Google made a small acquisition today of an Israeli startup called LabPixies, which is probably best known for its Flood-It! game on the iPhone (it’s the new Tetris). But LabPixies also creates tons of games in the form of iGoogle gadgets, Facebook apps, Hi5 games, MySpace games, and Android apps. Google did not disclose the price of teh acquisition, but the number going around Israeli venture capital circles is $15 million to $25 million. (TheMarker, in Hebrew, also reports $25 million as the price). Not bad for a startup that only ever raised $1 million in angel funding back in 2008.

Google bought LabPixies for the talent to add to its Israeli R&D center, and to create better apps across both Web and mobile platforms. It is also the first Israeli-headquartered startup ever bought by Google. In the blog post announcing the deal, iGoogle’s Don Loeb writes:

The team will be based in our ever-growing Tel Aviv office and will anchor our iGoogle efforts across Europe, the Middle East, and Africa. We are looking forward to working with Labpixies to develop great web apps and leverage their knowledge and expertise to help developers and improve the ecosystem overall.

What LabPixies is good at, however, is taking a game on the Web and creating versions of it across different platforms, especially the iPhone and Android. Its iGoogle gadget games may generate as many as one billion impressions a month, but it makes all of its money on the iPhone. Google will likely try to sprinkle some of that LabPixie dust on Android now. One strategy could be to create games and apps first for iGoogle, and then use the reach of iGoogle to push those apps to Android.

But they’d better not remove Flood-It! from the iPhone. I love that game.

The company competes with a small army of highly funded widget startups: Slide, Rockyou, Goowy, Clearspring, Gigya and Widgetbox, among others. 41 million people a month view their widgets, the company says, generating 750 million total widget views. At first they built widgets solely for the iGoogle platform, but have expanded to include Netvibes, Live.com and other platforms.

I’ve embedded a few of my favorites below – The New York Times crossword puzzle, Space Invaders, Defender and a Babylon language translation tool. The company also offers interactive advertising widgets that are a lot more interesting than normal ads.

The company has created all of this with very few resources. They’ve self financed to now with advertising revenue, and just closed a small $1 million round of financing from angel investors in Israel. They have ten employees.