I think 2006 will be a strong year for the enterprise software and services market. My perspective is bolstered by new survey results. Our Quantitative team recently completed a survey of 236 IT and line-of-business executives.
When asked about their IT spending plans for the next 12 months, 72% planned to increase spending and 25% will keep budgets steady, while only 3% said they would be cutting spending.

We conduct this survey three times a year. The 72% intent on spending more is up 27 points since we first started these surveys two years go (covering approximately seven periods), and up 17 points since the previous survey.

When we look back at 2006 a year from now, we will have seen five broad themes. Here's my take on what lies ahead.


1. Continued vendor consolidation
While companies are looking to spend more, they will have fewer choices. Vendors are being acquired faster than new firms are being funded.

In early August, I wrote a column titled "Will the Last Software Vendor Left Please Turn Out the Lights?" While no big software deals have happened since the Oracle bid for Siebel, the rate of consolidation remains steady. This week alone four deals were announced: IBM is buying MicroMuse for $865M and Bowstreet (undisclosed), Progress Software is acquiring NEON Systems for $68M, and Unica will be adding MarketSoft for $7.25M in cash and assumed liabilities.

In late September, we speculated that the Enterprise Performance Management (EPM) market could be ripe for consolidation, especially in the Business Intelligence (BI) sector. We still feel that way. This is the last bastion of the independent large caps.

2. Microsoft Office takes on enterprise apps
Now that Microsoft is shipping Dynamics CRM 3.0 and teaming with SAP to deliver the first preview shipments of Project Mendocino, we think Microsoft Office, especially Office 12, will be one of the most talked about products of the year. In my view, the Office franchise will be the foundation for many of the future composite apps for inter-enterprise collaboration. While the major business press is fixated on Microsoft versus Google, we're going to watch Microsoft lock up the business desktop.

3. The Google Economy takes on eBay and retailers
Speaking of Google, in late October, I wrote "Five Ideas on the Google Economy." I'd like to add a sixth: I see an opportunity for Google to take on eBay or any of the big retail chains.

Admit it, this holiday season you're hoping for something nice, like maybe a Sony BRAVIA Digital-Cable-Ready LCD HDTV. You've spent endless hours at Circuit City or Tweeter checking out the features and studying the price tags, but you're not ready to pull the trigger.

Imagine being able to go to Google and have one of the endless number of sponsored links bid to be your supplier. The winning bidder may even throw in a discount on the warranty and offer lower cost implementations. Think of the impact on the brick-and-mortar sites, which provide free education, but don't get a nickel of revenue. They in essence become expensive 3D catalogs.

So next year you decide that the 40-inch television was nice, but you want something bigger. You go to Google Base and sell the 2005 version, then go back to Google and buy the new one.

This is a great opportunity for a software vendor like Edge Dynamics. Edge's software allows manufacturers to track the flow of products through the supply chain. While the current focus is on the Pharmaceutical industry, Edge could help Consumer Electronics track products as they make their way from the shipping dock through the maze of global distributors and retailers. Want to find the party responsible for diverting products to the gray market? Bingo.

4. Strong year for collaborative apps for trading partners
Last week we wrote about E2open and its success in building eHubs for high-tech companies and its new ventures into Aerospace and Automotive. Edge Dynamics fits here, too. In previous Alert articles, my colleagues have written about RiverOne and other vendors that are building rapidly growing companies by automating business processes across the extended supply chain.

Look for this market to get a boost from GXS, too. While the company is best known for its Electronic Data Interchange (EDI) networks, the company is rapidly expanding the GXS Trading Grid. It currently moves billions of documents between more than 40,000 trading partners. It's also aggressively pursuing software partners to help expand the number of business process suites being offered.

5. SOA-Another year of product development and market building
Today, most of the interest in Service-Oriented Architectures (SOAs) is coming from our vendor clients. Outside of projects in Financial Services and a handful of very early adopters in other verticals, we don't see the need to declare 2006 as The Year of SOA. The exception may be for those companies selling workshops on planning for the new technologies. While actual software sales will be modest, we do expect to see a lot more hype next year.

As you might expect, these five themes will be featured prominently at Strategy 21 (January 17-19, The Ritz-Carlton, Half Moon Bay). Come join me as I grill executives from IBM, Microsoft, Oracle, salesforce.com, SAP, and others on their plans for accelerating market consolidation, integrating with Microsoft Office, competing or cooperating with Google, dominating the market collaborative business process suites, and gaining an early foothold in the nascent SOA market.

We hope to see you there. Until then, The Alert is taking the holidays off, so look for the next publication in January. We at AMR Research bid you a safe and happy holiday season and a healthy and prosperous 2006.

Bruce Richardson is chief research officer at AMR Research. This article first appeared in the weekly AMR Alert.