Outsmarting SmartBuy

Firms outside the program are unfazed about competition

When the General Services Administration was developing its SmartBuy governmentwide licensing program with the intention of negotiating special deals for agencies on some widely used software, many worried that the program would shut out competition by making companies holding agreements into de facto official providers.

Now that the program is under way, competitors are dismissing such fears. Many rivals of companies that have SmartBuy agreements say that they can compete just fine, despite a perceived disadvantage.

The government inked the first agreement in 2004 with ESRI, which develops geographic information system software. Since then, Manugistics Group, Novell, WinZip Computing, ProSight and — most recently — Oracle have signed SmartBuy agreements. The program's cross-government scope aims to pre-negotiate optimal software pricing based on economies of scale.

The Office of Management and Budget encourages agencies to use SmartBuy for purchasing software whenever possible. An OMB overview of the program states that agencies must justify any decision not to use a SmartBuy vehicle when one is available. OMB oversees the program, which GSA administers.

The SmartBuy contracts aren't exclusive, however. In most cases, agencies can use other contracts or negotiate their own if they can justify that decision to OMB. Competitors of SmartBuy contract holders can win bids against their rivals. And competitors can negotiate their own SmartBuy pacts.

Take the case of Niku, which competes in the portfolio management market. ProSight currently holds the only SmartBuy contract in that area. But Niku is having discussions with Tom Kireilis, GSA's SmartBuy program manager, said David Hurwitz, the company's chief marketing officer. He said he anticipates that Niku will be part of the program by July.

But competitive pressure from ProSight isn't behind Niku's SmartBuy move, Hurwitz said. "We think SmartBuy has merits on its own," he said. "We started to hear from one or two agencies that would like for us to be a part of it."

Most SmartBuy outsiders say they monitor the program but don't feel compelled to jump on board.

Chris Campbell, senior analyst for federal market analysis at Input, said SmartBuy's limited six-vendor scope might not be enough to push other vendors into joining.

More weight needed

SmartBuy "needs the weight of more Oracle-type companies before it starts posing some type of threat," Campbell said. For example, Microsoft isn't part of the program. Such heavyweight firms pack more of a punch across a broader swath of federal business in contrast to the narrower focus of some of the companies currently involved, he said.

Dave Nadler, a partner at the law firm Dickstein Shapiro Morin and Oshinsky, said SmartBuy has gained some traction among vendors, but he added that "a lot of folks are taking a wait-and-see attitude."

That seems to be the case in the database category, in which Oracle and government officials recently negotiated the largest SmartBuy deal to date.

David Lavanty, vice president of the public-sector and health care unit at Sybase, one of Oracle's rivals, said Sybase was among the first vendors to talk to the SmartBuy office in 2003. He said the company hasn't yet found the program compelling but continues to monitor developments.

"Given the way the program was described, we didn't see it as something necessarily in our best interest," Lavanty said.

"I don't like creating vehicles when there are no orders associated with them," he added.

As for Oracle, the company still must sell to individual agencies and compete on the merits of its products, Lavanty said. "I don't see any competitive advantage for them" in the SmartBuy agreement, he said.

Not all competitors are as confident, however. Leslee Gault, president and chief executive officer of NCR Government Systems' Teradata Division, said Oracle's SmartBuy agreement will extend the already pervasive database vendor's reach into the government market.

"It makes it a little more challenging" for competitors, she said.

But Teradata hasn't seen much of an effect from SmartBuy, she said, partially because of Teradata's positioning. Its database technology comes embedded as part of a broader solution, such as data warehousing.

"It's a bet-your-business kind of application," Gault said. "And those kinds of things are not going to have a client running to SmartBuy." Buyers will seek out the best solution, not the most expedient, she said.

Remaining unruffled

Red Hat also is content to remain on the SmartBuy sidelines for the time being. Novell acquired SuSE Linux in 2003, becoming a competing Linux distributor to Red Hat.

Novell's SmartBuy contract has had little impact on Red Hat's government Linux business, said Paul Smith, vice president of Red Hat Federal.

"SmartBuy does not generate demand," Smith said. "It is a contract vehicle with negotiated rates for volume."

He said the company's government customers can access Red Hat Enterprise Linux via numerous blanket purchase agreements, GSA schedules and governmentwide acquisition contracts, among other options.

Nevertheless, Red Hat remains "very interested in the maturation of this program," Smith said. As SmartBuy develops, "we will be looking to it as another vehicle for the convenience of our customers."

In file compression, WinZip holds a SmartBuy contract. PKWare, which competes with WinZip in the Microsoft Windows desktop compression space, aims to expand its government efforts, but not through SmartBuy.

"Regarding SmartBuy, there's nothing much we can say other than that we're close to finalizing our being on the GSA schedule," said Steve Crawford, PKWare's chief marketing officer.

If the program had more participants and agencies were required to use it, SmartBuy would be more compelling, some observers say. Oracle's SmartBuy agreement will be the mandatory vehicle for agencies seeking to buy Oracle's database products, but the company could still lose competitive bids to its rivals.

Other SmartBuy contracts, however, are described as preferred rather than required. Even when those companies win competitions, agency officials can still negotiate their own contracts rather than use SmartBuy, subject to OMB's approval.

A spokesman for Novell describes the company's SmartBuy pact as preferred/ highly recommended, not mandatory.

Agencies' procurement cultures are another obstacle for SmartBuy. Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources Inc., said many contracting shops like to cut their own deals and, in some cases, have been very successful in doing so.

SmartBuy "is a noble initiative on the part of the government to achieve this level of strategic sourcing and economies of scale," Bjorklund said. "But it's been generally hard for a lot of agencies to really embrace it yet."

SmartBuy contract summary

GSA has negotiated six SmartBuy agreements since 2004. Here are overviews of each.

ESRI

Products: Geographic information systems.
Date of SmartBuy deal: Feb. 13, 2004.
More information: The deal represents a $57 million savings during the five-year contract.

Manugistics Group

Products: Supply-chain management solutions.
Date of SmartBuy deal: March 17, 2004.
Discounts: Contract discounts range from 30 percent to 66 percent for software, plus 10 percent for solution bundles.
More information: According to the Defense Department's Enterprise Software Initiative, DOD customers must get permission to buy Manugistics products outside SmartBuy.

Novell

Products: NetWare and Nterprise Linux Services, SuSE Linux and others.
Date of SmartBuy deal: July 2004.
Discounts: Up to 48 percent; minimum initial order threshold is $250,000.
More information: If the terms of an open-source license conflict with Novell's enterprise license, the open-source license prevails.

Oracle

Products: Database management systems and business applications.
Date of SmartBuy deal: April 15, 2005.
Contract ceiling: $2 billion.
More information: Discounts up to 27 percent are available for software orders worth more than $5 million for products other than e-business. Discounts up to 45 percent are available for e-business, customer relationship management and enterprise resource planning software orders from $1.2 million to $2 million.

ProSight

Products: Portfolio management software.
Date of SmartBuy deal: April 6, 2005.
Contract ceiling: $200 million.
More information: Discounts up to 30 percent per order are available. The minimum order is for 250 users.

WinZip Computing via Eyak Technology

Products: File-compression utilities.
Date of SmartBuy deal: Sept. 28, 2004.
More information: Discounts up to 98.4 percent off the retail price are available. The contractor is not obligated to fill orders for fewer than 200 licenses.

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