Business technology innovation is dead! Or so we hear. It's easy to take that jaundiced view in a tech economy dominated by vendor consolidation and customer cost cutting. But is innovation really on the skids?

Among tech vendors, it's clearly not in the best interests of the giants to slaughter their cash cows and blow up their business models in favor of lighter and cheaper alternatives. Where they've forwarded their own big ideas like "unified computing" and "software plus services," it's been to extend their positions rather than establish wholly new ones.

Former Cisco exec Jayshree Ullal, CEO of 10-Gig Ethernet startup Arista Networks, says big tech vendors are "trapped into incrementalism." Although Cisco spends $5 billion a year on R&D, it has relied on scores of acquisitions as its main innovation engine. Building a $100 million business from scratch doesn't make much of a difference at a $40 billion-plus company. EMC set out years ago to remake itself as a software company, snapping up top-tier developers like Documentum and VMware. Even so, most of EMC's revenue still comes from storage iron.

But just because a company is big and acquisitive doesn't mean it doesn't innovate. VMware continues to thrive as an innovation leader under EMC. Cisco has crafted an end-to-end network architecture greater than the sum of its parts. IBM has reinvented itself as a services and software company. Slower to change are the likes of Microsoft, Oracle, and SAP, but despite their girth and proprietary interests, don't underestimate their ability to build great products and refine their licensing models, as SAP and Oracle recently did on maintenance.

Still, Forrester Research CEO George Colony worries about the dearth of tech IPOs--a dozen or so in the past year when, he says, the market needs hundreds to spark true innovation. Google and Salesforce.com, arguably the two companies doing the most to keep entrenched players on their toes, are capitalized enough to be a competitive threat because of their IPOs five years ago. Which emerging vendors will be in a position to shake up the industry five years from now?

But even if the endgame for most tech startups is to be acquired, that doesn't mean those companies aren't forcing the industry in new directions. In cloud computing, for instance, scores of privately held startups are pushing the envelope, even if most won't sniff a public listing for some time.

Similarly, on the customer side, tech innovation doesn't have to be audacious to be effective. A dedicated labs team at FedEx develops technology whose returns might not pan out for years, but more important, says CIO Rob Carter, is the culture of innovation that pervades the company's IT organization. FedEx Mobile on the iPhone wasn't conceived in a lab but was developed by the mainstream pros who build the company's Web services-based shipping apps. If that's "incremental innovation," so be it.

Hewlett-Packard CIO Randy Mott puts a lie to the IT truism that cost cutting and transformative innovation are mutually exclusive. In three years, Mott's team has built, consolidated, and automated data centers; transferred work in-house from contractors; standardized on only a quarter of its apps; and built one central data warehouse--all while cutting spending in half. If you think that's just housekeeping and not true innovation, try doing it yourself.

IT innovation is dead; long live innovation.

Rob Preston,
VP and Editor in Chief
rpreston@techweb.com

To find out more about Rob Preston, please visit his page.