Will B2G become the "next big thing"?

Investors brace for the newest e-commerce niche: business-to-government online transactions.

4 min read
First came B2C, then B2B. Now investors are bracing for the newest e-commerce niche: B2G, or business-to-government Web sites.

A spate of small, mostly private companies has jumped on the trend in recent months, often partnering with established businesses to streamline Web sites and build virtual marketplaces. Eventually, business-to-government experts say, bureaucrats will purchase goods ranging from paper clips to military helicopters with the click of a mouse.

Although private industry has been obsessed with wringing profits from the Internet for several years, the government has remained a relative backwater.

A Jupiter Benchmarking Report published in April found that government agencies returned email from their Web sites only 52 percent of the time, often with form email that didn't address a person's original concerns. Less than 1 percent of all government sites were in languages other than English. And the vast majority required people to have high-end computers or to download crash-inducing software simply to view all available information.

Partly to inject customer awareness and immediacy into the government's halting online efforts, Ezgov.com today unveiled an alliance with IBM to provide online consulting for government agencies at all levels. The new partners will build and host Web sites catering to citizens and businesses in search of easy access to local, state and national agencies.

"Governments have been a little slower to recognize the benefits of e-commerce, primarily because they were focused on the Y2K transition," said Todd Ramsey, general manager of global government for IBM. "But in the last six to nine months, we've seen a dramatic increase...in the government's recognition of the value of putting things on the Web and the value they can bring to citizens."

Experts say the market for online government purchases is enormous--and potentially lucrative for savvy entrepreneurs and investors. According to a report from technology research firm Gartner, federal, state and local governments' e-commerce spending will grow to more than $6.2 billion by 2005 from $1.5 billion in 2000.

Although B2C (business-to-consumer) Will B2B's magic last?and B2B (business-to-business) have become standard terms for such transactions, B2G (business-to-government) is relatively new and is sometimes referred to as G2B. The acronym soup doesn't stop there--there's also G2C, which refers to government transaction with citizens, such as the payment of parking tickets or taxes.

Whatever it's called, the potential is already being described with the same breathless enthusiasm that accompanied the emergence of business-to-consumer and business-to-business.

"G2B could be enormous," said Andrew Whinston, head of the Department of Management Science and Information Systems at the University of Texas at Austin. "Think about all government procurement. You could have contractors having auctions online, product development and delivery, and tie-ins between the aerospace industry and the Defense Department. You could be talking about the largest e-commerce market in the world."

But before investors pounce on the emerging players--private companies such as Ezgov.com and Govworks.com, and public companies such as National Information Consortium--they should take a lesson from other virtual marketplaces.

Business-to-consumer ventures--once the hottest investment segment on Wall Street--started their long slide in 1999. Most e-commerce stocks are now trading well below their highs, and many are below their initial public offering prices.

Will business-to-government be nothing more than the next flash in the pan?

Tom Meagher, vice president of equity research for BB&T in Vienna, Va., said the niche isn't likely to soar or crater as extremely as its business-to-consumer and business-to-business brethren. Meagher predicts that four or five companies will emerge within the next year as the dominant players, leaving investors relatively few options for crash-and-burn scenarios.

"Our sense is that you're going to see a much quicker consolidation in G2B," Meagher said. "People look at it and ask, 'Does this have staying power, even though B2B and B2C didn't?' That by definition will force G2B to consolidate faster."

Although business-to-government isn't likely to eclipse the overall size of the business-to-business market--estimated at anywhere from $3 trillion to $50 trillion annually by 2005--government e-commerce is a potentially large market. Many experts predict it will spread from transactions with businesses to include consumers. Government-to-consumer sites will allow citizens to pay taxes and register vehicles online, reducing the government's need for paper pushers and possibly generating revenues for companies that build and host the government sites and charge user fees.

Ezgov.com CEO Ed Trimble said the sphere also helps make life easier for citizens. As an example, Trimble mentioned an Ezgov.com partnership with the county of Riverside, Calif., to provide online property tax payment services.

"In the last tax cycle we received several hundred payments on the final day, and we received our last payment at 11:54 p.m.," Trimble said. "I have an image of a guy sitting around in his pajamas with six minutes to go, making his payment and getting confirmation right then."