This is based on my talk at the Innovation Summit organized by John Clements and Harvard Business Publishing last month.

There are five trends in the software and internet space that every businessperson and entrepreneur should be aware of, since they're going to shake up the business landscape dramatically.

Trend #1: Accelerating pace and cost-reduction of software development

My company engaged in a joint-venture last year to develop an online product. The JV partner has been trying for three years to develop the product with different partners with little success, even as he employed some of the top developers in Philippine software industry.

Since the project was R&D with an unknown future revenue, we said that we could only commit two or three junior people at a time plus some interns, though the project was overseen by our CTO and we used the cutting-edge Grails framework. After two-weeks, the team presented its initial work, and the JV partner exclaimed, “You guys accomplished more in two weeks than the other teams did in six months!”

I could attribute this success to the Grails framework, and example of the rapid-development frameworks available today that weren't available to programmers just three years ago. The productivity jumps with these frameworks is literally and order of magnitude. And the best part is, most of these frameworks are free and open source!

This is a trend that will only accelerate – Software can be built faster and faster, and cheaper and cheaper, because of rapidly improving frameworks, tools, components and free web service APIs. What does this mean for business? It means that big software companies will increasingly face competition with smaller companies with smaller teams of developers. Size and financial muscle will be less and less of a requirement to build powerful software.

Trend #2: Everything is going on the internet

When was the last time you went to a store and bought packaged software? Probably not in a while. More often we download software and install, but this too is getting less and less. Lately, web applications are getting so rich in functionality and feel that they are getting close to the richness of installed applications. This trend will continue with HTML 5. Not only will we experience even richer web applications, these web applications will have the capability to operate even offline and to store data on harddrives.

Software-as-a-service will increasingly be the primary way to distribute and access software. What does this mean for business? It means that the cost of distributing software is coming crashing down as well. You no longer need a massive manufacturing, packaging, distribution and retailing operation just to deliver your software. Even the cost of hosting software on internet servers is coming crashing down, with cloud computing. Again, the playing field is increasingly being leveled for smaller, more nimble software companies to compete against the giants.

Trend #3: The internet of things

In January 2010, scientists from Yale University and South Korea announced that they had created a transistor made out of just six carbon atoms! Does Moore's Law ring a bell? Moore's Law not only means that microchips will get more powerful, but they will also get smaller and cheaper at an accelerating pace.

What about Gilder's Law? Gilder's Law states that the bandwidth of a communications network triples every year.

Throw in nanotechnology, IPv6, self-configuring wireless networks and low-power wireless protocols and what do you get? The internet of things.

The internet of things means that not just PCs, mobile phones and servers will be on the internet. Increasingly, it will be things. Since computer processors and wifi adaptors are increasingly getting smaller and cheaper, we will increasingly have them everywhere – on our clothes, vehicles, appliances... even on crops and livestock. They will all have computer processors and be connected on the internet!

Again, what does this mean for business? It means that computer programs can be created that are even more powerful than previously imagined, since now they can reach out, extract data, or even control, a plethora of things that are all connected to the internet. And since software can be created cheaper and faster... software developers are becoming increasingly powerful.

Trend #4: Microsegmentation

Why is so much investment money going to search engines and social networking applications, which users are able to access for free? These are data-mining operations, for the purpose of highly-targeted advertising. Their goal is to learn as much as they can about you in a detailed manner, so that when advertisers need to reach out to someone like you they can do so without wasting their money on those they don't want to reach. For advertisers, it means it's now affordable to reach out to that needle in a haystack, without having to spend advertising money on the hay.

What does this mean for business? Again, small companies get a more level playing field against the big. Even with limited funds, a small company can dominate a small and dispersed niche, since it can target its advertising only on the people who'd be interested in its product.

Trend #5: Rise of the MicroISV

MicroISVs (Micro Independent Software Vendors) are software company made up of only one or two people. They've been gaining in popularity in the US in the past few years.

This phenomenon is simply the result of the previous trends I just talked about – It's so easy to develop, maintain, promote and distribute powerful, desirable software such that even just one or two people can do it. This just validates in the most extreme way that the playing field is leveling towards smaller, more nimble software companies.

What does this all mean for business in the third world?

The advantages that MicroISVs enjoy are the same advantages that software companies in the third world have access to. The level playing field being created does not just apply to size, but geographical location. Companies in developed countries do not enjoy significant advantages over those in developing countries.

This means that innovation and technopreneurship will continue to shift to the third world. We're seeing a lot of new technopreneurial enterprises emerging from China and India – not just outsourcing but the creation of intellectual property. I'm sure we will see innovation coming from other developing countries like the Philippines soon, for as long as these countries maintain the technical, business and cultural skills in needed to foster these innovations.

What can we do so that our country can compete in this new level playing field?

The first is to support education. I mean not just for tertiary education in computer science and business. I also mean basic education in science, math and communication. Brain power wins in the new era and a country needs to cultivate its intellects to compete.

The next is that we need to build communities between technologists and businesspeople. There's just not enough interaction between these groups of people. Business people understand markets and their needs but not how to create solutions to fulfill them. Technologies know how to create solutions, but not what markets need. We need to get these people in the same room often enough so that they can start exploring ways to fulfill market needs.

I like your conclusion, Calen. BGN tries to get the techies like you closer to the business people even if those people are half-way around the world or even if just 10 miles away - but still don't like travelling :-)

Thanks for sharing!

Paco, check out the first reply to my blog post.  He's talking about a Micro-VC or Micro-Angel model where the investor invests in 10 - 20 projects that are pumped out in just a 2 - 4 week time-frame.  Cutting-edge frameworks like Grails allow releasable or demo-able products to be created in such a short period of time. 

Great post, Calen.

There's a general movement of emphasis from too much planning to quickly coming out with prototypes. This fits well with the foundations of design thinking. The first foundation is referred to as "thinking with your hands". Instead of spending time debating on the concept of a product or idea, it's better to come up with something concrete. It doesn't matter if it's rough and dirty. You just need something real to try out and improve.

Another foundation of design thinking is to be multidisciplinary. Involve different people from different fields. Your call to bring in people who know the market is true. There are many techies who can create brilliant ideas, but only a few of them really know what the market needs (and, need I say, many techies scorn people who are not techies).