The Starting Line: An e-government pill for tech sector

Under the concept of electronic government, all internal processes and dealings with citizens would be streamlined, efficient, cheap and, ideally, paperless. Dealing with the Internal Revenue Service, for example, would be as easy as buying a book on Amazon.com.

While the vision is well ahead of the reality, next year could mark a significant advance. A decline in corporate spending has forced many tech companies to aggressively pursue Uncle Sam and his deep pockets. And the government is making a renewed push to streamline its operations.

President Bush has already made e-government one of his top priorities. The Bush administration has asked for $100 million over three years to start e-government projects and has appointed someone who will essentially serve as the federal government's chief information officer. Also, in October, the Office of Management and Budget announced 23 e-government initiatives to improve the government's dealings with itself, citizens and businesses.

"The government is one of a few areas with money this year," said Charles Phillips, an analyst with Morgan Stanley. "Everybody is trying to pitch them."

Those pitches are already starting to help tech companies, analysts said. Several companies have recently announced sizable government contracts, and government spending is increasingly popping up as a topic on earnings conference calls as executives look toward Washington, D.C., as a way to boost sales.

The federal government is the closest thing to a recession-proof customer. According to the president's fiscal 2002 management agenda, Uncle Sam is the world's largest IT consumer, spending $45 billion a year. In the report, however, Bush said the massive IT budget hasn't improved the government's productivity.

The biggest problem is that government agencies seldom swap notes. Open standards? Forget it. Customer relationship management software? Not this year. Extensible Markup Language? Nope.

Simply put, getting all the various federal agencies on the same technology page is a lot like herding cats.

That said, software vendors and IT giants such as IBM, Electronic Data Systems, SAP, Computer Sciences, Oracle and PeopleSoft, and smaller players such as Adobe Systems, Symantec and Siebel Systems, are upbeat about the government's ability to use the Internet to streamline its functions.

According to Prudential Securities economist James Lucier, there are plenty of reasons to be optimistic that the government can do its part to boost the IT sector. "We have a lot of things coming together at once," he said.

Using a little history and economic reasoning, Lucier reckons the government's latest IT efforts could give software companies a shot in the arm.

Bound by bureaucracy, the government is traditionally three to five years behind any technological advance, as it was with fax machines, PCs and local area networks. Using that rationale, the federal government is due to start talking about XML and CRM software any day now, Lucier said.

Add those historical precedents to the government's glaring need to become more efficient because of budgetary constraints and concerns about cybersecurity, and Lucier may be on to something. Meanwhile, citizens are likely to demand easier access to information and better service in light of the Sept. 11 terrorist attacks, analysts said.

"These are exciting times," said Anne Altman, managing director for IBM's federal unit. "We've been talking about e-business for years in the private sector, but on the federal side this has taken a long time to develop."

Courting Uncle Sam
Many tech executives see the government as the best way to build their businesses, and it's starting to pay off for their companies.

• Accenture announced two contracts with the Department of Education on Wednesday, with a maximum value of $234 million.

• EDS announced a five-year IT services deal with the U.S. Air Force and other U.S. Department of Defense organizations.

Terms of that deal, announced Wednesday, were not disclosed. However, a representative said EDS' government business accounts for about 22 percent of the company's revenue, up from 15 percent a year ago. Most of that revenue boost is attributed to an October 2000 deal with the Navy and Marines. That deal was valued at $4.1 billion for five years.

• Computer Sciences on Tuesday announced an $86 million contract to support the Department of Defense Computer Investigations Training Program. That deal follows a $229 million contract extension from the Department of Education.

Other companies are also sharing in the government's wealth--or at least are planning on it.

On its fourth-quarter earnings conference call, Adobe highlighted the licensing of its Acrobat product into government agencies, including the Department of Defense.

Adobe CEO Bruce Chizen said on a conference call that the company has flagged the government as a key market for 2002.

"Adobe is working with governments around the world to help them implement their e-government initiatives," Chizen said.

And although Oracle Chief Executive Larry Ellison is donating database software to the government to establish a national ID system, he plans to charge for more lucrative maintenance services and upgrades.

"Government is our biggest vertical market," said Kevin Fitzgerald, senior vice president of Oracle's government, education and health care unit, who noted that government is likely to become an even bigger customer. "The government is reaching out to industry and focusing on high-impact, high-return areas."

"It's the first time the government had put a serious process behind e-government," Fitzgerald said. "Before, they were sitting in a back room doing white papers."

According to Altman, the federal government is easily IBM's largest customer, and sales for software and services are increasing at a rapid clip.

She said IBM is selling services, middleware and databases to agencies, and will soon add CRM, enterprise resource planning (ERP) and human resources support. In July, Altman testified before the U.S. Senate's Government Affairs Committee that a transformation to e-government is "worth the risk and the discomfort."

"Government...is one of (IBM's) biggest growth businesses, and we expect it to remain so with services increasing at least for the next six years," Altman said.

Robert Holleyman, president of the Business Software Alliance, said the federal government is--or is becoming--the largest customer for most technology companies. Security, supply-chain management and ERP companies are expected to benefit the most, and all of those applications are likely to need new hardware, helping the whole sector at a tough time, Holleyman said.

Thomas Siebel, CEO of Siebel Systems, said at a recent conference it's likely that the public sector will adopt these new technologies because they offer significant cost savings. The public sector will be "the largest segment, (the) largest vertical market for us in three years," he said.

According to a recent BSA survey, CEOs from BSA member companies have concluded that the government will conduct the vast majority of its transactions online by 2010. "Bottom line, this is going to be a pretty systematic rollout over the next decade," Holleyman said.

Challenges ahead
Breaking through the government's white-paper-first, act-later culture is likely to be the government's biggest challenge, tech executives said.

"I don't envy some of the challenges there," said Fitzgerald, who added that e-government will face resistance from those who want to build their own products, and agencies that want their independence.

Fitzgerald said one challenge is going to be automating processes from end to end with outdated systems that in some cases are 20 years old. "It's a series of contrasts," he said. "The government is maintaining 20-year-old databases while rolling out new technology."

According to Altman, the key for making e-government happen is going to be standards. Without standards, Uncle Sam's IT department is only going to paint itself into a corner where dissimilar systems can't talk to each other.

Altman said some agencies are farther along on the e-government path than others. Some have modernized old systems on new software based on open standards, while others haven't done much of anything. Some agencies are just entering the middleware game, and others are ready to add new CRM software--it varies.

"To move ahead, a lot will have to be spent," Altman said. If e-government becomes a reality, she expects to see Uncle Sam's IT spending spike, level off and then fall. Analysts are already questioning whether Bush's request for $100 million over three years will be enough to overcome the initial e-government challenges.

In any case, the government is an increasingly important customer to technology companies--and one that's willing to spend money.

"Government has clearly identified its needs and is more likely than not to spend more aggressively," said Morgan Stanley's Phillips. "It's already helping some companies' quarters, but you're likely to see the government efforts paying off in the September quarter of 2002."