There is an interesting conversation in the blogsphere...titled "Innovation in Enterprise Software", Here are the excerpts from the various posts.

First lets start with Bill Burham's post titled "The incredible shrinking software industry", In this post In 2005, the aggregate market capitalization of the software sector shank by almost 10%, The shrinkage is also apparent when looks at the raw number of public software companies. There were 236 public software companies at the start of 2005, but only 213 at the end of the year, a decline of 10%. Put another way, for every new software company that went public in 2005, almost 7 were acquired or went out of business.

The factors responsible for the same are
Software is moving from "growth" to "value". Let's face it: from an investment perspective software is no longer viewed as a "sexy", high growth industry by many investors.

Open Source and SaaS. The modern software market was built on the backs of large one-time perpetual license sales. Charging significant up-front fees for access to proprietary source code not only allowed companies to post 95%+ gross margins, but enabled successful software companies to delight investors by very rapidly growing revenues and earnings.

No big platform transition. The software industry has traditionally seen its best years in the wake of major "platform" transitions, be it from mainframe to minicomputer, or client-server to n-tier. Each platform transition is typically accompanied by several new "anchor" products that customers must adopt and this adoption tends to drive new revenues.

Networking companies are encroaching on software company turf. If you pry open the hood of your average router, you won't find a disk drive or a keyboard but you will find a ton of software sitting inside flash memory or embedded in chips.

Being public ain't so great. Being public in these post Sarbanes-Oxley days is not easy, especially if you were a software company that lavished options on its employees and played it a little loose with revenue recognition from time to time.

Prashanth RaiTag(s):Innovation, Enterprise+Software