So, today it was announced that Evernote was acquired by Bending Spoons. For those who were using and following news around Evernote, it’s known that the product was in the declining phase of a product lifecycle. I think it’s useful to shed the light on this (and similar cases), see what happens at the graveyard of products, and what role service companies have in it.
Let’s start with a brief overview of what a product lifecycle is.
Product Lifecycle 101
In short, each product during its lifetime goes through 4 phases: introduction, growth, maturity, and decline.
Initially, we are investing in the product, and don’t expect much from sales. We are figuring out what problem we’re solving, and how to make the product viable.
Once we reach product-market fit (PMF), we start growing rapidly. At this time we typically can’t keep up with sales and need to adapt both the product and our organization, to make it more scalable. This is the time we build our brand. At this stage, we start implementing various growth strategies (and growth hacks) to get that extra boost.
The next stage is maturity. We don’t expect to grow much in user base (we captured what market could be captured), and we’re now focusing on retention and customer lifetime value.
Finally, the users start dropping off. We have exhausted the innovation potential, and can’t do anything but lose users. This is something Evernote has been struggling with recently. At this stage, it’s time to pivot.
Nothing is forever. You surely can’t even remember all the products and services you’ve been using in previous decades, and especially what happened to them. Let’s drop a few examples though:
- MySpace sold for $35m
- Netscape sold to AOL
- Windows Messenger phased out
- Winamp shut down → then sold
I’m sure this got you going. We can see two patterns here: products are either sold or killed off. Killed-off products are typically a byproduct of a company pivot (see Apple, Google, and Microsoft). Sold are pretty much everyone else. It’s important to note here, that this sale is different than selling while in the growth/maturity phase (like when AOL bought Winamp). This is another matter, that deserves a separate topic.
So, who would buy a declining product? And why?
So, you’re Evernote. You’ve peaked on both user and innovation basis (note-taking is not a complex problem). You have tried to pivot by rewriting the app from scratch. And failed miserably in the process. Your option is to reduce the workforce to the skeleton crew and ride the wave while it lasts. Or, you can do something about it – find someone to sell it.
Who would buy it though? Well, there are multiple reasons someone would buy Evernote:
- Unique domain expertise & people
Evernote had a brand and some paying customers. Assuming this was the key reason, what can Bending Spoons do with them?
Companies like Bending Spoons excel in one thing – extracting maximum value. What they will typically do:
- Find a product that used to be solid, but is past its prime. Acquire it
- Revamp the monetization. Optimize customer LTV – through dark patterns based on ads or subscriptions
- Spend on ads to get more users that bring more revenue
The model is not viable long-term, but they are not betting on a single product. They are betting on sucking out the remaining life of existing products and discarding them at the end. You can read a bit more about this example here.
The above case is for consumer products. B2B is a little bit different because you won’t acquire users through ads. For B2B you care less about the brand and more about the customer base:
- Build a portfolio of apps in a same/similar industry through the acquisition
- Make sure they all integrate between themselves
- Cross-sell other products from the portfolio
The second model is a lot healthier and ethical. Rather than tricking users to pay money, this model actually extends the lifetime of a product that would otherwise probably be discontinued and offers a way to seamlessly integrate or transition to the product with a bit longer life expectancy. However, it brings no innovation to the table and postpones inevitable disruption just a little bit.
Where do Service Companies Fit In
The thing with this model is that you don’t need a permanent staff of engineers. The expertise required is not typically too high, except in these cases:
- Consumer – you need to be an expert at select patterns and pricing strategies
- B2B – You need a solid sales team that can effectively cross-sell
Your understanding of the codebase is relatively low as you acquire products. This means it makes more sense to offshore the one-time development cost rather than to keep the employed staff.
For service companies, it makes sense to build partnerships with this kind of “b2b product aggregators”, as you get a continuous trickle of integration/port work. You won’t change the world, but you definitely will scratch an itch and earn some money while doing it. For this reason, you have a lot of companies that specialize in enterprise b2b, as well as integrations.
We should be aware of the “afterlife” stage of the product lifecycle, and what unique challenges and benefits it has. Service companies have the opportunity to earn some money on the basis of this understanding, as this gives them one way of positioning based on something that is not the price.