10 hot companies to watch

This year's list of government vendors tapped key growth areas in an uneven market

The government market has acted at times like the rising tide that lifts all boats. Demand, particularly toward the end of a fiscal year, traditionally buoys technology suppliers. But fiscal 2005 has unfolded somewhat differently. The demand for products and services has been uneven. Some companies report soaring revenue and profits, while others grapple with mediocre, or even declining, sales.

This year's installment of the 10 companies to watch features products and services vendors that have targeted hot niches and have been rewarded accordingly. Storage, security, and enterprise architecture rank among the areas ringing up government sales. BakBone Software, Tumbleweed Communications and Troux Technologies made this year's list as representatives of this trend. Among services companies, SI International has distinguished itself by being nimble and focusing on mission-critical outsourcing and other areas.

Another shift reflected in the 2005 list: Fewer new companies are entering the government market. The stabilization of homeland security spending and the maturation of once leading-edge technologies — for example, Web services — have combined to reduce the flow of entrants.

New companies may be fewer, but some familiar names have recast themselves in the government sector. They include Adobe Systems and RSA Security, both of which made this year's list on the strength of significantly broadened technology charters.

Read on for the stories of 10 companies that have targeted pockets of demand in the government market.

Hot spots

In recent years, security and storage have stood among the most consistently active markets in the government space. Accordingly, four out of the 10 companies on the list work in those areas.

RSA, perhaps best known in the public sector for digital security tokens, now presents a new face to government customers. The company's product offerings now also encompass identity management.

"We've added more emphasis on the federal marketplace not only in terms of scaling up some of our marketing and sales investment, but also in terms of the broader suite of identity and access management solutions that we are providing here," said Shannon Kellogg, RSA's director of government and industry affairs.

"We have gone beyond ... our bread and butter of authentication," said Rob Potter, the company's director of federal operations. RSA's greater scope dovetails with the government's continuing interest in the secure sharing of information, he added.

But while the company's federal identity and access management business grows, its authentication line is not eroding. Kellogg said the first half of 2005 marked the best performance of RSA's federal authentication business in recent years.

RSA has retooled its efforts as well as its product offerings. In April, the company unveiled a new program that it termed its largest ever investment in partners.

As for the future, RSA plans to offer a solution that complies with Homeland Security Presidential Directive 12.

Tumbleweed Communications, meanwhile, has found federal growth in secure e-mail, secure file transfer and digital certificate validation.

The company more than doubled its federal revenue between the first half of 2004 and the first half of this year, said a company spokesman. During the first half of the year, some government customers deployed or expanded installations of the company's products.

In May, the U.S. Patent and Trademark Office installed Tumbleweed's SecureTransport file transfer solution. In June, the Defense Information Systems Agency finished the initial procurement of the company's Validation Authority product. That product will be deployed to more than 1.3 million Defense Department users, company officials said.

Ann Smith, vice president of federal sales at Tumbleweed, identified an Army project as the company's most recent win. That deal, which came via a partnership with a small-business contractor, involves the company's Online Certificate Status Protocol products. In another partnering initiative, Tumbleweed is working with Lockheed Martin to upgrade the Defense Message System.

Craig Brennan, appointed Tumbleweed's president and chief executive officer in July, said he plans to continue the company's pursuit of government-sector business.

"Craig is interested in the federal market and sees that as a very large portion of the way to grow the business," Smith said.

In storage, Xiotech targets midsize departmental deployments, rather than enterprise data centers, where many storage-area network (SAN) vendors play.

"We are not a glass house kind of business," said Casey Powell, Xiotech's CEO and president. He said the customers who buy storage from Xiotech "really need us," adding that Xiotech works closely with organizations installing its products.

This philosophy has generated many government wins. Agencies buying Xiotech storage gear include the Architect of the Capitol, the FBI, the Federal Communications Commission and the Navy. The uptick in federal business has helped fuel a 25 percent revenue growth rate at the company. Powell said the government represents 21 percent of Xiotech's overall business.

