Although Adobe formally releases only limited information related to its customer retention and churn management situation, executive interviews, analyst reports and other credible media analyses suggest that the company has exceptional performance in this space, even compared with similar software-as-a-service providers.
- While Adobe only superficially discusses customer retention and churn management within its analyst presentations (e.g., 2019 Financial Analyst Meeting), earnings calls (e.g., Q3 FY2020 Earnings Call), annual reports (e.g., 2019 Annual Report) and associated media releases (e.g., Q3 FY2020 Press Release), public commentary from Adobe CEO Shantanu Narayen and former Adobe SVP of Go-to-Market and Sales Rob Giglio indicates that the company’s retention/churn rates at present are exceptionally strong.
- Specifically, Adobe currently has a customer retention rate of over 90% and an associated churn rate of under 10%, according to a presentation by Mr. Giglio at Imagine 2019.
- This represents meaningful progress since 2014, when Mr. Narayen reported a customer retention rate at Adobe of more than 80%.
- Moreover, these customer retention and churn statistics reflect a step-change from the organization’s historic performance, when only a “very small percentage of our business” was recurring, per Mr. Giglio.
- Meanwhile, Adobe’s current customer churn level significantly outpaces the median churn rate for SaaS organizations (nearly 14%), according to the 2020 KBCM Technology Group Private Company SaaS Survey, as depicted below.
- Consistent with this superior performance, Adobe has also become a provider of customer retention tools, consulting services and research, particularly with the launch of Adobe Experience Cloud in 2017.
Historic Churn Management Shift
- Adobe’s transition from a manufacturer of boxed software products to a software-as-a-service provider is widely credited by business experts (e.g., Harvard, Wharton), industry researchers (e.g., McKinsey), top-tier media (e.g., Forbes) and industry trades (e.g., VentureBeat) as the fundamental driver of its success in achieving its current customer retention and churn rates.
- Specifically, between 2012 and 2013, Adobe completed a transition from selling software in a box for between $1,300 to $2,600 per unit to selling software-as-a-service with pricing of $9.99 to $52.99 per month.
- As highlighted within the following chart, Adobe experienced an “immediate boost to retention” from the move to this subscription model.
- Ultimately, since this 2013 transition, Adobe’s annual recurring revenue has expanded from $200 million to over $5 billion.
- Moreover, Adobe has enjoyed substantial parallel benefits from this shift, such as improvements to return on marketing expenditure, average revenue per user, cash flow and stock price (which is “up nearly 300% in five years,” as depicted below).
Current Churn Management Measures
- In addition to its larger business transformation into a software-as-a-service provider, Mr. Narayen and Mr. Giglio report that Adobe has further innovated in recent years in terms of how it manages and reduces customer churn.
- Overall, Mr. Narayen asserts that “retention is the new growth” metric for Adobe and the larger software industry, adding that Adobe is “ruthless” and “obsessed about how many people are logged in, what programs they running and asking are they getting the value.”
- Mr. Giglio elaborates that there are five lessons that guide how Adobe is currently approaching customer retention and churn management:
- “You can’t get close enough to your customer:” Adobe has shifted from an “arms-length relationship” with its customers to “24/7 interactions.” The company is then leveraging this more in-depth information on customer product usage and the overall consumer journey to improve customers’ experience with Adobe. Most recently, Mr. Narayen highlighted Adobe’s review of customer engagement on its Behance community as the latest way it is innovating to better understand consumer preferences.
- “You can’t have enough data:” Adobe is deploying predictive modeling based on product usage data to proactively identify customers that are “healthy, which ones are having usability or learning issues, and which ones are at risk of churning.” This monitoring mechanism enables Adobe to make the right interventions at the right time. The latest progress in this area is Adobe’s artificial intelligence system, which is being developed to better predict renewal probabilities.
- “You can’t stand still:” Adobe ensures that its products remain competitive and attractive by continually making its services “better, easier, faster, and more bug-free.”
- “Test, test, and test again:” As evidence of Adobe’s robust testing protocol, the company currently runs approximately 200 tests on Adobe.com every week. Such rigid adherence to testing helps to drive a customer experience that is “simple enough” and “frustration-free.”
- “Automate, automate, automate:” In support of Adobe’s aggressive testing goals, the company is exploring “intelligent automation opportunities” that will enable it to increase weekly tests from 200 to 2,000.