Whether they’re aware of it or not, the companies exhibiting at this week’s
FOSE 2002 government IT show — the
largest of its kind — are tapping into what one research firm says is one
of the largest areas of information-technology spending over the next
several years.
Gartner Dataquest has identified the government sector — combining both federal and state/local — as the second-largest vertical in terms of IT expenditures. Government is second only to financial services, Gartner also said. Additionally, government is
also the fastest-growing markets for spending on external services vendors.
By 2005, overall government IT spending at the federal and state/local
levels will reach $108.8 billion, representing an average annual growth rate
of 8 percent over the $84.7 billion expected to be paid out in 2002, Gartner said.
The firm also predicts governments will spend $31.4 billion on professional
and support services in 2002, rising to $48.1 billion in 2005 — an annual
growth rate of 15 percent, a number Gartner calls “the highest among all vertical
markets.”
Other recent studies back Gartner’s figures. The Government Electronics and
Information Technology Information Association (GEIA) said that the total
federal IT budget for fiscal 2002 will increase 15 percent to $49 billion over
fiscal 2001. By fiscal 2007, federal IT spending is expected to top $65
billion. Civilian and defense agencies will spend about the same amount of
same amount of money in fiscal 2002, with $24.2 billion going to civil
agencies and $25 billion to the Department of Defense (DoD).
“Government is really the only growth industry right now,” said Rishi Sood,
Gartner’s principal analyst in the government sector. “In fact, we call
government the ‘new sexy industry’ and the ‘new dot-com.’ It’s the new area
where vendors can turn to grow sustainable, repeatable revenue streams.”
Putting Their Best Face Forward
Many companies wanting a chunk of that government dough were at the FOSE
Conference and Expo, trying to attract government dollars. They had a lot of
company — FOSE officials expected attendance to break records, with more
than 17,000 government and industry professionals expected to walk the floor
of the Washington, D.C. Convention Center and interact with the over 400
companies demonstrating their wares in the areas homeland security,
e-government, biometrics and IT infrastructure.
Hewlett-Packard Co. See Page 2. See Page 3.
While many of the businesses there are “household names” in the IT world,
many more were not. Zebra Technologies
, for example, makes and sells on-demand printing
products and software to both government and business. It provides thermal
bar-code label and receipt printers, as well as card printers, supplies,
label supplies and integration software. If you’ve rented a car and gotten a
printed receipt from an attendant in a parking lot, you’ve seen one of
Zebra’s products in action.
Zebra’s strategies seem to work, too. For a company that didn’t even have a
dedicated government sales force until about 3 years ago, revenues generated
from such sales now contribute from 2.5% to 3% of total revenues — figures
that the company hopes to double in the next year, said Timothy McGilloway,
Zebra’s director of strategic accounts.
has also used the past couple of years
to build a government solutions sales force, said HP General Manager of
Federal Sales Bruce Klein. The company is seeing “double-digit growth” in
its sales to government. In addition, public sector sales — including
federal, state and local, and education — make up from 10 to 20 percent of HP’s
overall sales. HP sells everything from business and notebook PCs to
printers to software to full-fledged networking products to the public
sector.
Oracle Corp. , meantime, was founded 25 years ago as the
result of Project Oracle, which resulted in the first commercial
structured-query language (SQL) relational database management system.
Today, Oracle develops solutions for both the private and public sector. It
recently announced the opening of its Information Assurance Center, which
educates customers on prevention, detection, crisis management and
consequence management, and provide a test bed for leading-edge security,
business continuity and disaster recovery solutions. Oracle hired former top
CIA official David Carey to head the new center — he’s now vice president
of information assurance for Oracle Service Industries. About 23 percent of
Oracle’s total revenue comes from various public-sector sources, including
the federal government.
Even though all three of those companies are very different, they all gave
the same advice for companies wanting to sell to government. Their advice
parallels with much of what Gartner’s Sood said as well.
How To Get In On the Government Track
While selling to government isn’t an easy road to take to higher revenues,
Sood said smaller businesses or minority-owned companies can smooth out that
highway by registering with the Small Business
Administration as an 8(a) business. SBA defines a “small business
concern” that can qualify for 8(a) status as one that is independently owned
and operated, is organized for profit, and is not dominant in its field.
Depending on the industry, size standard eligibility is based on the average
number of employees for the preceding twelve months or on sales volume
averaged over a three-year period.
“Government contracts almost always have exclusive proportions that need to
be allocated to these kinds of firms,” Sood said.
Larger Tier 1 government systems integrators that already have
well-established relationships with the government — the Lockheed Martins,
Northrop Grummans and EDSs of the world — are always looking for qualified
small and minority-owned businesses with which to partner to help them
fulfill the proportions of contracts needed to be done by registered 8(a)
companies, Sood also said.
Hooking up with one of the Tier 1 companies is another way for businesses to
get on the inside track with government. “Those are the companies that
really control the top accounts, have the relationships, have the business
process expertise by agency segment, that can help bring in your
technologies and your solutions into this marketplace,” Sood said.
The three execs from Zebra, HP and Oracle agreed that teaming with a Tier 1
company is one of the best ways to get one’s foot into the government’s
door. “We don’t see any more requests for parts or pieces,” Zebra’s
McGilloway said. “Now they’re saying, `here’s the application, go out and
team with the Lockheeds or Unisys Federal, and get back to us with a
solution.”
As government requires entire business cases to solve an IT problem and not
just products, small businesses should take advantage of partnerships with
Tier 1 developers, said HP’s Klein. “To cover the customer, you need
partnerships with channel partners and software providers. You need to
develop an ‘ecosystem’ to work with the government.” Otherwise, it is
difficult for a small firm to open up a federal sales organization.
