe's software, however, is between 25% and 106% more expensive in Europe than in the US (based on the limited number of products and countries analysed.) Once again, these prices are exclusive of sales tax, so they represent a direct hit on the customer levied by Adobe.

Of course, Apple also sells hardware as well as software. Could Apple use increased margins on hardware sales to support software sales? From the table below—which examines the prices of select 'pro' hardware across Europe and the US—it would appear that this is not the case. If hardware sales supported software sales, we would expect the hardware margin to be greater that that of the software. If anything, it's lower (9%-16% and 6%-23% respectively.)

When a similar disparity between Adobe's US and European pricing arose following the release of Creative Suite version 2, Jon Honeyball described the explanation given to him at the time by Adobe. This amounted to a combination of exchange rate volatility and the strength of the British pound.

But are exchange rates volatile to the extent that Adobe's pricing suggests? If so, how does Apple survive with less than 25% mark-up of European over US prices? And if the strength of the British pound causes prices in the UK to be higher than in the US, then the relative weakness of the Swiss franc against the US dollar should result in lower prices in Switzerland. Oddly enough, it doesn't.

What can be done about this?

In an ever-increasing global market for media services, by increasing the barrier to entry for non-US concerns Adobe's price differentials between the US and European (and non-European) countries are tantamount to a restriction on competition.

I've contacted Adobe for an explanation as to how they justify such extraordinary disparity between the two geographical areas. If I get a response, I'll post it here.

In the meantime, this matter needs to be taken up with the appropriate authorities. Sign this petition, which is the popular basis for Danielle Libine's letter to the European Union and Swiss authorities. Read her in-depth article.

If you can demonstrate that Adobe's pricing disparity between the US and Europe has put you at a disadvantage in the conduct of your business, then lodge your complaint directly with the EU Directorate General for Competition.

contact me

Update

4 April 2007

I still have yet to receive a response from Adobe, but other customers who've contacted me or posted on forums have been given this stock reply:

Thank you for contacting Adobe Customer Services.
The price of software in EMEA (europe-middle east-africa) reflects both the additional expense to develop and test Adobe's applications for local markets and operating systems, as well as for the delivery of complimentary Warranty support. Adobe's complimentary Warranty support covers product installation and defect issues for the life of the current version of Adobe's desktop applications.

Indeed, Adobe does charge for language variations, which is why I carefully selected only English language versions for the analysis presented here. But, of course, there are differences in spelling between US English and British/International English, so that must explain the difference! Yes?

No, actually. In my ‘International English’ install of the CS2 suite, I find that ‘colour’, ‘grey’, and ‘stylise’ are spelled ‘color’, ‘gray’, and ‘stylize’. If Adobe have made no effort to change spelling (a relatively minor issue, but the only localisation change needed to adapt a US product for the UK that I'm aware of), then what, exactly, additional development and testing has been required?

Once again, it must be stressed that Adobe charges extra for non-English variations over and above the English version base price, which presumably reflects development and testing for those languages. So what excuse is there for the increase in price of English language versions sold in the US and UK?

As for the “complimentary Warranty support”, it's not complimentary if you have to pay extra for it! Besides, are US customers not entitled to warranty support? (Actually, the only times I've contacted Adobe for technical support, I've ended up solving the problem either by myself or with the aid of fellow users on the user-to-user forums.)

Adobe's “development and testing” and “complimentary Warranty support” costs should be seen in a wider context. Apple's Final Cut Pro is another application that doesn't feel the need to use anything other than US English spelling for English language installations, but the difference in price between the US and UK for the full Studio package is relatively modest.

16 April 2007

The British Journal of Photography reported an interesting response from Adobe:

Unlike the economies of scale achieved in the large homogenous US market, the EU has 10 major languages, and four major currencies. The costs of doing business in European markets are significantly higher per unit of revenue than in the US.

How, then, does Adobe justify the fact that prices in Australia are 31% higher than the US?

