Since 2004, I have been arguing in my research that the tech market would enter a new cycle of innovation and growth starting in 2008. This thesis was based on my review of the US tech market since the 1950s, which showed a pattern of eight-to-ten year cycles of strong growth in tech purchases, followed by eight years of modest growth. This pattern had repeated three times, first with the introduction of mainframe computers in the late 1950s and 1960s, then with the arrival of personal computers in the 1970s and 1980s, and then with ERP software, client-server systems, and the Internet in the period from 1992 to 2000. Based on this pattern, I predicted that the tech market (at least in the US) would grow at about the same rate as the overall economy from 2004 to 2007 as business "digested" that third wave of technology, then decline in 2007 or 2008 due to a recession in that period ("IT Spending Outlook: 2004 To 2008 And Beyond — Waiting For The Next Big Thing": http://www.forrester.com/Research/Document/0,7211,35063,00.html; "Expect A Tech Slowdown Before The Next Boom — Forrester's Long-Term IT Spending Forecast For The US, 2005-2010": http://www.forrester.com/Research/Document/0,7211,37816,00.html). While not all aspects of these predictions have come true, overall I believe they were a generally accurate forecast of what happened in the tech market from 2004 to 2008.

Drawing on the research of many of my Forrester colleagues, I have now tried to define what that new cycle of tech innovation and growth will look like in the next 6-7 years. We are calling it "Smart Computing," using a similar naming convention to the three prior cycles of mainframe computing, personal computing, and network computing. A recent report provides the full picture of our thinking ("Smart Computing Drives The New Era Of IT Growth — A New Tech Investment Cycle Holds Seismic Promise – And Challenges": http://www.forrester.com/Research/Document/0,7211,55157,00.html. Here is a synopsis of this report.

What makes computing "smart" in this cycle are new technologies of awareness (RFID, sensors, embedded computer chips, GPS in smart phones, video analysis, etc.) and advanced business intelligence analytics (to do real time analysis of this awareness data and generate predictions of what the consequences will be). However, Smart Computing rests on new foundation technologies, such as server virtualization and cloud computing, SOA and BPM in software, and unified communications. Without the flexibility, adaptability, and extensibility of solutions that these foundation technologies provide, Smart Computing would not be possible. But it is the new tools of awareness and analysis that make Smart Computing smart.

As with past waves of new technology, Smart Computing will gain adoption because it addresses and helps solve problems that prior generations of technology have left unsolved. Mainframe computing helped automate high-frequency, standardized transactions in banking, insurance, airline reservations, utility billing, and government benefit payments, at a time when the world was becoming a global economy and the volume of these transactions was skyrocketing. Personal computing helped automate individual activity like creating memos and reports, doing financial analysis, or making presentations, at a time when the US and other economies were shifting from goods production to services industries, and over half of the workforce was working in offices. Network computing helped streamline and standardize key business processes, at a time when total quality management and re-engineering were causing businesses on improving the efficiency of these processes. Similarly, I think that Smart Computing will gain adoption because it will help to solve two business problems:

1) how to optimize the results from business processes – both the transactional processes that ERP, CRM, SRM, SCM, and other process apps, and the ad hoc, human-centric collaborative processes that lack effective software support; and

2) how to optimize the results from the assets and liabilities on the balance sheet, both tangible (financial and physical) and intangible (brand, intellectual property, employee knowledge, long-term customer relationships, etc.).

In both areas — but especially in the second — the problems faced by business have very strong vertical industry dimensions, leading to much greater demand for highly verticalized IT solutions. Those opportunities will create major challenges for tech vendors, who have become used to selling horizontal technologies to many industries. Horizontal technologies — which today represent about 95% of all technology purchases — will continue to dominate the technology market, both for current-generation technologies, and for the next-generation process-optimizing apps built on the principles of Dynamic Business Applications that Forrester identified a couple of years ago. But I believe that vertical technology solutions will expand their market share to 25% or so by 2016, from the current level of around 5%.

So, while tech vendors will see opportunities in the boost to tech purchases that Smart Computing will bring, they will also face challenges. The first is the classic problem that arises whenever there is a major new technology — most revenue continues to come from the last generation of technology (which doesn't go away, and still remains in demand), but most of the growth in revenues comes from the new generation of technology — in this case, smart computing foundation technologies, and smart computing process applications. But second challenge will be the tension between selling horizontal technologies across every industry — which again will be where most revenue comes from — or selling highly verticalized solutions to specific industries (where a large part of the growth will be). The first challenge is hard enough — think back to Microsoft's riding the crest of demand for personal computing while IBM was still transitioning from mainframe to personal computing — but at least vendors have some experience in meeting this test. But the second challenge of finding the right verticalization strategy will be even harder, and to my mind will be the make-or-break strategic issue facing tech vendors over the next six years.

That's how I see the market. Let me know what you think.