This afternoon, Matthew Panzarino and Ken Yeung of The Next Web posted about a potential acquisition of the poster childs of startup excess, Color. A gut reaction of stunned disbelief is not unreasonable here, after a string of flopped products and tales of the CEO splitting for Maui. But after the shock comes intrigue. The Next Web rarely posts rumors of acquisitions unless they’ve triple checked everything. So if we assume it’s true, the question remains, why?

$41 million means you can make extremely compelling offers to the best engineers. Daniel Jalkut found that some of that cash went to paying for a number of tech patents as well. These patents relate to their technologies in grouping people together by their location and sharing content between them. These engineers spent the last year and a half tuning these algorithms, even if they weren’t used by people very much. Part of the reason Color was such a flop was because everyone had to use it for you to want to use it. That’s not an easy sell, especially in an environment like iOS where a person has to actively be using your app in order for it to provide value to others.

But let’s imagine a world where this stuff is built into the heart of iOS. There may not have been a lot of people who used Color, but there are a lot of people who use iOS devices, and suddenly Apple has solved the chicken-and-egg problem of availability. The solution Color offered can become much more useful if offered by Apple, who can break any of the rules they impose on 3rdparty developers. If you go to a barbeque or a concert, and everyone’s taking pictures and video, your iPhone will know that all these photos relate to the same event, and can group things together. It can tie in data from your address book to determine who the people around you are, and if you know them. You can create Photo Streams of events with everyone’s (or just your friends’) photos. Maybe this would integrate with the calendar, or even Facebook, to automatically associate photos and videos with events. (It’s worth noting that Google recently introduced a very similar feature to Google+ and Android.) And who knows, maybe in some weird way, this could become an aid to Apple’s troubled Maps, providing some kind of functionality like Street View or Microsoft’s Photosynth.

So maybe it makes sense that Apple might acquire this company for their expertise. Sure, they could do it all themselves, but Apple tends to buy companies with expertise in areas Apple wants to do better in. And buying the company outright gets you the engineers and saves you from the patent lawsuits. But if Color managed to “succeed”, it’s for many of the wrong reasons. Making it via a ton of money, a few unused apps, a pile of patents built on stale prior art, and a pool of developers to focus on a niche set of knowledge is a role of research departments within companies like Apple. If this were a model for the industry, we’d be looking at apps that have no real utility to people built by companies that focus on compartmentalizing knowledge and locking it off for others to use, all in the hopes that a cell phone maker has a bunch of cash to throw at you for the next new feature. That’s not a bright future. So while this may make sense for Apple, Color, and for iOS users, it sets an uncomfortable precedent. Hopefully it won’t change the idea of the overfunded startup into a model to be emulated.