Adobe's CEO Bruce Chizen spoke at the Web 2.0 Summit in San Francisco and IDG News Service had a chance to interview him before his appearance at the event. In this edited version of the conversation, Chizen spoke about Adobe's strategy for hosted software, its steps in the online advertising business and its AIR technology for building desktop-based rich internet applications.

Macworld: What is Web 2.0 to you, and what is Adobe's role in it?

Chizen: To me, Web 2.0 is the realization of everything we talked about in the Web 1.0 era: the ability to take advantage of web services, to have rich internet applications, to have socialization and collaboration, to have hosted applications. These things were talked about but hard to do. Web 2.0 is the execution of that, and Adobe is the enabler of a lot of that experience.

Most of the images on the web have probably been touched by Photoshop. Most of the animation and video playback is Flash. A lot of the rich internet applications are being built with our Flex framework, taking advantage of Flash. The graphics [involve] Illustrator, and on and on.

Macworld: It seems that in recent months, the Adobe story has grown more complicated than it was a few years ago, as the company moves into new areas and technologies, like hosted applications. Are you concerned that this might confuse and alienate existing customers?

Chizen: Your perception is accurate. Our business has grown more complex and more diversified. As a company that has been growing 20 to 30 per cent a year, in order for us to sustain that growth, we need to address more customers with different products and solutions. But our mission hasn't changed for the past 25 years: to help enable the communication of rich ideas and information in a reliable, compelling, engaging manner.

Twenty-five years ago we did that on paper with [printing technology] PostScript. What has changed is the world around us: more people are trying to communicate more information than ever before so we're able to address more markets.

Am I concerned we'll be alienating our current customers? No. As long as we continue to serve their needs, we'll be OK.

Macworld: Do you currently generate any revenue from online ads?

Chizen: A very tiny amount today via a hosted application called Premiere Express. It lets consumers do simple video editing. We offer it through partners like Photobucket and MTV. Some of those business models are advertising-based. We'll continue to experiment.

Our Adobe Media Player now in beta is also an ad-based business model. We enable broadcasters and content providers to make money on their content through a very clever advertising user interface. We're also working on a Photoshop Express, which will let consumers do image editing. It'll be either ad-based or subscription-based.

Macworld: Do you foresee online ad revenue becoming a noticeable part of Adobe's revenue mix?

Chizen: It depends on how many years you look ahead. Many of our core customers care so much about the quality of the information that they're trying to provide that they want their solutions to be unencumbered and won't put up with advertising. But there will be more casual users who will want our capabilities but not pay directly for it, and that's where you'll see advertising.

Macworld: Do you offer any of your packaged software products in full-featured but hosted versions?

Chizen: No, we don't.

Macworld: Will there come a time when your full-featured products will be offered as a hosted, software-as-a-service (SaaS) model?

Chizen: Yes, but over time. To benefit from a full-featured version of Photoshop, the experience as a hosted application wouldn't be very good, and that's because of bandwidth speeds. The capability of broadband doesn't equate to what you can get from your local computer.

You'll see us do hybrid applications that take advantage of the desktop, but where appropriate we'll provide hosted functionality for things like sharing. Our Kuler web-hosted application lets people collaborate using different color settings, and works in conjunction with producs like Illustrator, which resides on the desktop.

That's going to happen over the next number of years: We'll have these hybrid environments for full-featured applications. As broadband gets greater and greater, there's the possibility of taking the desktop app and moving it to the host. Five years is probably the minimum.

But the capability of the desktop and laptop is advancing so quickly and broadband capability isn't increasing that rapidly. Even if it increased that rapidly, people are throwing more data into the pipes, which will slow down the delivery of the information.

Macworld: So you're seeing interest from users in hosted software that simplifies workgroup collaboration?

Chizen: For more casual users, we'll have hosted services. We announced a service recently called Share in beta version, which lets you extend what Acrobat does or what the Adobe Reader does - document sharing, PDF creation, word processing - which will all be hosted, but you're still going to want to do a lot of things on your desktop.

Macworld: Do you agree the future of software delivery is that SaaS/hosted model?

Chizen: Eventually. The key is how long does that take. It depends on the application and on broadband capabilities. I'm smart enough to say that will be in 20 years probably.

[Chizen later said during his presentation at the conference that he foresaw the Adobe software delivery model changing from packaged applications to SaaS about ten years from now.]

Macworld: Does the SaaS/hosted model also present a threat to Adobe, if stealthy competitors develop from the ground up as hosted software some credible competitors to Adobe packaged applications?

Chizen: Any shift of delivery model or business model is a threat to any company like Adobe which makes a lot of its revenue selling desktop software. It's up to us to make sure that as the environment is capable of delivering functionality to users, that Adobe is there before anyone else.

What we've done in video editing with Premiere Express, what we're doing with Photoshop Express, with Share, what we do today with PDF creation online, are great examples of Adobe being ahead of others in taking advantage of the changing landscape.

Macworld: When did Adobe develop a sense of urgency for reacting to the SaaS trend?

Chizen: Back in the first dot-com wave is when we became sensitive to it and we developed Create PDF Online. I'd say it was a little over two years ago when we got a sense of urgency around it. Our first major hosted application was the Acrobat Connect real time conferencing product.

Macworld: You're in the process of acquiring Virtual Ubiquity, maker of the Buzzword hosted word processing application. Are you interested in having hosted spreadsheet and presentation applications, and forming an office productivity suite?

Chizen: Spreadsheet probably not, but the presentation application is intriguing. The trick is to develop one or acquire one where we believe we're differentiated by leveraging the AIR platform. What excited us about Buzzword wasn't being in the word processing business, but that it's a great example of what AIR can do. It also fits really nicely into our Acrobat document collaboration strategy.

Macworld: Do you see Adobe competing against Google's Apps suite of communication and collaboration hosted software and against Microsoft Office?

Chizen: It's more about offering the service to someone who is already collaborating with PDF documents, sharing their documents, or protecting their documents with us online and who wants to be able to edit or create a document. We're not looking to target the serious word processing Office user, but for those people who are in our ecosystem, involved in a collaborative workflow, we want to make sure we can address their needs.

Macworld: Why is the AIR approach preferable to building an offline component for browser-based applications, along the lines of what Google is doing with Google Gears?

Chizen: For some applications, the browser is great and having offline capabilities will be a great extension. But for other applications we want complete control over the user experience and the browser is inadequate.

That's where we really differentiate: the ability to go a little further in local capabilities, the ability to drag and drop easily from the desktop to the application and back. Those things would be tough to do with a browser. And some applications, you want to stay in them and don't want to be encumbered by a browser. You want local presence and that's where we really shine.

Macworld: What's your latest take on Microsoft's Silverlight plug-in for delivering video and interactive graphics on the web, like Flash?

Chizen: It appears to be trying to imitate the Flash player: it runs in the browser and is designed for interactivity, animation and video. Fortunately, we've had a 10-year head start and we have a complete ecosystem around Flash.

We're on 99.1 per cent of all computers and on 300 million non-PC devices. More than 70 per cent of video is streamed through Flash player. Millions of developers and designers use Adobe tools.

It's going to take Microsoft a long time to catch up, we believe. In the meantime, we continue to advance Flash and we're working on AIR. I take Microsoft seriously, but we're in pretty good shape.