Summary
The ability of traditional software vendors like Microsoft, IBM, SAP and Oracle to innovate and keep pace with the market will increasingly become difficult. Large ISVs will continue in their strategy of acquiring companies that have established traction in the marketplace. Corporate investment funds will be attractive sources of capital for early growth stage companies that strategically align themselves with the largest software vendors.
Analysis
It's early in the game but a trend has emerged that Microsoft has taken note of, but I'm not so sure they are prepared to successfully respond to. I'm speaking of the recent popularity of social networks and software developers to promote their latest "platform".
Facebook appears to have been a major catalyst in this movement when they made their social network open so that all developers could attach new and innovative applications to their platform I refer to it as a platform because it contains APIs that create hooks into their user profiles and content feeds into their environment. This is quite different from what MySpace offered in their beginning days, but they too, hav now created API's and refer to the MySpace Development Platform (www.myspace.com/developer)
This movement is not unique to Facebook and MySpace, but has also garnered the attention of Salesforce.com, Google, Ning and Microsoft. Each of these companies are pushing a "platform" offering in order to create more compelling services via the Internet. This is sounding strangely like an open SaaS offering if you ask me.
The real question recently raised by the Ray Ozzie of Microsoft is whether or not they can keep up. He warns against rushing to merge the Microsoft and Yahoo! technology platforms and references his past experience with Lotus/IBM and the very visible HP/Compaq experience that required five years.
I don't believe Microsoft has five years to integrate Yahoo! technology. The OpenSocial platform announced by Google and participating partners last year is progressive and accelerates the ability of developers around the world to innovate and to embrace the platform offerings of Google, Ning, Facebook, Salesforce.com, MySpace and others that will surely follow.
Having an open platform for software development that is available to every developer with a little inititiative and creativity will continue to push the envelope of innovation. In this type of environment, Microsoft and other large software vendors (Oracle, SAP, IBM) will be challenged to match pace. I suppose this is one of the reasons why the venture capitalists are making a clear shift to SaaS investments.
