Adobe Systems and Microsoft have seemed to co-exist in a mutually beneficial ecosystem for years.
But their cause for common ground, a little piece of software millions have used but may have hardly noticed -- the Adobe PDF -- is now the reason the gloves are coming off.
At the core of the tension is Microsoft's move to create technology to compete with Adobe's PDF franchise, and difficult negotiations around incorporating Adobe's mostly open standard PDF software into the next generation of Office programs.
While Microsoft makes software such as Word and Excel that lets people create documents, Adobe can turn those documents you might print out on paper into digital, ready-to-be-e-mailed files through its Portable Document Format (.pdf).
Last week, behind-the-scenes friction between the two became public when Microsoft said it expected Adobe to file a lawsuit against the Redmond, Wash. company, possibly in the European Union, which recently has become more receptive to Microsoft antitrust concerns than U.S. regulators.
The dispute underscored the Silicon Valley axiom: Companies that cooperate often can end up trying to devour each other's business.
``Adobe is one of many long-time partners of Microsoft that have now turned into competitors of Microsoft,'' Jupiter Research analyst Joe Wilcox said.
Adobe makes money from its business-document processing software Adobe Acrobat, which is part of its Intelligent Document division and accounted for 36 percent of its revenue, or $708 million, in 2005. A person must own a copy of Adobe Acrobat to make a PDF, but only needs to download a free version of Acrobat Reader to view a PDF that has been sent to them.
The two sides failed to reach an agreement on how the PDF would be used in the new version of Microsoft Office. As a result, Microsoft announced it was canceling plans to include an automatic ``save to PDF'' feature in its new release of Office. So those who buy Office 2007 will have to download free software that will allow them to save PDF documents created in Office applications, such as Word, Excel and PowerPoint.
Microsoft indicated that negotiations broke down over fees Adobe wanted for licensing its software, which could make Office more expensive.
Observers say the larger issue is both companies view the other warily.
For Microsoft, the ubiquitous PDF format could indirectly result in fewer sales of its software updates because those who receive the digital documents can access Excel or Word without owning either. For example, a person making a resume in Word can turn that file into a PDF and send it to a colleague, who can then open and edit it in Adobe Acrobat -- without even owning Word.
``Adobe introduced very cool technology that extends PDF to other formats. You can now take documents from almost any source, mix them together, save them to a PDF, send them to your buddy. Just by using Adobe Reader, you can annotate that document and send it back,'' Wilcox said. ``If you are Microsoft, whose success was built on format dominance, that's a scary prospect.''
Adobe, on the other hand, sees Microsoft trying to move in on its turf in multiple areas: Microsoft is launching its own version of PDF software, code-named Metro, which the software giant will be offering as an optional bundle to computer makers. (All computer makers are sure to include the application.) Microsoft is also making a move to compete with Adobe's creative software, Photoshop, and is a competitor in Internet and mobile video-playing technology.
In the recent tussle, Adobe might be concerned that Microsoft, while including its PDF technology with Office, could make the PDF less appealing than its own document-sharing software.
Microsoft ``can create a preference for their version,'' said Howard University law professor Andrew Gavil. ``That's the argument Google has been making.'' (Google has complained an upcoming update of Microsoft's Internet Explorer Web browser contains a search box that in some cases defaults to the MSN search engine.)
Adobe has said little so far. In a statement, the San Jose company said it had not decided whether to take legal action against Microsoft.
``I'll never trivialize Microsoft. They are a $40 billion company with virtually unlimited resources and they are a monopoly,'' Adobe chief executive Bruce Chizen said in an interview last year.
Still, Adobe has successfully protected its PDF franchise against earlier incursions by Microsoft.
``They've defended themselves really well against Metro,'' said Pacific Crest Securities analyst Steve Lidberg. ``One of the reasons you have seen such good acceptance of PDF is the ubiquity of the Reader -- Adobe giving that away for free and the fact they have opened up the platform to other partners to build applications around it.''
The PDF, for instance, is now the standard digital document for federal agencies, from the IRS to the FDA.
``It would seem like they've pretty much won out,'' said Tony Henning, analyst at Future Image in San Mateo. ``There was a time, a decade-and-a-half-ago, when there were three or four contenders. They've won.''
Microsoft, though, may not believe the war is over.
``Even though PDF has become a de facto document standard, Microsoft has clearly made noises in recent months about how they'd like to change that,'' Jupiter Research analyst Michael Gartenberg said.