Software out there

For example, Google last month bought Writely, a Web-based word-processing program created by three Silicon Valley programmers. Eric Schmidt, the Google chief executive, said that Google did not buy the program to compete against Microsoft Word. Rather, he said, it viewed Writely as a key component in hundreds of products it is now developing.

These days, there are inexpensive or free software components speeding the process. Amazon recently introduced an online storage service called S3, which offers data storage for a monthly fee of 15 cents a gigabyte. That frees a programmer building a new application or service on the Internet from having to create a potentially costly data storage system.

Google now offers eight programmable components8212;elements that other programmers can turn into new Web services8212;including Web search, maps, chat and advertising. Yahoo offers a competing lineup of programmable services, including financial information and photo storage. Microsoft has followed quickly with its own offerings through its new Windows Live Web service.

Smaller companies are also beginning to share their technology with outside programmers to leverage their competitive positions. Salesforce.com, a fast-growing company that until recently simply offered a Web-based support application for sales personnel, published standards for interconnecting to its software not too long ago. That made it possible for developers inside and outside the company to add powerful abilities to its core products and create new ones from scratch.

The idea of modular software, where standard components can be easily linked together to build more elaborate systems, first emerged in Europe during the 19608217;s and spread to Silicon Valley in the 708217;s. Despite its promise, however, modular software has generally been limited by corporate strategies that have held customers and other programmers hostage to proprietary systems. Those limitations have eased almost overnight, mostly because of the open-source software movement, which promotes making information available to everyone.

The shift toward sharing, which in its grandest conception has been termed Web 2.0, has touched off a frenzy of software design and start-up activity not seen since the demise of the dot-com era six years ago. 8220;These tools are changing the basic core economics of software development,8221; said Tim Bray, director of Web technologies at Sun Microsystems and one of the designers of a powerful set of Internet conventions known as Extensible Markup Language, or XML, which make it simple and efficient to exchange digital data over the Internet.

Modular software is putting tremendous pressure on the corporations that have dominated the software industry. It is also affecting Silicon Valley8217;s venture capitalists. Start-ups have begun to bypass the venture capital firms, relying instead on individual investors, called 8220;angels,8221; or out-of-pocket financing, largely because new ventures are not as expensive.

In many cases, the start-ups d not even require the traditional Silicon Valley garage. The new companies are 8220;virtual,8221; and programmers work from home, relying on nothing more than a personal computer and a broadband Internet connection. Even more striking is the suggestion that a broad transformation of software development might reverse the trend of outsourcing to India, where highly skilled but low-paid programmers are plentiful.

8220;Transforming the economics of software development completely transforms the rationales for outsourcing,8221; Michael Schrage, a Massachusetts Institute of Technology researcher, wrote in the current issue of CIO magazine.

JOHN MARKOFF