In mid-October, Microsoft was rumored to be buying Siebel Systems. "What?!" I exclaimed to my Mac as I read the news. "Is this actually happening?" I yelled to anyone who would listen. "If so, this is really, really big news!"

However, neither my friends nor the industry sources I harangued seemed surprised by the possibility of such an acquisition. After all, they said, Siebel, the mighty maker of customer relationship management (CRM) software that had once been worth as much as $51.5 billion (Nasdaq: SEBL), has seen its market capitalization tumble to about the equivalent of a worn dollar bill in Microsoft's bulging wallet.

But lost on my nonplussed friends was the fact that the rumor--later proved false--signified much more than changing economics; it portended that yet another technology sector was about to be turned on its head. Consider how the Burroughs/ Sperry deal in the '80s, Compaq Computer's purchase of Digital Equipment in the '90s, and IBM's acquisition of PricewaterhouseCoopers this year upended the markets for mainframes, workstations, and consulting services, respectively. Over the next 12 months, watch for a proverbial changing of the guard across a broad swath of industry sectors.

Even if Microsoft didn't purchase Siebel, it might have. Stranger things have happened: Hewlett-Packard bought Compaq. In 2003 and beyond, financial opportunism (and not a misguided desire to dominate a low-margin commodity market) will motivate acquirers. Simply put, the deteriorated financial markets mean it's shopping season (the coincident holidays are just that). As Red Herring columnist Pip Coburn writes in "Tactics", the combined market caps of tech companies worldwide have declined 73 percent, from $7.4 trillion in 2000 to roughly $2.0 trillion today. Most telling, the number of companies with market caps of more than $10 billion has fallen from 122 to 35.

While important, reduced prices for once-high-flying firms aren't enough to trigger a postholiday clearance sale. Indeed, in many cases, reduced stock prices are an indication that a firm's technology is no longer valuable, or that a window of opportunity has slammed shut. The relentless pace of innovation is a larger motivator for acquisitions--a phenomenon with which I have some experience.

At the tail end of the PC boom, I had the privilege of working at Reference Software, a San Francisco-based startup that made Gramatik, a pioneering style guide and grammar checker that dominated its category. The company enjoyed years of healthy, double-digit growth at a time when the market included stand-alone spell checkers and dictionaries. But in the early '90s, the inevitable began to occur. Word processors, like Microsoft's Word, began to incorporate the same features that these products offered. Quicker than you can say Hummer Winblad, Novell, with its WordPerfect, snapped up Reference Software.

So what do patterns of innovation and acquisition hold for the future of CRM software? Plenty. CRM software will become just another feature of business applications. Already, CRM is being offered in the suites of enterprise resource planning (ERP) applications from Oracle, PeopleSoft, SAP, and, yes, Microsoft. These applications also include supply chain management, financial, and human resource functions. But don't count on CRM becoming a wholly integrated add-on like spell checkers are for word processors. CRM, even when included in an ERP suite, will still command a hefty price tag.

Will Siebel, then, go the way of Reference Software? Consider that the average life expectancy of an S&P 500 company (Siebel is one) has declined from about 100 years in 1938 to about 20 years today. The reason is the constant, never-ending need to develop new products, to become more efficient, and to win new markets. Few companies do this well for very long.

When a technology category is young and robust, it is enough for a company to be one of, say, the top three performers. Think of Ingres, Oracle, and Sybase in the heyday of the database market, or DEC, HP, and Sun Microsystems in the Unix workstation market of yore. But as a category matures, it tends to support only one large company. And eventually that company goes the way of an automaker, no longer a growth business, but still capable of producing dependable products.

In the new year, we will witness the creation of technology categories--some entirely new (impossible to predict, but I'm thinking of molecular electronics), others based on a combination of technologies (watch for companies combining Linux, Web services, and wi-fi, or perhaps, biotechnology, nanotechnology, and drug delivery). Venture capitalists, with their herd mentality, will regain their self-confidence en masse and back these firms. Voila! Bona fide categories and a new generation of leaders will be born.

In 2003, watch for this new crop of leaders to help reinvigorate this resilient industry.