It’s All About Relationships
Software is not about code. It is about your company’s relationships. I have started seen companies with innovative products that use cutting edge technologies fail, simply because they didn’t understand their relationship with their customers, or didn’t understand it in time. Likewise, companies with demonstrably crap software (or even vaporware) thrive because they know who and what pays their bills.
This is both good news and bad news. Given how easy it is today to create any kind of app (and it’s getting easier, with Apple, Amazon, Google and Yahoo! all pushing open source frameworks and cheap services to lower the barrier of entry) the bad news is that your cash cow is easily copied by a Small Team with a tight focus. The good news is that if you are doing things right, it’s not about your software it’s about your relationships. So, once Small Team has created a faster, more scaleable, prettier version of your app but fails to get anywhere because you have your market sewn up, why not just buy them instead of spending money trying to compete on features? That works for Small Team too, because they get to continue to focus on what they do best (innovating) while someone else handles the money.
This approach seems to work well for non-software companies. I’ve seen software companies acquired by more “brick-and-mortar” enterprises, simply because said enterprise needed the technology to compete and didn’t want their competitors to be able to buy it.