Adobe spent over 3 billion dollars on Macromedia for one reason: Flash. The rest of the software gained either had limited appeal (Cold Fusion, Director) or was already marginalized by Adobe’s own software (Freehand). Despite a fantastic install base, Flash itself wasn’t terribly attractive as a niche interactive and animation tool since both markets were too small for Adobe’s large industry tastes. Flash only became appealing when its install base created an ideal platform for online video and rich media advertising. These two large Flash driven markets were the meat that drew Adobe’s interest to buy Macromedia. The rest was gravy.

Adobe only makes money selling the Flash application and related developer tools. Because of this, video and advertising have an interesting symbiotic relationship. Rich media advertising is hugely profitable with many application buying companies, creative shops and contractors. The problem is no one would continue to install Flash just for ads. Video, on the other hand, isn’t hugely profitable as there are relatively few companies that require the application in order to host Flash video. Video is important because it entices users to keep the Flash plugin installed. Without video, most people would have no incentive to keep around something that’s primarily used to display ads. A significant slip in install base would lead advertisers to look for a new ubiquitous rich media solutions.

Marginalized Flash video poses a threat to the lucrative rich media advertising market and explains Adobe’s halfhearted endorsement of HTML video as well as why the “Wallaby” Flash-to-HTML proof of concept lacks video support even though doing so would be relatively easy compared to the tween conversion already included. The threat also explains Adobe’s renewed push to define Flash as a web standard and attempts to bundle its player on as many devices as possible. Lastly, the Google/Adobe agreement to bake Flash right into Chrome makes a lot more sense considering both have online advertising in mind.