The company underscored its commitment to the public sector in June, when it launched a mobile SAN product designed with government customers in mind. Xiotech's Magnitude 3D 1000m lets customers quickly install a SAN that can serve as an on-site lab for collecting digital evidence, said Mike Stolz, the company's vice president of marketing.

To keep the sales pipeline flowing, Xiotech has created a federal team with national coverage. The company's primary federal hubs are in Washington, D.C., Denver and Los Angeles. Xiotech also has federally focused personnel in Atlanta and Texas.

Since late 2004, backup and restore specialist BakBone Software has cultivated customers and business allies in the federal market.

Agencies that have purchased the company's wares include the Agriculture Department, Lackland Air Force Base, the Library of Congress, NASA, the National Institutes of Health and the U.S. Geological Survey.

BakBone's software spans Unix, Linux and various Microsoft Windows operating system environments.

Bharat Kumar, BakBone's vice president of marketing, said government agencies have shown "interest in having data protection software to implement alongside a SAN implementation."

As for partners, earlier this year the company unveiled a federal program. Kumar said its partners include CDW Government, FedTek, GovConnection, GMRI and GTSI. BakBone has been tapping the partners to gain access to such vehicles as NASA's Scientific and Engineering Workstation Procurement III and NIH's Electronic Commodity Store III.

"We've been wanting to get into more of these vehicles," Kumar said.

In new product development, Kumar said he believes that BakBone's alliance with BroadWare Technologies has relevance for the federal market. Last month, the companies teamed to deliver an integrated video surveillance and data-recovery system. The Linux-based system provides real-time recovery of streaming video from digital security cameras.

Customer alignment

The task of finding one's niche isn't exclusive to product vendors. SI International has seen sales climb in recent quarters and attributes this expansion to focusing on government customers' hot buttons.

S. Bradford Antle, the integrator's president and chief operating officer, listed federal IT modernization, defense transformation and mission-critical outsourcing as federal expenditure areas. "We've tried to align ourselves and our customer set to those priorities," he said.

Recent contract awards include an $18 million outsourcing deal in which SI International will provide a new call center and support services to the federal Thrift Savings Plan.

SI International focuses on key technologies and customer priorities. Those include IPv6, the next generation of IP. The company is helping the Army Office of the Chief Information Officer, among other federal customers, with the IPv6 transition. "We see that as a growing need for the government at large," Antle said.

SI International doesn't depend on mega contracts. Instead, it opts to pursue task orders under indefinite-delivery, indefinite-quantity contracts. This approach helps the company focus on rapid response and rapid deployment, Antle said, who will become SI International's CEO Sept. 24.

"We prefer to do quick delivery so we can put some capabilities in the hands of customers, come back in and enhance," he said.

SI International's revenue and net profit grew 50 percent in its second quarter, which ended June 25, compared with the same quarter a year earlier.

Software vendors on this year's list also mine customer niches, in some cases highly specific ones.

Language Weaver, for example, develops statistical machine translation software that automates the task of language translation. The company does about 90 percent of its business in the public sector, much of it through partners that embed the company's software within their solutions.

The company made its first splash in 2003 with an Arabic-to-English translation product. It has since developed language translation products for Chinese, French, Hindi, Somali and Spanish.

The company continues to add language translators. Their next project is a Farsi-to-English product, which is slated for release in October. The company also plans to offer an adapter that will let customers fine-tune their translation systems to reflect "the type of information that they really want to have translated," said Bryce Benjamin, Language Weaver's CEO.

Companies that have embedded Language Weaver products in their applications include BBN Technologies. It uses the company's technology in its Audio Monitoring System, which transcribes audio streams from international TV broadcasts and translates them into English.

Language Weaver plans to build reseller agreements with government integrators. For example, earlier this year CACI International said it will integrate Language Weaver's software into its Document Exploitation suite, which analyzes information in foreign-language documents.

