I am working with Bob Offutt this year screening applicants for the PhoCusWright Innovation Summit in November. This effort has triggered some thoughts about how innovation comes to the market as well as the danger to companies that lack innovation.

From 1989-1995 I worked at Sun Microsystems. Part of management training at Sun was reading the book The Paradigm-Shift-Promise-Information-Technology . While I was at Sun I was able to secure funds to implement an early corporate booking tool from a now defunct company called TravelNet. Why not look internally to develop this application? Even though at that time Sun was far ahead of other companies in talking about “the Network is the Computer” foretelling the current hype around Cloud Computing, I could not get any internal IT support for this self-booking effort. I even had a Senior VP of Purchasing tell me that “we do not like to be early adopters of new technology”. Yes this was a Sun VP acting as a Luddite about emerging technology. Despite the paradigm shift training, Sun’s demise can be traced to its slow reaction to open source software. Hopefully, IBM will purchase Sun and put it our of its misery.

Another interesting paradox regarding innovation concerns online travel. Conventional wisdom may make you believe the current online travel heavyweights came from venture funding. Though each of the major OTAs has received venture funding over the years, Microsoft birthed Expedia, Sabre created Travelocity, the major airlines created Orbitz. Only Priceline has true venture capital roots, but was literally reborn under Jeffrey Boyd’s leadership after the company went bust trying to promote “the name your own price” strategy to other non travel segments. Jeffrey successfully transformed Priceline from a opaque distribution channel to a full blown OTA and expanded the company’s global reach with acquisition of Booking.com. The point here is that Venture Capital is often not the source of new innovation.

So where is tomorrow’s innovation in the travel space? We need not look any farther than the emerging mobile platform. Our sponsors for the PhoCusWright Mobile Special Report represented some of the travel industry’s largest companies (Starwood, Hilton, Carlson Hotels, Travelport, Amadeus and Abacus, IBM and Teradata to name just a few), but few showed true mobile innovation. Many sponsors are simply taking their Web content and reformatting for the mobile browser. This strategy misses the value of the new mobile platform and cannot access location a key component of succesful mobile applicaitons.

True innovation in the mobile space is likely to come from small companies such as Intelligent Spacial Technologies who have a unique point and click application that takes advantage of location, context and broadband wireless communication. Last year’s winner of the Innovation Award was another small mobile advertising comany called Interactive Mobile @dvertising,

Can innovation continue in a down economy? Absolutely, though funding is tight, true innovation is a game changer and will continue to emerge from small companies. Even though hugely successful, the four major OTAs may miss the next “paradigm shift”(which I believe is mobile) and a new small entity may emerge with disruptive technology for travel applications on the mobile platform. No company of any size can simply ignore emerging technology trends such as mobile or risk becoming victims of shifts in market dynamics caused by innovation.