Mystery: Why are enterprise IT startups vanishing?

A group of Big Five Vendors now dominate the enterprise IT and SOA space. Where have all the startups gone?

I few days ago, I described the phenomenon of "cloudwashing" now taking place among SOA vendors as they shift to the hottest trend in the market.

Why the significant drop-off in new software ventures?

But Ron Schmelzer points to an even more disturbing trend -- the pool of new vendors seems to be drying up altogether. Out what was once a highly entrepreneurial, diverse market of enterprise IT (and hence, SOA-focused) vendors has now boiled down to domination by five large vendors.

This is a shame, because the lack of competition has reduced innovation in this sector, he points out. And, to make matters worse, Ron says he has seen "a significant drop-off in new enterprise software venture creation," with no clear reason why this is happening.

But at the same time, many enterprise customers perceive a greater sense of security and less risk by going with big-name vendors.

Where there is new startup activity, it's happening in the cloud and Enterprise 2.0 arena. Ron asks: And if a startup's solution fills a need in your enterprise, is it feasible to go with the solution?  Is it worth the risk?

Startups provide some advantages the Big Five can no longer provide, he adds:

  • It’s easier to get your way with smaller companies hungry for your business
  • It’s easier to negotiate on price
  • It’s easier to get help with your specific implementation from startup companies

The ultimate objective of SOA, and cloud and Enterprise 2.0 for that matter, is flexibility and independence from vendor lock-in solutions. You should be able to readily swap a service, interface, component, application, or system out as your business needs change. Most enterprises don't have anywhere near this kind of agility yet. And there's still plenty of room for startups.

In Ron's words: "Startups, do your part innovating in this space. Enterprises, do your part and implement startup companies’ offerings so that innovation does not come screeching to a halt."

My take:  Could it be that enterprise IT has become so complex and mandate-driven that it's too much for many startups to delve in?  Maybe in a world of social networking and mobile computing, enterprise apps just aren't that much fun? Note the huge surge in iPhone apps, for example -- a simpler and more fun business to get in to. But SOA is fun, isn't it?

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