IT Innovation Still Possible

Meantime, the major application vendors are protecting their flanks, with Oracle fighting off the Justice Department in its bid to acquire PeopleSoft (and PeopleSoft thrashing back), Siebel replacing its founding CEO amid slumping CRM software sales, and IBM considering middleware acquisitions and taking "blocking stakes" in other app vendors in anticipation of industry consolidation.

But as the monopolists and oligopolists retrench, there are signs of a resurgence in upstart innovation. Across all industries, second-quarter venture-capital funding rose 8 percent compared with the previous quarter to $5.6 billion, according to a survey led by PricewaterhouseCoopers. In the IT sector, the news is mixed: VC funding for software companies increased 16 percent quarter to quarter to $1.2 billion, and funding for networking companies rose 16 percent to $459 million; but telecom funding declined 5 percent to $518 million, IT services funding dropped 27 percent to $185 million, and funding for computer and peripherals companies fell 11 percent to $227 million.

A more positive sign is that second-quarter VC funding is up for every tech category but telecom when compared to year-earlier figures, though the number of deals is fairly flat for most categories. "Investment levels are realistic, not exuberant," says Tracey Lefteroff, global managing partner of PWC's venture-capital practice. "There is a more balanced mix of investing between earlier- and later-stage companies. And the IPO window is open, though temperate." Steady as she goes.

Ducks in a Row

Likewise, the pace of innovation at most IT organizations has followed the industry trend. In the 1980s and '90s, companies threw money at myriad new technologies in the hopes of deriving competitive advantage from a few of them. But as both technologies and management disciplines have matured, the approach to IT has become more practical: Squeeze more value from what you already own by improving user training, asset management and system/network management. Align technology purchases more precisely with business goals. Outsource what yields little competitive advantage or what you can't cost-effectively do yourself. Overall, get your ducks in a row rather than take a swan dive into the next big thing.Plenty of enterprise IT innovation is still possible. Technologies such as wireless LANs, Web services, open-source software, voice over IP, storage virtualization and RFID promise to transform business processes and reduce IT cost structures. As one IT director recently related: "Every day I go to work trying to think up new ways to make my company money." Nothing gets approved without assurances of tangible, short-term payback. There's no place like home, even if it is a tad more boring.

Rob Preston is editor in chief of Network Computing. Write to him at [email protected].