Many organizations had earlier been skeptical about the ROI on using Web 2.0 tools across the enterprise. However, with grass-roots adoption by on-the-ground staff to improve productivity, collaboration and knowledge-sharing, and results that are building over time, enterprises are willing to invest more on Web 2.0 technologies.

In fact, a recent report by Forrester Research is predicting that enterprise spending (currently at around $1 billion) on social networking tools, mashups, and RSS is going to increase dramatically to $4.6 billion by the year 2013.

Some of the largest ISVs in the enterprise space have been integrating Web 2.0 technologies into their products for some time now. Microsoft’s SharePoint collaboration features, IBM’s Lotus connections, mashup products and upcoming Quickr and SAP’s Business Suite which includes social networking and widgets are some examples. However, many of them are limited in their cross-boundary integration abilities.

On the other hand, stand-alone commercial Web 2.0 software companies that cater to Enterprise 2.0 users like Communispace, Newsgator Technologies, Six Apart and Jive software have their own USPs and are holding their own in this emerging enterprise marketplace.

At this point it is difficult to tell who will win out – the platform/suite players or the niche pure-play Web 2.0 vendors. One thing is for sure: those who address the problems of interoperability and integration of these new technologies with legacy systems, identity management and security, will be benefited the most.

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Many of these consumer internet start-ups got started in garages with a fairly small team and had a beta version of the product out in a matter of 6 months – more or less.

While the success of some Web 2.0 start-ups can be attributed to early-mover advantage in identifying and filling an under-served niche, there are some underlying similarities behind the successful companies.

With the limited resources available at their disposal, the key focus areas were: simplicity and usability – the intuitiveness – of the product or site, collaboration and deep involvement with the user community who are more than merely ‘users’ – they are also contributors, participants and co-creators – and constantly incorporating their feedback to make the user experience better; developing viral product features that are valuable to users like blogs and integration with other Web 2.0 tools, and ultra fast development cycles.

What does all this mean for enterprise software companies? While the consumer internet market certainly has a different user base, some of the lessons that can certainly be learnt are the simplicity and usability of software and understanding the end-user’s real needs better. If these lessons are incorporated, enterprise software has enormous potential for growth!

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There are quite a few forums / groups focused on the other aspects of software marketing, software sales (www.softwareceo.com), software business management (www.cio.com) and business strategy (www.sandhill.com) but not many that focus on product engineering.

However, product engineering – the way software products are engineered from the inside has tremendous impact on the future of software vendors.

Today, enterprises and consumers have huge choices – open-source, ad-supported freeware, online applications and so on. Newer paradigms of development including RAD and advances in Application servers are making software development a breeze. Hence, enterprises can choose to make their own internal applications as opposed to getting tied-in with a software vendor.

All this makes the position of software vendors vulnerable. What does this mean for software providers? Product Engineering – making products robust, configurable, scalable and maintainable is the best way to make software products compete in this market.