Microsoft Joins Adobe to Compete With Amazon in the Cloud

(Bloomberg) — Microsoft Corp. is joining with Adobe Systems Inc. to offer cloud-based products to their large mutual customer base, helping the software giant to better compete with leading cloud contender Amazon.com Inc.

With the partnership, Adobe will bring its creative marketing software programs like Photoshop and Illustrator to Microsoft’s Azure cloud-computing service, the companies said in a statement Monday. At the same time, Microsoft will make Adobe’s marketing programs the favored choice for its internet-based software that manages customer relationships.

“This is a good, solid relationship,” since each lacked what the other had, said Brad Reback, an analyst at Stifel Nicolaus & Co. “Bringing the two products together in a more integrated way makes the combined offering more attractive to customers.”

Both Microsoft and Adobe — an early pioneer in the shift to the cloud — are trying to boost sales of their cloud offerings, where subscription-based services can be more lucrative than traditional installed software. The partnership allows them to join forces in opposition to Salesforce.com Inc., which competes with Adobe for cloud-based marketing customers and is both a Microsoft rival in customer software and a Microsoft partner in other areas. It also gives Microsoft cloud apps that favor Azure over Amazon’s market-leading Amazon Web Services.

“This plugs a major hole for Microsoft,” said Rodney Nelson, an analyst at Morningstar Investment Services. “They are the beneficiary of Adobe moving onto Azure. It gives them more clout when competing for big deals instead of being a point vendor for Salesforce.”

Redmond, Washington-based Microsoft reported revenue from Azure doubled in the quarter ended June 30. Chief Executive Officer Satya Nadella, well into his third year at the helm of the world’s biggest software company, has been reorienting Microsoft’s business around cloud and productivity services to fuel growth as traditional software sales shrink. Annualized revenue from commercial cloud products was more than $12.1 billion, a number that Microsoft has pledged will reach $20 billion by fiscal 2018.

"We have a significant, long-term relationship and agreement with Adobe that hasn’t changed," Amazon said in an e-mailed statement. "Their customers will want to use AWS, and they’re committed to continuing to make that easy."