"We are in active negotiations with three additional resellers that would be addressing the federal market," Benjamin said.

The management of documents rather than their translation is the focus of Adobe's federal business. Adobe's presence in the government market is as widespread as the PDF, the file format the company created, but its efforts of late have moved to expand on this foundation.

Adobe's Intelligent Document business combines the company's familiar electronic document technology with other elements such as Adobe's LifeCycle product line. Eugene Lee, vice president of product marketing for Adobe's Intelligent Document Business Unit, said the company's government objective is to build on agencies' existing PDF-based solutions.

Government agencies have been using Adobe software to create online forms for constituents, but Lee said the new emphasis is on injecting documents into an agency's business processes to shorten cycle times. Adobe's LifeCycle Workflow, for example, integrates documents with an organization's core systems and Web services applications.

Other LifeCycle components offer digital signature and encryption capabilities and the ability to apply privacy policies to electronic documents.

This secure document management approach has grabbed integrators' attention. In June, Covansys and Adobe announced a plan to collaborate on benefits and services administration solutions for federal, state and local agencies.

For Adobe's most recent reporting period, which ended June 3, revenue for Intelligent Document server-based products grew about 13 percent, according to a filing with the Securities and Exchange Commission. That filing cited a focus on the government sector. The company's federal customers include the Department of Health and Human Services, the Food and Drug Administration, the Internal Revenue Service and the Department of Veterans Affairs.

Managing the IT life cycle

Government agencies also seek tools for building enterprise architectures and managing information technology infrastructures. Troux Technologies operates at the front end of this spectrum.

In late 2004, the company acquired Computas and its Metis enterprise architecture modeling tool. The current product offering, Metis Enterprise 5.0, combines Troux's repository with Computas' modeling tool.

Pat Motola, president of Troux, said the government now accounts for 30 percent to 35 percent of the company's revenue. Troux's federal business is growing at an annual clip of 70 percent to 80 percent, he added. The company's federal customers include the Office of Personnel Management, the IRS, the SEC and the U.S. Postal Service.

The company also has pilot programs under way at the Homeland Security Department. HHS' Health Resources and Services Administration is another Troux client, and other elements of HHS may standardize on the company's products.

A considerable amount of Troux's government business flows through integrators. The company's most recent integrator ally is Raytheon. Troux also works with SRA International and Blueprint Technologies.

"You can't do business in the federal market without taking that approach," Motola said, referring to partnerships with integrators.

In other government developments, in April Troux introduced its Department of Defense Architecture Framework. And in September the company plans to open a Washington, D.C.-based sales and customer training center.

BladeLogic has quickly established a federal foothold for its data center automation product.

The company began building a federal operation late last year. Dev Ittycheria, BladeLogic's president and CEO, said he had little experience in the government market back then.

He also faced lingering cynicism about the viability of small companies in the wake of the dot-com meltdown. "We needed to build credibility in the marketplace," he said.

To that end, BladeLogic banked on its service record with large commercial accounts such as Putnam Investments, Starbucks and Time Warner Cable. The company also forged ties with three large federal integrators.

The strategy produced results within three months. In that time, BladeLogic landed deals with the Air Force Pentagon Communications Agency, the Federal Aviation Administration and a third customer that company officials declined to identify.

After six months, the company had generated more than $1 million in federal revenue.

BladeLogic's Operations Manager product helps agencies automate changes such as application updates, software patches and configuration upgrades. The product also lets customers define reference configurations and detect which servers are out of compliance.

In the government, "there's a lot of focus around change control and compliance," said Doug Duenkel, director of public-sector sales at BladeLogic.

Ittycheria said his company's federal momentum will continue and he expects to have at least 20 federal customers a year from now. "We are investing very aggressively in the federal sector," he said.

The test for BladeLogic and the other companies on the list will be making those investments continue to grow.

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