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Ten Drivers of Software Innovation in 2011

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Looking ahead to what 2011 will bring for the software industry, I am reminded of last November.

Hosting the Nasscom Product Conclave in Bangalore, I was impressed by the innovative spirit of the sold-out gathering of 1,200 software entrepreneurs. Organizers literally turned away 200 people at the door. Even more impressive: The cloud is enabling a “better, faster, stronger” world of software development that can take place anywhere on the globe.

I believe 2011 will be another exciting year for enterprise software innovation. Here are the 1o focal points that will drive software vendors to develop products, better address customer needs and rev their business models in the coming year.

1. Cloud-powered product development

The cloud and Software as a Service (SaaS) have enabled a new product development model – a grand experiment, if you will – that is resulting in faster, better enterprise solutions. No longer does “Version 1.0” have to be perfect before it is launched – it can be 90 percent complete. Then, vendors can work with clients to test, revise and iterate on Versions 2, 3 and 4. Entrepreneurs are developing new applications and delivering them as a service in a rapid-fire succession – a nimbleness unavailable to software companies in the past.

2. The emergence of “minivendors”

In the same way that the cloud powers faster product development for all software companies, it will foster a proliferation of a new wave of startups – “minivendors.” As developers are liberated from the investments associated with owning racks of hardware, new minivendors can focus on creating products for new applications or for niche areas that may not have been financially viable in the past. This innovation “bloom” offers CIOs a lot more products to choose from. And though the growth in startups will inevitably be associated with many failures, the emergence in vendor ecosystems such as Salesforce.com’s Force.com and Yammer’s platform, will enable software entrepreneurs to position their products to compete in a more crowded marketplace and survive.

3. India’s “product” potential

India’s potential as a software product-building nation has been mostly hype – until now. The benefits of cloud development combined with a mature services-sector workforce and the “reverse brain drain”– Indian executives leaving Western companies to return home – has created a burgeoning market of minivendors in India. The VCs who placed bets five or six years ago on the emergence of a software product market in India might have been a little early, but today they are likely right on the money.

November 2010′s Nasscom Product Conclave drew 500 CEOs. These startups are not only developing products for the global market but for their own domestic market as well. China, Brazil, Eastern Europe and other regions are also booming but India’s combination of talent and entrepreneurial spirit will give it a unique advantage in 2011.

4. Megavendor cash

Add up the cash on hand in the 10 largest software companies and you’ll get an impressive figure – something in the hundreds of billions, to be sure.

Although innovation takes place every day in large software companies, the pace of innovation at the minivendor level will be increasingly tough to match. Therefore, megavendors will continue to increase their rate of acquisition in 2011 and use their cash to incent more entrepreneurs to keep innovating.

5. Open source behind the scenes

Open source is a vital part of cloud computing solutions. Most enterprises are no longer concerned with the specific layers as much as the functionality of the overall cloud stack. Open source plays a key behind-the-scenes role – like “Intel-inside” but without the advertising. At the same time, these open source layers are supported by the traditional innovative assets of open source – community and collaboration.

Watch for continued influence of the open source community on innovation in the cloud.

6. IT market expansion

As the economy emerges from the prolonged economic downturn, there are indicators that enterprise IT spending will grow next year. As they plan for the coming year, CIOs are looking for new solutions that leverage the cloud’s potential: Our “Leaders in the Cloud” study found 60 percent of IT buyers are currently using cloud computing or plan to do so in the next three years.

Recent interviews suggest enterprises will spend 2011 building private clouds to serve both internal and external customers, working with line-of-business executives to move new solutions to the cloud, and continuing to make data center operations more efficient. Vendors will find success helping clients to innovate in these key areas.

6. A new tech workforce

As the IT industry begins to recover, it continues its never-ending struggle to find the right talent – even as the overall economy struggles with unemployment. This is true on both the IT and vendor sides.

In IT, the cloud is reshaping the typical department staff. Many administrative, networking and database management duties have now moved to the cloud vendor’s side. That leaves internal IT staff to be retrained for business-oriented, analytical skills.

At the same time, software vendors are still competing to find developers and executives with the right skills to drive their businesses. Software companies have an opportunity to help all types of companies with innovative solutions in the fields of training, recruiting and workforce management.

7. A more demanding user base

A recent Economist Intelligence Unit study sponsored by Cognizant explored the overall concept of the next-generation workforce. As the “millennial” generation graduates from college and enters the workforce, they hold dramatically different expectations for their enterprise systems than their predecessors did – but this increasingly demanding workforce is not composed solely of young people.

No user in tomorrow’s workforce will stand for green screens, software training sessions or waiting. They’ll demand more progressive, cutting-edge applications, or they will move on to a better work environment. CIOs will look to vendors to provide innovative, user-friendly systems in order to help attract and retain employees.

8. Enterprise-class mobility

More than two dozen new tablet computers were on sale during the holiday season. Add those to the millions of smart phones being carried around by enterprise employees and it is impossible to imagine a 2011 business software solution without mobile connectivity.

CIOs are working on strategies for securely integrating mobile device and application solutions to their overall IT goals. Vendors face innovation opportunities for both employee- and customer-facing apps in the mobile realm.

9. Enteprise social networking

2011 will be a breakout year for enterprise social networking and collaboration applications. The success of Facebook and LinkedIn has shown users the potential for leveraging these products in a business setting. The software industry has responded with a proliferation of different models and applications to meet the needs of this emerging sector, including Yammer, Box.net, Spiceworks, Salesforce’s Chatter, and more. As the market expands, more opportunities for innovation will present themselves in niche areas and industries.

10. Green software

The march towards improved corporate sustainability continues – and technology continues to play a leading role in finding and optimizing efficiencies. In the past year, SAP, IBM, Microsoft, Autodesk and other software industry leaders have debuted game-changing solutions to help their clients operate more responsibly. Software vendors face innumerable innovation opportunities to develop green products in the areas of energy efficiency, manufacturing, supply chain, distribution, data center optimization, building and operations.

This list of 10 innovation drivers represents a broad starting point for re-energizing the software industry and realizing innovation-driven success in 2011.

M.R. Rangaswami is co-founder of Sand Hill Group and publisher of SandHill.com.

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