On the list of investments that I should have recognized, but ultimately failed to recognize in real time, is the success of Adobe, Inc. (ADBE) as a software as a service company. Back in 2011, when Adobe stock was at $27 per share, Adobe was the type of business where you would pay a one-time fee to acquire.
Want to access, edit, and highlight a PDF? Pay Adobe $99, and boom, you’ve got the privilege to do so for life. That was a great business model. It turned Adobe into a billion-dollar company because it didn’t cost anything additional to acquire a customer. Nothing wrong with that.
But then, Adobe took an action that changed its business model from “great” to “phenomenal.” It changed the way it charged for Adobe. Instead of having to pay a one-time fee, customers would buy a monthly license in which they had to pay $9.99 per month for the right to use it.
Someone buys Adobe once? $99. Someone uses Adobe every month for 10 years? $1,198. The point is that once someone has been a subscriber for about 10 months, each monthly subscription that Adobe collects thereafter is gratis compared to what it would have earned under its previous business model.
Also, for businesses that require Adobe, Adobe is essentially earning an override on employee growth in America. If your business grows from 50 people to 100 people, and the Adobe requirement doubles, well Adobe is there to collect more from the customer for it.
The business is infinitely scalable and the annuity-like stream is ongoing. That is why profits have sextupled over the past eight years at Adobe and now the stock is at $259 per share.
In that spirit, I discovered a company that is early on its journey towards the “Adobe-like model” because it is an incredibly profitable firm that is taking a step towards “annuitizing” the way it earnings its revenues. If you’d like to access it, you can find it over on Patreon by clicking here. If you cannot access it right away, please try to double click to bring it up.