The Enterprise Strategy of an IT organization is constantly evolving and some policies change faster than Parisian fashion. In the last few months, as managers have been engrossed in top-of-the-mind issues such as outsourcing, data security, virtualization and the like, other policies such as procurement strategies may have taken a backseat. Contracts with commercial-software vendors come up for review every year or two, but there’s rarely a scheduled review of approved software suppliers.

That’s a pity, because there are startup software companies armed with new intellectual property eager to solve corporate business and technology problems. Or at least, to get onto the list of approved software vendors. Unfortunately for many sourcing managers the startup-backed software technology isn’t an option — there’s too much red tape to get them onto the approved vendor list.

Also, there is always an argument against relying upon startup suppliers. It’s unknown whether they will deliver in time, whether they will get enough funding to survive to take the product to its release, then the next version, and then the next. It is a calculated risk.

But then balancing risk versus reward is what makes business technology interesting. Despite the hoopla surrounding fast-paced innovations, the fact is that in the commercial software space, 10 suppliers account for at least half of the total market. And worse still, many of them do not even compete against each other. In reality, there is very little competition.

The New World

The offshoring trend that has had a well-publicized impact in business and technology services is rapidly changing the commercial packaged-software space. The way it is playing out in the commercial-software space is a little different than in IT services.

There are new startups that are betting on the global-delivery model to challenge the established firms. And these startups are not necessarily headquartered out of Bangalore or Delhi. In fact, few of them are from India, or for that matter, any other offshore destination — a clear difference when you compare with IT services business. They may be headquartered in Austin or Phoenix, Boston or San Jose — but global delivery is core to their business model.

Unlike the large software companies, the startups typically apply an outsourced model, without trying to set up their own development center in Bangalore, preferring to work with an army of suppliers who are ready to provide them with complete product-lifecycle management services, right from engineering to testing, sometimes even implementation support. In many cases, the startup company in the U.S.A. has just one technology person, usually the CTO or VP/President, Engineering. These vendors run the virtual product-engineering departments for their clients.