Australia is a homogenous market. You can only purchase English language software from Adobe's Australian online store, and can only pay in A$. One language, one currency, 31% mark-up.

In fact, in some respects Australia is a more homogenous market than the US. Photoshop CS3 Extended is available in three languages in the US (English, French and Spanish) but only one in Australia, yet the Australian price (A$1577.27 exclusive of sales tax, equivalent to US$1314.39) is 32% higher than in the US (US$999.) Furthermore, there's no difference in the price for the three language versions on the Adobe US online store. So why do Adobe tell us that European prices vary so much because of “development and testing”? In fact, the same product purchased from Adobe's UK online store would cost £887.12 for the English language version, but £1115.08 for French, German or Spanish versions. How strange that US customers can buy language variants at no additional cost.

In contrast, Apple charges 11%-17% more in Australia than the US, between one third and one half of Adobe's mark-up.

20 April 2007

I looked at the prices of an Adobe product that is not part of the CS3 upgrades, the new professional photography application, Lightroom. The prices give an interesting perspective on some of the reasons that Adobe has given to justify pricing disparity.

Lightroom is currently the subject of an introductory discount, but the full prices are given here.

The application will cost $299 in the US, £175 in the UK, €248.74 in Germany, and CHF377.82 in Switzerland. Using the exchange rates of 29 March, these convert to $343.14 (15% higher than US), $331.65 (11%), and $312.25 (4%) respectively.

23 April 2007

I have a response from Adobe customer services and, as promised, I'm posting it here for your enlightenment:

Dear Mr. Moore,

Thank You for contacting CS-Support

Pricing is higher in Europe on many goods, not just software, so it#s important to understand why. Adobe pricing is based on customer research, local market conditions and the cost of doing business. Unlike the economies of scale achieved in the large homogenous US market, the EU has 10 major languages, 4 major currencies and diverse regional markets. The costs of doing business in the European market are significantly higher per unit of revenue than in the US

regardless

Stefan Baltruschat

Edified? No, neither am I! (I wonder if “regardless” is intended as a customer services' ‘up yours’?)

25 April 2007

I responded by opening a new case on 24 April:

If "Adobe pricing is based on customer research, local market conditions and the cost of doing business", could you please explain why:

1. Apple pricing is not so extortionate in Europe compared to the US?

2. why Lightroom is equitably priced in Europe compared the the US?

3. what customer research you actally conduct to conclude that Europe should be stiffed by up to 200% of what the US is charged?

Before you answer, you might like to look at some analysis and comment here:

http://www.amanwithapencil.com/adobe.html

and here:

http://www.amanwithapencil.com/adobe_spin.html

Thanks & regards

Nigel

I didn't have to wait more than 3 weeks for the reply this time:

Dear Customer,

Thank You for contacting Adobe Customer services

"Pricing is higher in Europe on many goods, not just software, so it#s important to understand why. Adobe pricing is based on customer research, local market conditions and the cost of doing business. Unlike the economies of scale achieved in the large homogenous US market, the EU has 10 major languages, 4 major currencies and diverse regional markets. The costs of doing business in the European market are significantly higher per unit of revenue than in the US."

Pierre Ghisolfi

Ahhh, so that's clear then!

14 May 2007

Stephen Bennett shared an interesting response from Adobe customer services on 3 May:

In today's connected world, an increasing number of customers are comparing prices Internationally, with the expectation of a single, global price. True global pricing is a rarity across all product categories because of the number of variables-from currency fluctuations to local market conditions-that businesses must consider.

However, we always take customer feedback seriously, and we'll be considering customer input as we explore ways to adjust our pricing in the future. Any such changes would take considerable investigation and analysis, so we do not plan to modify our pricing approach for the Creative Suite 3 products.

Pricing for many goods, not just software, is higher in Europe for a number of reasons. At Adobe, we factor customer research, local market conditions, and the cost of doing business into our retail, upgrade, and volume prices. For example, in a large homogenous market like North America, we can achieve certain economies of scale that affect pricing.

