Yeah this is what I think Bending Spoons does, mostly based on the Evernote situation.

Product has paying users and it's in a "complete" state. Cut costs to optimize profit for a bit and hope not everyone leaves.

In the case of Evernote, it's probably really hard to get 10 year users off of it at this point, so they can double subscriptions and they're locked in. My assumption is that there's a serious amount of people that go "eh" and just deal with the cost increase and stagnated features.

> Their goal might be be to acquire, dramatically cut costs, and then run the product for as long as they can at a profit before breaking it down and selling it off

In the 80's people who did this were known as "corperate raiders". Nowadays it's just called business.

What's hard to understand? They switch the companies from growth (no matter the cost) to revenue extraction (even if it will eventually fade)

Minimum viable cost of keeping the lights on. And sometimes they even compromise a little, "let's spend a tiny bit more and see how much growth we can get from that"

HN: VC is a cancer, businesses don't need to grow forever at all costs, products can be finished, what we need is sustainable small companies

Also HN: No, not like that

> I don't understand this model. Such significant layoffs would indicate that there is no real appetite for expansion or growth.

To play devil's advocate, maybe there's a point where a product or service needs to stop evolving and just be.

I have a Vimeo account that's been on auto-resubscribe for years. I couldn't tell you a single feature they've added in the last 5 years, but they host my videos, collect stats, and let me send links to my friends, and that's really all I want.

What if there isn't a feasible path for expansion and growth? Vimeo already has contracting revenue, it's either in the maturity or decline phase.

Some customers will churn, some will stay, Bending Spoons are the masters of this model so will have made an assumption on how revenue will change across the next 5-10 years+, but I would assume that they aren't forecasting extreme growth, and instead are calculating that net profit can be changed from c$30m to c$139m within existing revenue, so if they can keep revenue at/near current levels without growth, they can end up with a much more profitable business.

Bear in mind that same revenue doesn't necessarily mean the same number of customers - it can also mean raising prices and having less customers. Bending Spoons might estimate that if they double prices, half their customers might leave - this would still be BRILLIANT for profit, as while revenue would stay the same, some costs would half, and thus profit might jump from c$140m to c$250m based on some napkin math!

It's called butt cigar investing or corporate raiding.

They acquire startups and companies without a huge growth potential but modest cash flow and little profits.

They cut the operating expenses to the minimum and jack up the prices to sky rocket profits till their mathematical models will tell them they will profit on the investment.

Rinse and repeat.

For example, they bought the German hiking and cycling app Komoot. It's a mature app in terms of functionality, with a stable user base. There's little chance of hypergrowth with this type of app. It's also complicated to switch apps because transferring routes, collections, photos, etc. to another service is difficult.

They laid off 90% of the teams. They migrated the app to their infrastructure to pool costs. Since then, there has been no further development of the service.

They are cost killers of the internet.

> customers of a depreciating SaaS product surely churn after a 1-3 years, so they wouldn't make enough of a return

You might think that. Then there's Earthlink and AOL still collecting $5 or $6/mo per mailbox as their cash cow.

You're assuming all or most paying customers are paying attention. That is sometimes not the case. For example folks/businesses who forgot they signed up. Alternatively it could be that the cost to switch is too painful.

I imagine a lot of companies have contracts with Vimeo and switching costs are real. They'll likely stick with Vimeo if they manage to maintain their offering to the level it exists at today. In the long term I think it guarantees death but they will be able to extract plenty of money before that happens.

They did the same thing with Komoot and other apps. I don't understand where the money comes from and how they are planning to keep this portfolio growing.

My best guess is that a part of it is replacing US (or in this case Israeli) devs with much cheaper Italian/European ones, earning ~a quarter of their US counterparts and working longer hours, as Bending Spoons has an extremely competitive hiring process, and is probably the highest paying tech company in Italy

This is just my personal opinion, but if they didnt change the price of Evernote and never made any changes, I probably would remain a customer for a very very long time. There is a high switching cost for me to use any app to move all my docs, and notes.

I dont know if the same can be said for Vimeo, though

One of the advantages of their business model is that it's low risk. Find a business you can get cheap enough, shut off all investment related to growth or product improvement, and use the product's moat to get as much cash as possible from current customers. Business doesn't have to be about expanding into new markets or growing revenue. If I had to guess, there's not much of a market for the companies they're acquiring because everyone else is looking for growth.

The growth comes from increasing subscription value, not from adding users. They bet that the platform is sticky enough for the users that they’ll slowly boil the frog until there’s no more equity left.

It is called bait and switch.

And the company name referring to bending spoons (Uri Geller) gives away the way they see themselves.

Are these hostile takeovers? buying a competitor out through a PE deal could be cheap relative to competing with them.

What I understand from listening to the management from various podcasts, it was a mix of shipping the most minimum impactful features with the leanest product team needed and then jacking up the price every year for the people that can't move away from these products.

> appetite for expansion or growth

This requires reinvesting profits into the company. It sounds like they choose not to do that, but instead switched to cashing in.

If the profits are stable and supported by a fraction of the workforce, then why keep the rest around? Clearly a shitty thing to do, but business-wise it makes sense.

Sometimes solutions end up solving problems that don't need constant featuritis.

Maybe they're deciding to maximize locked in revenue and margin.

Laying off so many people doesn't seem signal the greatest confidence to the market, maybe they'll explain it as some kind of efficiency alignment.

After all, Twitter is still operating on some level after 75% layoffs?

So it's sort of a "white-dwarf maker" company. Pick a company with a steady cashflow, eject all the fluff that made it a big star, and collect the remaining energy / cash until the core cools down. The end state is a cold slab of iron, and nothing new is going to happen to the acquired business ever since, but the plentiful (if dwindling) cashflow will be collected without any obstacles.

Its just private equity for software

The long tail of revenue is not only a substantial sum, but decays more steadily than growth. This is a low risk investment that still turns a profit.

It's also not their only investment or even necessarily their own money. Individual holding companies don't tell you much about the larger pool of money they come from.

you're absolutely right, they're not positioned for expansion or growth. you're very close to seeing the private capital dark pattern that's become a huge part of our economics lately. let me illustrate for you how they make money by decoupling the company's success from the investors' success

1) borrow a bunch of money to buy the company - this is called a leveraged buyout

2) once you're in control, have the company assume the debt you took on in order to buy it. you as the buyer are now free and clear, and the company is now responsible for paying back the money you borrowed to buy it. the end result of this transaction is that the company now owns stock that is less desirable because the company is more leveraged

3) make huge cuts everywhere and use the money "saved" by divesting from your own future to pay yourself as a consultant

The company is now in the extremely fragile position of not being able to spend to respond to the market because all of their income is going to servicing debt and paying the members of the private capital group. the "investors" aren't actually invested at all because even if the stock they hold becomes worthless they didn't pay anything for it in the first place, the company did. the thing limps along for as long as it can keep bringing in some small amount of income for the "investors" to skim off the top of, then it inevitably dies like anything riddled with parasites will, the company declares bankruptcy and they sell the copper out of the walls in order to pay back the loan used to take the company private in the first place

[dead]

Vimeo isn't really SaaS though.

Look at the companies they're acquiring - it's 100% about getting user data and tertiary monetization, and they're making bank. They couldn't care less about what the companies they buy supposedly do.