It sometimes works, it's just that you never hear about it when it does because you forget all about the small company and it's just seen as a big company's hot new product.
Recall that Google bought Android and YouTube when they were small, Google bought Where2 (Google Maps) when it was small, Google bought Writely (Google Docs) when it was small, Yahoo bought Flickr when it was small, Google bought MetaWeb (those knowledge cards on the right of the search result page) and ITA (flight search) when they were medium-sized, Twitter bought Summize (Twitter Search) when it was small, and Conde Nast bought Reddit when it was small.
The key seems to be to either let the acquired company continue to do its thing without interference or to fold it into a high-priority project within the acquirer, though.
Recall that Google bought Android and YouTube when they were small, Google bought Where2 (Google Maps) when it was small, Google bought Writely (Google Docs) when it was small, Yahoo bought Flickr when it was small, Google bought MetaWeb (those knowledge cards on the right of the search result page) and ITA (flight search) when they were medium-sized, Twitter bought Summize (Twitter Search) when it was small, and Conde Nast bought Reddit when it was small.
The key seems to be to either let the acquired company continue to do its thing without interference or to fold it into a high-priority project within the acquirer, though.