In the European Union, by contrast, we must support 4 major currencies, diverse regional market situations, and 14 major languages. The costs of doing business in the European market are significantly higher per unit of revenue earned than they are in North America, which is reflected in the pricing for those markets.

Yours Sincerely,

Waldo Bezerra de Oliveira
Adobe Customer Service

Now, this is interesting for three reasons. Firstly, it's a deviation from the standard stock answer that we've seen before. Secondly, it's the first official acknowledgement that I've seen from Adobe that they're considering investigating pricing. Finally, it begs more questions than it answers. And, in the spirit of addressing this last aspect, I sent the following email to Adobe UK customer services on 3 May:

To: Waldo Bezerra de Oliveira

Dear Mr de Oliveira

I read an interesting message on the Adobe user-to-user forums, which purported to be a response from yourself regarding the pricing of CS3 in Europe. It raised some very interesting points, which I hope you may be able to expand upon. I would also, from my personal perspective, like to address some of those points.

"In today’s connected world, an increasing number of customers are comparing prices Internationally, with the expectation of a single, global price. True global pricing is a rarity across all product categories because of the number of variables—from currency fluctuations to local market conditions—that businesses must consider."

From my own perspective, I would like to see consistency and fairness in pricing, but accept that there are usually some increases in price in Europe compared to the US, as a hedge against exchange rates, for example. True global pricing is not only a rarity, but unlikely. On the other hand, abuse of a dominant market position is intolerable.

"Pricing for many goods, not just software, is higher in Europe for a number of reasons. At Adobe, we factor customer research, local market conditions, and the cost of doing business into our retail, upgrade, and volume prices. For example, in a large homogenous market like North America, we can achieve certain economies of scale that affect pricing."

Could you please expand upon what customer research you conduct to conclude that European customers should be charged 200% or more of what US customers are asked to pay?

"In the European Union, by contrast, we must support 4 major currencies, diverse regional market situations, and 14 major languages. The costs of doing business in the European market are significantly higher per unit of revenue earned than they are in North America, which is reflected in the pricing for those markets."

Some general questions that are raised by the overall message:

• There are 3 language variants of Photoshop in the US, all priced the same, yet the French and Spanish versions in the UK are more expensive than the English version. Why is that?
• CS3 is priced much higher in Europe than the US, yet Lightroom is not much higher at all. Why is that?
• The 'localised' version of Adobe products in the UK can't even spell 'colour', 'centre' and 'grey' properly. Why is that? And if they are just US English, how does Adobe seriously justify more than 200% of the US price (e.g. CS3 Design Standard upgrade from CS2 Standard)?
• Australia has only one language (as opposed to 3 in the US), and one currency. Yet prices are more than 30% higher than in the US. Why is that?
• Apple works in a similar market to Adobe, yet its products are priced more in line with Lightroom than CS3 with regard to US/Europe disparity. If Apple can do it, why can't Adobe?

You might like to look at this in formulating a response, just to make sure we don't go over the same old ground:
http://www.amanwithapencil.com/adobe.html
http://www.amanwithapencil.com/adobe_spin.html

Thank you in anticipation.

Yours sincerely,

Nigel Moore

On 9 May, I received the following reply:

Dear Mr. Moore,

Thank you for contacting Adobe Customer Services.

Here are some concrete examples of factors that make costs higher in Europe compared to North America.

• It costs Adobe 5 times more to manufacture and manage inventory in Europe because:
  —We must maintain different sku’s for each language version to support different labeling requirements, support information, and sales requirements.
  —We maintain smaller quantities per language, in keeping with market sizes, which increases costs for printing, inventory management, and inventory disposal.
• The costs associated with our value-added reseller channels are 25% higher.
• We maintain 2.5 times as many field marketing employees in Europe as in North America to support our creative business at a certain level of quality across local markets. However, the revenue per employee is smaller, so the overall costs per unit of revenue is 4:1 in Europe compared to North America.
• Variable marketing expenses are 46% higher.
• Development costs are approximately $2.5–$3 million per language for each of the 14 languages Adobe Creative Suite supports.

