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July 15, 2009

Want Quick Success? Ride a Giant’s Coattails.

Want Quick Success? Ride a Giant’s Coattails.

Dan Colarusso

The Business Insider

Summary

We’ve written before about the great opportunities for small software companies making applications for the iPhone. The success stories are

We’ve written before about the great opportunities for small software companies making applications for the iPhone. The success stories are many but there’s one, simple lesson to take from the apps game: hitching your company to a larger one can work out very, very well. 

Take Twitter -- the web darling-du-jour – 11 startups building software and services linked to it have gotten money (a total of $23 million) from venture capitalists. That may not seem like a lot consider the hundreds of startups working with Twitter, but in the larger scheme of things, the social media phenomenon is only now trending toward a place for real businesses.

Now may be just the point where real money is being made, too. As Silicon Alley Insider’s Paul Smalera wrote recently, Lolplaying, a social media gaming startup whose 140 Mafia game lets Twitter users turn their followers into La Casa Nostra, is starting to make money.

The game uses Super Rewards, a company that manages virtual currency for social media-based gaming platforms. Players can turn on Twitter-based advertising to play the game -- but they can also pay $10 or more for a whole lot of Respect (Points) up front.

Super Rewards founder, Jason Bailey, says some players have spent thousands of dollars on the virtual currency, according to the Associated Press.

Mobile payments may make the whole scenario easier for smaller companies, especially those in the mobile and social media arenas.

Either way, though, for a startup, riding the coattails of a larger company has huge value. In the gaming area, it’s even more important because of the ability to tap into a large, already-established audience.

One example is Mark Pincus's social gaming startup Zynga, which makes multiplayer games like the popular Texas Hold'em for social networks Facebook and MySpace.

BusinessWeek recently reported the startup has annual sales of “about $100 million.” Most of that loot comes from "the 2% to 10% of users who pay $1 an hour to play premium games or buy virtual goods."