No matter which route a business takes, though, selling to government is
much different than wheeling and dealing in the private sector. “The problem
with the government marketplace is that it is a relationship-based
business,” Sood said. “It’s only those vendors that have historically
dedicated their resources to the government sector that actually do very
well in government.”
It takes people to build those relationships — people who have already
dealt with government. “Oracle has a large cadre of people who are cleared
and can function in the intelligence community, or in the secured
environment of DoD,” Oracle’s Carey said. “So we already have a large
footprint there.”
Zebra, meantime, has to hire senior people to sell to government, which is
expensive, McGilloway said. What’s more, “they’re rare. You can’t just pick
up and pick up someone off the street or run an ad. There’s a lot of people
out there that aren’t too good.” Companies like Zebra are also training its
own “junior salespeople” to become more of a solutions person rather than
straight salespeople.
Also, companies that have been focused on the commercial side need to alter
their marketing and messaging approach when dealing with public-sector
organizations, because governments operate very differently from the private
arena. “Vendors that are used to putting CRM (customer-relationship
management) or e-procurement or other technologies to meet certain business
objectives within the private sector need to realize and understand that
those are very different when we talk about the government sector,” Sood
also said.
Going It Alone?
All is not lost, though, for a company that wants to conduct its own
business with Uncle Sam or governments on the state/local level. “If smaller
or medium firms choose to directly sell into the marketplace, particularly
in the federal marketplace, there are areas they can carve out and create a
niche focus,” Sood said.
“There’s a lot of obstacles associated with that, though,” he said. “If you
want to focus on intelligence, for example, you’ll need to hire people with
security clearance levels, and there’s only so many people at that level.”
But Sood quickly added that businesses can “get in” on their own. And
selling to government can be very good, because “once you get in and have
referenced clients, it’s relatively easy to expand your footprint and repeat
the steady source of revenue that the government can provide.”
If a firm wants to service government by itself, though, Klein said it needs
to learn — a lot. “You have to understand procurement practices, you’ve got
to understand the procurement process, you’ve got to understand pricing
policies, and that is all very different than what’s done on the private
side.”
For companies wanting to go this route, though, Klein recommends a “niche”
approach similar to Sood’s.
Several notions about selling to the federal government are going by the
wayside, McGilloway said. “The days of selling `items’ to government are
over. You now have to sell solutions.”
Gone as well is the notion of the lowest bidder securing a contract, he
said. “Now, government is looking for best values and past performance —
something you never heard of five years ago.” Agencies are even looking at
return-on-investment (ROI); also never heard of until recently.
On the positive side, the notion of governments being slow in paying their
bills is a “fallacy that went away years ago,” he said.
McGilloway is encouraged about selling to government. He says any company
that starts to sell to the public sector would essentially be “doubling
their North American sales opportunities.”
As Sood said, though: “It is about relationships, and not necessarily
technology.”
Homeland Security – A Boon?
The attacks on 9/11 and the resulting war on terrorism should help IT
businesses as well, Sood said. He identified homeland security as “a key
area of great potential opportunity, as well as increased partnerships and
alliances, because these vendors need to capitalize on what the new
priorities are.”
Just after the attacks on the Pentagon, New York City and Pennsylvania,
President Bush received access to an additional $40 billion dollars for
immediate security needs and the war on terrorism. Weeks later, a homeland
security budget was developed for almost the same amount for fiscal 2003.
At a homeland security investment symposium last week in Washington, though,
opinions differed on whether homeland security would bring a windfall of new
businesses for the IT sector. Paul Kurtz, the senior director for national
security under President Bush’s Critical Infrastructure Protection Board
said protecting information and the data networks upon which it travels will
take a combination of private and public efforts. No “one silver bullet”
will handle the situation, though, and the answers to the problem, according
to Kurtz, “are in the private sector” — specifically, a combination of
technology, people and policies.
Dealing with the government, though, may not help a business, according to
several experts on the private industry side of the equation. Mark Lister,
the managing director of Rosettex Technology and Ventures Group, said that
IT opportunities in homeland security are “woefully small,” mainly because
the amount of money going to homeland security gets divvied up among a lot
of federal agencies — not all of which have an IT focus. He’s also fearful
that private industry will not make many inroads into the federal government
unless companies can pool their technologies to put together what he called
“real solutions.”
Oracle’s Carey basically agrees with Lister on the question of money, saying
that more cash will initially go to “boots and suits” and equipment for
those people than IT. “Eventually the more complicated problems of critical
infrastructure protection, with our critical infrastructure being so tightly
interwoven, it really is a ‘weakest-link-in-the-chain’ scenario you have to
worry about,” Carey said. “To do that, there’s a physical protection issue,
but there’s also a secure information requirement to effect adequate
protection for that critical infrastructure. That’s really going to require
the secure flow of information between agencies, and between federal and
state and local governments.”
Making a Fortune from Government
The government marketplace is a tough one to crack. It can be done, but many
of the processes involved are different from those involved in selling to
commercial accounts. A company may feel like it needs a bit of hand-holding,
or at least a more-formal education, on how to enter the sector.
A conference on doing just that will debut in June just outside of
Washington. Fortune One
Business says it is the only conference designed to address the full
range of public-sector IT marketplace business considerations. Topics to be
covered will include picking a winning sales team, pricing for the
state/local market, using competitors as allies in securing contracts, and
even presentation and etiquette.
Because jeans and a t-shirt just won’t fly in government.
