Editor’s note: Brent Frei (pictured below) is the executive chairman and co-founder of Smartsheet.com, an online work management software company. He also served as the chief executive of Onyx Software, a Bellevue-based customer relationship management (CRM) software company he co-founded in 1994, and as a programmer analyst at Microsoft, among many other roles. He wrote this column for VentureBeat.

software shelfBack in 2001, I listened to Steve Ballmer predict that in five to 10 years, 40 percent of small business applications would be consumed via the cloud. He didn’t use the word “cloud” exactly, but he did talk about how Microsoft’s vision was to provide an online portal where customers could select and use business tools applicable to their role, and pay for just what they were using on a monthly basis. Nearly nine years have passed and the prediction has been pretty much spot on. But who is fulfilling the vision?

The race to become the gorilla in Ballmer’s 40 percent market finds Google, Intuit and Salesforce.com courting independent software vendors (ISVs) for their online marketplaces. Each excels at one of the four foundational business categories utilized by small and medium businesses, and most are enabling ISVs to become an integrated part of their application suite.

Here are the four foundational business application categories

1. Infrastructure – website, email, calendar, file storage

2. Productivity applications – spreadsheets, word processing, project management & collaboration

3. Financial accounting – accounting, payment processing, expense tracking, payroll

4. Customer relationship management (CRM) – sales, marketing, customer service

Millions of businesses can easily add an ISV’s product to their online business tool suite and have it work seamlessly with their Salesforce, Google Apps or Intuit account. Round out your Google Apps services with a Sales Pipeline from Smartsheet, or your Intuit Workplace with Document Management from Pixily, or your Salesforce App with Project Management from DreamFactory.

Intuit is leading the evolution with the first integrated platform that enables a small business to sign up and pay in one place for applications that work seamlessly together regardless of vendor — “one-stop applications portals.”

Salesforce, Google and Intuit are brand names in their online business tool categories today, and their pattern should be familiar to software veterans. Great Plains Software in the 1990s was a shining example of how to create an ecosystem of business applications from third-party developers. They created a development platform that enabled ISVs to augment the Great Plains solutions and serve as ready-made acquisitions for business expansion. And they grew.

diagramSalesforce AppExchange — Salesforce is parlaying its dominance in online Customer Management applications and its three year application platform head start into a substantial lead in market share, domain knowledge, partners and infrastructure. The AppExchange has a rich set of vendor solutions (which can be a detriment for new ISVs looking to attract customers) and mature ISV marketing programs.

Google Solutions Marketplace — Google is leveraging its impressive technology tools, its experience in designing easy to use solutions, and a customer base hungry for complementary applications into an integrated marketplace capable of stealing considerable small business market share.

Intuit Workplace AppCenter — Intuit has the most mature customer base and has developed an impressively well laid out product integration and partner marketing structure. As ISVs add solutions into their marketplace, it should be very attractive to their 4 million small business customers to just stick with Intuit’s one login, one bill, and one application framework.

What about Microsoft, the brand name in office productivity tools? They have millions and millions of SMB customers. They have loads of cash, hoards of talent, all four anchor tenant applications and Ballmer’s vision.

Office Live Small Business — What Microsoft doesn’t have is a centralized application hosting strategy. It doesn’t have one place for customers to access all their solutions in one integrated portal. It doesn’t have a framework for ISVs to develop and deploy applications into their marketplace. And, consequently, it doesn’t have any integrated third party applications available to customers within their marketplace.

Microsoft’s historical reliance on resellers for everything, including hosting its applications for customers, has been a two decade old winner, but the prevailing winds are blowing toward centralization. Amazon and eBay have demonstrated the power of centralized marketplaces. Companies that plug their product catalogs into those marketplaces get access to the ‘whole market’ rather than the fragments addressed by decentralized VARs.

brent freiSmartsheet, like thousands of other business tool vendors view these integrated marketplaces as primary channels of the online software future. Prioritizing which giant’s platform to build a business on first will be a matter of individual markets and priorities. Prioritizing which one to build on last has been decided for us.

[top photo:flickr/cogdogblog]