Turmoil in Gov-Com Land

Last year at this time, it was the calm before the marketing storm of e-government. Dot-com companies were beginning to burst onto the scene, offering to make it easy and convenient for citizens to go online to pay tickets and taxes and get licenses and permits.
by | September 2000
 

Last year at this time, it was the calm before the marketing storm of e-government. Dot-com companies were beginning to burst onto the scene, offering to make it easy and convenient for citizens to go online to pay tickets and taxes and get licenses and permits. The companies appealed to government officials to let them come in and set up for free, saying they would make their money by charging "convenience" fees for online transactions. As investors poured money in, new companies rushed to get market share. That was the "Johnny Appleseed period," says Kaleil D. Isaza Tuzman, chairman and CEO of one of the most prominent startups, govWorks.

But there is turmoil these days in the e-government services business. With the stock market faltering and venture capitalists looking for profits sooner rather than later, the new companies are scrambling to solidify a place for themselves in the market. Some are forming partnerships with big systems-integration or software companies. At the same time, sniping has begun. Some start-ups are highlighting what they see as the weaknesses or possibly unethical practices in their competitors' business models. And some upstart companies are faltering. EzGov President Ed Trimble says at least six companies have approached him offering to sell out.

Some companies are getting roughed up in the media. A headline atop a story about govWorks in Fortune Small Business reads "Too Much, Too Soon" and a subhead asks: "Why is the company teetering on the brink of chaos?" The company responds that the article is rife with inaccuracies.

Nevertheless, new e-government companies continue to sprout up. There's FileAmerica.com, GovConnect, Govt.com, Link2gov, netgov.com, Simplegov.com and Tidemark, among others. Increasingly, such established players as IBM, Lockheed Martin, KPMG, EDS and AMS are offering e-gov services or forming partnerships with others that do. Some companies that have been in the e-commerce business for years, such as National Information Consortium, are repositioning themselves.

The question for some of the companies is whether transaction fees alone can keep them profitable over time. "This `no-cost-to-you' model is too good to be true," says French Caldwell, research director at Gartner, a market analyst firm. "I just don't think it's sustainable over the long term."

And government is proving a tougher market to crack than many of the startups may have thought early on. For many government officials, it all seems so new and untested. Nor have they necessarily felt a rush to get going on e-government.

But that is changing, too. Some governments have mandated deadlines for providing e-commerce services, and that is not only prompting changes in companies' business models but also making governments more receptive to sales pitches. The challenge for them is sorting out the best option. Analysts say there isn't one. "There will be turmoil in the market for years because there is no single solution," says Christopher Baum, vice president for electronic government at Gartner. "It's like asking do you want a screwdriver or a hammer. It depends."

Meanwhile, the companies keep evolving. GovWorks says it has moved from a focus on providing a Web "portal" for government to building the technology that will connect the front end--what consumers see when they sign on--to the back end, where the financial management is done. The company has brought in AMS, Arthur Andersen and FleetBoston Financial as business partners.

EzGov also is de-emphasizing the portal approach, instead going after large state and local governments and trying to sell them software and services. And it's moving away from the free, self-funded model. "We did give it away for free," says Trimble, but "we made it clear at some point we would start charging." IBM and EDS are among those EzGov has brought in as partners.

NIC has evolved from building portals for state government, pushing into local government with a pilot portal project in San Francisco that garners revenues from transaction fees. NIC also is exploring an application service provider model that would allow smaller governments to pay a subscription fee for applications that would run on NIC's servers. And NIC is starting partnerships with America Online and Deloitte Consulting.

It may not be long before state and local governments that put out an RFP for a free, self-funded model get no interest from vendors. "We've chosen in certain cases not to respond," Isaza Tuzman says. "We couldn't look the client in the eye and say, `We can provide this kind of service over the long-term.'"

The early marketing efforts may have worked too well, however. Government officials have heard a lot about the self-funded model of e-government and may not want to sign on if that's not the offer anymore. "If they're going to charge maintenance fees, maybe these simple applications we can develop on our own," says Richard McKinney, director of information services for Nashville's metropolitan government.

McKinney is also somewhat shocked by what some companies claim is their place in the market. "It's comical," he says. "The ink isn't even dry on their brochure, or there isn't a brochure, and they say, `We invented this space.'"

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