The combined company will keep Adobe’s name and its San Jose headquarters. Bruce Chizen will continue as chief executive of the combined company. Macromedia CEO Stephen Elop will join Adobe as president of worldwide field operations. Macromedia will stay in its existing offices.

“While we anticipate the integration team will identify opportunities for cost savings by the time the acquisition closes, the primary motivation for the two companies’ joining is to continue to expand and grow our business into new markets,” said Chizen.

This deal will combine the strengths of two highly popular file formats—Adobe’s Acrobat PDF and Macromedia’s Flash. Macromedia has been particularly successful in migrating its Flash format to non-PC devices, such as cell phones and handhelds. Both Adobe and Macromedia are noted for their excellent cross-platform technologies and could seek to expand the ubiquity of the PDF reader and Flash even further. In comparison, rival Microsoft remains pretty much beholden to itself and its own platform.

“Clearly, Macromedia has done a great job both in understanding and gaining value from the non-PC market,” Chizen said. “That is what is very attractive to us.”

Manuel Morales, a spokesman from Japan-based ACCESS told internetnews.com that Adobe and Macromedia are expected to shift their approach to collecting royalties. “Flash is free on the desktop, so Macromedia has made [its] money selling new versions and upgrades to its application development tools,” Morales said. “In the mobile space, the common method is to charge royalties by the number of handsets deploying the technology.”

Some industry analysts have viewed this merger as essential for the future of the two companies as the “next battle for the Web browser” unfolds. Microsoft has already entered this market with a scaled-down version of its browser. Also, Microsoft has indicated that it will include features in the upcoming version of Windows (code-named Longhorn) that could rival Adobe and its document management features.

“The game’s on,” said Charlie Corr, group director at InfoTrends/CAP Ventures. “The looming battle between Microsoft’s Longhorn and Adobe is picking up steam. And this is an example of Adobe raising the stakes of that game in advance of Microsoft coming out with more features in Longhorn.” Corr added, “In our view, Adobe understands Microsoft more than Microsoft understands Adobe.”

Some, however, argue that Adobe wants Macromedia so that it will control two of the three most important de facto standards for building the Web: PDF and SWF, which runs Flash. (Java is the third.) According to Tim Anderson of IT Week, “ Unfortunately, the W3C [World Wide Web Consortium] is failing, and its standards have diminishing influence.”

“The biggest single reason for Adobe’s acquisition of Macromedia, announced last week, is the success of Macromedia’s Flash and its proprietary SWF format compared with the W3C’s Scalable Vector Graphics (SVG).” Anderson notes, “Adobe is a big sponsor of SVG viewers and tools, but it is clear from the acquisition announcement that the new Adobe is building its rich client platform on Flash and PDF. The immensely popular Acrobat PDF format is also a proprietary specification. The combined company will have an overwhelming presence in Web design tools; it is hard to see any way back for SVG.”

Neither Adobe nor Macromedia is disclosing much about their future plans, so there has been much speculation within the industry about the consequences of this merger. One critical issue could be anti-trust concerns, as the combined company would have control of most of the software market for the tools used by professional Web developers.

In the user community, there are significant concerns about how the two software platforms would ultimately be merged. There is some overlap between the two product lines—e.g., GoLive and Dreamweaver, each of which has a very loyal user base. In the past, when Adobe has acquired existing products, such as PageMaker and GoLive, it adapted the interface to Adobe’s look and feel. Therefore loyalists, of Macromedia MX Studio platform, which contains Dreamweaver, Flash, and other programs, worry that the integration will go the way of Adobe.

However, according to a FAQ at both companies’ Web sites, Macromedia and Adobe will remain separate and competitive companies until the acquisition is approved and the transaction completed (expected later this year). The combined company will then be able to develop a joint product road map.