I saw this article in Business 2.0 pass by the other day, but just noticed it again via Dave and realized that as I'm actually a Business 2.0 subscriber I all I had to do was type in my name and address to get the whole story. Nice! Written by the ever-present Om Malik (where were you today Om?!?!) the article talks about small companies like OddPost and Lookout developing technologies that meet small technical gaps in the market and then getting acquired by bigger companies like Yahoo. Oddpost, for example, had 11 employees and were purchased for $29 million. (Not bad for a couple years work.)
Here's another very relevant anecdote:
The acquisition frenzy isn't limited to the big buying the small. Sometimes it's the small buying the smaller. Jimmy Giliberti, a former IBM engineer, and two friends started FingerTwitch in Giliberti's San Francisco basement with less than $100,000. Their big idea was to create software that would make it easy to run a videogame on many different types of cell phones. (Big handset makers like Motorola, Nokia, and Samsung use proprietary operating systems, so game developers have to create different versions for the various phones.) Giliberti ran a lean operation -- no office, a tiny group of contract coders who worked from their apartments or from San Francisco cafes, minimal salaries. About the only overhead was the phones Giliberti bought to experiment with. He carried dozens of them in a black duffel bag that he passed along to his coders. "It looked pretty suspicious," he says. "I was making phone drops and worrying about getting busted." Within 15 months, FingerTwitch had a growing roster of customers. It also had a new owner: privately held MForma, a fast-growing mobile games publisher in Bellevue, Wash., with deep pockets; it has $63 million in venture funding. FingerTwitch had begun to attract VC interest. But Giliberti says he preferred the more certain payday from an established company and believes that the mobile gaming business will ultimately be dominated by large publishers like MForma. Besides, who needs VCs these days? "In this climate, you can start a company with $50,000," he says. "One or two people can create a nice little business." MForma won't say how much it paid for FingerTwitch, but the figure is believed to be several million dollars.
This is a really great article - I think Om has the right idea and the right feeling for the market. A few thoughts though.
First, Om jokes about servers crashing. Actually, server hardware and data access is so ridiculously cheap now you can rent tons of decent hardware and bandwidth at companies like ServerMatrix (which I use to host this site) for very little cash. That'll make growing to meet traffic needs much easier. If, for example, I ever started hitting the max processing or bandwidth on this box, I could rent another similar server for just $100 a month, or move up to a more heavy-duty box with a full 20megabit pipe for $299 a month. I remember researching this stuff back in 1999 and this level of service would costs thousands of dollars. It's really quite nice.
Secondly, not that anyone's ponied up the money for me yet, but VCs are definitely sniffing around out there. Second rounds are way over-subscribed, and just at today's BAMF there were at least three different VC firms represented. When the cash starts flowing, then we'll know, but there's definitely some money and interest out there. Especially in the mobile market.
Finally, though I love the idea of having a successful company being bought up quick and putting more than few million in the bank. (Actually, I really love that idea.) There's something to be said as well about creating the next Google. The next gee-whiz super company, darling of Wall Street and Silicon Valley. No? That takes brains, luck and tons of hard work, etc. But it's such a nice dream. Paraphrasing Steve Jobs, "Do you want to spend the rest of your life selling J2ME apps, or do you want to change the world?" I like that latter thinking... that's where the buzz is.
Anyways, I think this is a very inspirational article. Great job Om!