Lessons on buying good, niche internet companies

When at first the great ideas don't come to you first, open up the checkbook and buy good ideas. This is the premise behind most corporate acquisitions, in my opinion, and it makes sense. No one company can have the exclusive right to all the good ideas in the world, and this includes the hyper-moving Internet space more than any other. Ideas on the Internet can be formed and deployed almost overnight, making dreams become real at a pace that traditional business can only stare at in amazement. It's a new world out there, to borrow a cheesy cliche.

With niche players finding specifically-targeted groups of people interested in very specific subjects and topics, the corporate -- and much slower-moving -- chieftains often look to acquisitions to bolster overall corporate capability and consumer product offerings. This includes such niche websites as UrbanBaby.com, which was recently bought by CNET Networks and GameDaily.com, which was recently bought by TimeWarner Inc.'s (NYSE: TWX) AOL. GameDaily's purchase gave AOL the ability to reach the roughly 4.5 million hardcore gamers who visit Game Daily every month.

With Internet companies wanting to reach new and lucrative audiences these days with firmly-established brands which take years to cement, the acquisition seems the easiest and most obvious way to to this. One lesson that can be learned, though, is to not "over-corporatize" niche websites that have been purchased. Do this and you risk losing the diehard and niche customers that have come to trust the brand. When News Corporation (NYSE: NWS) bought MySpace.com recently (and yes, MySpace.com is a niche website, albeit a HUGE one), News Corporation's management left the site intact and operating mostly independently as to not destroy the site's culture and personality. A smart move on the part of Rupert Murdoch.