Disney M&A Magic Will Be Good News for Tapulous

When Apple's (AAPL) Steve Jobs demoed the new iOS operating system, he used an app called Tap Tap Revenge to show multitasking.

It was impressive. In fact, it seems that Disney (DIS) was also intrigued by the technology, especially the innovation of Tap Tap's developer, Tapulous.

So yes, this scrappy startup agreed to a buyout (the terms were not disclosed) from Disney.

A Look at Tapulous

Back in January 2008, both Bart Decrem and Andrew Lacy cofounded Tapulous. While there timing was spot-on, there were clearly risks. After all, major companies -- like EA (ERTS), Activision Blizzard (ATVI) and Viacom (VIA) -- would inevitably make a big move into the mobile gaming space. At the same time, there would be a slew of heavily-funded startups, like Zynga.

But small companies can have an advantage, in terms of creativity and gross-roots appeal. And this was definitely the case with Tapulous. For example, the Tap Tap Revenge series is essentially a variation of Activision's Guitar Hero (but a user taps a rhythm on the iPhone). There are different versions of the app for artists like Lady Gaga, Justin Bieber and Nine Inch Nails -- which is possible because of relationship with Warner Music Group (WMG). Actually, the deal allows for the payment for new tunes, which is key to the business model.

Other innovative games from Tapulous include Riddim Ribbon and Twinkle (which is an app for Twitter). In all, the company has seen over 30 million downloads and is currently profitable.

Tapulous did receive funding from Khosla Ventures as well as super angels like Sun cofounder Andy Bechtolsheim and Saleforce.com's (CRM) CEO Marc Benioff. However, the amount was fairly modest, coming to about $1.8 million. In other words, Tapulous knows how to scale a startup.

The Game Plan?

For the most part, Disney has been skillful with M&A of gaming companies. This is tough to pull-off given the cultural issues and the reliance on key employees. But somehow, Disney has the magic to make things happen.

With Tapulous, Disney will get a strong team that knows the market and is far from a one-hit wonder (the company has had five #1 titles on the App Store). Besides, Disney can be a great source of content. Perhaps an app for Hanna Montana?

But the deal making is not likely to stop for Disney. After all, the company recently participated in the $33 million round of Playdom, which is another top gaming operator.