We cannot provide specific numbers, but these percentages and multiples capture real differences.

It’s natural to compare pricing and pricing uplift across similar companies, but in this case, the comparison can be deceptive. The value of different products to customers—and the costto companies to develop, sell, and support those products—can vary significantly from product to product, and manufacturer to manufacturer. Adobe does not develop our pricing for Europe or the rest of world by simply applying an uplift to the US pricing. As stated earlier, we develop our pricing by weighing customer research and our costs of doing business. We can’t comment on the methods that other companies use to set their prices for Europe and the rest of world.

It’s understandable why customers would expect to be able to purchase the same product at the same price when ordering and downloading directly from the Adobe Web site at www.adobe.com. Today, however, we still sell the majority of our products through traditional retail channels, and we optimize our pricing for that way of doing business. We depend on our retail partners in local markets to help us reach as many customers as possible, and we have a policy of not undercutting them on price. In addition, the Creative Suite 3 applications are large and require significant time to download. For many customers, online downloads will not serve as a reasonable purchase option for some time. However, as bandwidth increases and customer expectations change, we’ll need to investigate ways to optimize our pricing for this approach.

Lastly, some higher regional costs will remain regardless of the method of purchase. For example, customers will still read about our products through local press to whom we reach out; they will meet local Adobe sales people who conduct seminars, participate in user groups, and visit large customers; and they will rely on support resources that Adobe makes available in these markets. All of these efforts impact the business costs of securing the sale, whether that sale is delivered online or in a box.

Customer service agents do not really have time to browse external websites, but I hope this deals with the questions you asked.

Should you require any further information, please do not hesitate to contact us.

Yours Sincerely,

Joel Williams
Adobe Customer Service

This is better, but we've not quite addressed all the problems. So I replied on the same day:

Dear Mr Williams,

Thank you very much for your reply to my query, it certainly addresses some important questions and I appreciate the time taken. I would like, however, to address some of those points for clarification.

It appears that prices in Europe are higher in part because of development and maintenance costs for the diverse languages. Surely the cost of maintaining those languages is reflected in the higher cost of those versions in comparison to the English version? Or is it Adobe's policy that English-speaking customers in Europe should subsidise those other languages, while English-speaking customers in the US don't? If that's the case, then why is it that:

• Lightroom only ca. 15% more expensive in Europe?
• prices are higher in the UK than those other countries with different native languages?
• the French and Spanish language versions in the US are the same price as the English version, while they're more expensive than the English version in Europe?
• there is only one language available in Australia, yet prices there are ca. 30% higher than the US?

Regarding the costs in the 'value-added reseller channels' being 25% higher, is that in relation to Adobe or Adobe's reseller channels in the US? If the latter, as a customer I question who's benefiting from the added value.

I'm not sure I've ever met an Adobe field marketing employee, so I wouldn't know what they do or why I'm paying for them. I'm sure many other customers feel the same, since others have certainly voiced as much is various forums.

Thank you, and kind regards,

Nigel Moore

Any response will be posted here.

Incidentally, Mr de Oliveira's note that customer research is used to guide pricing is reflected in an interview with Dave Burkett, Adobe's vice president of product management in the Creative Solutions Business Unit:

Burkett said that the second criterion Adobe uses to establish pricing is "market research that establishes the value customers place on the products"; in other words, what the market will bear.

"We do testing in each region and get feedback from customers," Burkett explained. "We have not found that the value fluctuates much over the years. The value associated with CS3 is incredible, and customers react to that. What I've been hearing from customers is that they see the value and appreciate it."

It would seem that people customers in Europe appreciate Adobe's software more than those in the US, and therefore can pay more for the privilege. Perhaps we should be less grateful.