The game development landscape is changing rapidly. We're almost going back to a time that we thought we'd never see again, a time when a couple of programmers and a couple of artists could get together and make a game. This has been made possible by new technologies like the iPhone, Facebook and XBLA among others.
Startups with 3-10 members are cropping up all over the place to take advantage of these technologies, and some of them are doing extremely well. However it is an increasingly crowded marketplace, and only a few will actually succeed in the short-term, and far fewer will see long term success. The iPhone simply cannot sustain the shear number of developers who think that they have the killer game app.
At the same time, the barrier for entry into the console market continues to rise, with the exception of downloadable games. Even that market is being targeted by larger more established companies so the level of competition is extremely high.
So, what will happen to these smaller start-ups that simply can not compete with larger companies? An extremely small group will have enough success to grow, but 99% will not be able to achieve this.
So what can smaller companies do to not be left behind? Let's take it from another angle. Hundreds of these companies now exist. Thousands of people of various levels of expertise are now working in their basements on game concepts, artwork and code. How can we bring all of these people together?
Instead of forming small game companies, let's form strike teams. My own company is geared toward developing custom tools. Others could concentrate on gameplay, engine development, design, modelling, animation, and so on, centered around a production focused group.
All of a sudden, you're a part of a 50 person team able to compete on the same playing field as the EAs of the world. It would take planning and a great deal of quality control, but in the end, you'd have an alliance of game developers, sharing in the spoils of victory.