The dot-com invasion

• By Dan Caterinicchia, Dan Caterinicchia, Natasha Haubold
• May 22, 2000

Dot-com companies, in growing numbers, are offering federal agencies this deal: Turn over the day-to-day operations of your Internet applications and we will show you how it's done.

The Internet community clearly sees a wealth of opportunity here, with dozens of dot-coms offering to tailor their services and technology to help the federal government move everyday services online.

In the past three weeks, a handful of companies have launched federal businesses — including Fedamerica.com, GovConnect.com, Link2Gov.com and Publicsectorzone — and others will enter the market later this year.

As their names frequently suggest, these companies have roots in the Internet economy, but their sights are set squarely on the federal government.

Their business case, though not simple, is compelling. Federal agencies have been experimenting with online services for several years — first using the World Wide Web to publish information and, more recently, to conduct business with its contractor community and with the public.

Yet many agencies do not have the technical expertise in house to undertake major electronic government initiatives. The Internet companies do, having learned the ropes in the business-to-business, or "B2B," arena — developing electronic commerce applications and Web-based portals. Agencies, hard-pressed to recruit individuals with these kinds of credentials, could be better off contracting out the work.

"Everyone in the world is having difficulty finding people with the right level of skills, and the skill levels are changing rapidly," said Bob Krause, vice president of e-commerce at the U.S. Postal Service, which became the first government agency to become a dot-com organization. "There is no sense in investing in the skills training when you know the skills are going to change. Vendors can spread the costs [of skills training] over a larger client base."

The dot-com proposition — not B2B but "B2G" (business to government) — involves some thorny issues, including concerns about outsourcing, the accessibility of government services and the privacy of government data. But agencies, under increasing pressure to deliver services via the Internet, are being pushed to weigh the option.

"The purpose of government is to collect taxes, provide infrastructure like roads and highways, regulate, supply people with information and to serve as the intermediary, and you can do it all online," said Tim Bergin, a professor of computer science at American University in Washington, D.C., and a former computer specialist at the Department of Veterans Affairs.

Government should lead the charge and leverage its investment in computers, the Internet and information technology in general to make e-government work, Bergin said.

Pick Your Target

The Internet community is pitching a wide array of services, but they generally fall into one of two categories: transaction support or Web portals.

Many of the early entrants in the market have focused on electronic procurement — making it easier for government agencies to do business with their contractors.

The National Information Consortium (NIC), which already has a strong presence in the state and local government market, entered the federal market last September, offering electronic procurement software for searching contract listings and making purchases online using a government purchase card. The company is working on projects with the Air Force, the Federal Election Commission and the General Services Administration.

In December FedCenter.com unveiled an electronic marketplace through which government contracting officers can buy computer-related products, general publications, industrial supplies, office supplies and a variety of services. And later this year, FedBid.com will unveil a service through which government procurement officers can receive and compare bids online.

"Government agencies are becoming more like large businesses," said James Kobielus, an e-commerce analyst at The Burton Group, a Midvale, Utah-based market research firm. "Agencies have become their own industry. They have people who need to work together and need the tools in order to work together, which is just as important to the government sector as it is in the private."

Transaction services have made it easier for agencies to buy products online. From one Web site, procurement officers can research products from various vendors, compare prices, complete an order form and pay for the order with a government credit card.

"[E-procurement] is a dramatic change for government compared to how items are purchased today," said Joe Quigg, vice president of government sales at Intelisys, which provides electronic procurement services to the federal government on GSA's Federal Supply Schedule. "Today's procurement process is manual, labor intensive and primarily paper-based. [The Internet] will streamline the process and save agencies money."

Many newer government-oriented companies are focusing on building portals, Web sites that help users navigate through large amounts of information. Some portals target federal employees, others the general public. In many cases, companies are launching these portals on their own initiative, rather than under a government contract (see box).

Recently, industry experts have seen a dramatic increase in dot-coms providing collaborative services, which bring portals and transactions together. These companies not only provide easy access to a wide range of government information, but offer online services as well.

Several of these companies started in the state and local market, where they set up portals that included applications for paying parking tickets or filing government forms online. One such company is ezgov.com, which plans to enter the federal market later this year.

Ed Trimble, president and chief executive officer of ezgov.com, said his company is already changing the way government operates by giving citizens in places such as DeKalb County, Ga., a way to pay property taxes online and check payment confirmation in real time.

While many of the company's current applications do not apply to federal services, ezgov.com plans to partner with systems integrators and other companies to develop applications for similar services that involve making payments or filing forms online, Trimble said.

The company has already bid on a couple of opportunities with IBM Corp. "You can expect to see us doing work with federal agencies by year end," he said.

New York City-based govWorks.com, another player in the state and local market, plans to take a similar approach to break into the federal sector. The govWorks.com network features numerous applications, including govPay — a secure transactional application for paying taxes, bills and violations online — and govAuction, which enables citizens to participate in auctions.

The company is putting proposals together for three federal agencies. It also is working with a federal interagency task force on public property auctions and should have its first federal contract by the end of June, according to chairman and CEO Kaleil Isaza Tuzman.

Unanswered Questions

But some federal officials and online experts doubt that the federal version of e-government will evolve the same way it has for state and local governments.

For starters, the financial proposition is different. Unlike states and municipalities, which sell licenses and permits, "for the most part, the information we collect is owned by the taxpayers and should be provided to them free of charge," said George Molaski, chief information officer at the Transportation Department.

That removes much of the profit incentive for private companies to offer e-government services directly. A more likely role for companies will be to provide products and services that government agencies can then use to deliver services themselves, according to Molaski.

Companies could build better government Web sites and operate the sites for agencies. But federal IT policy-makers "are not leaning" in the direction taken by many states and municipalities of outsourcing agency operations altogether, according to Molaski.

Of course, outsourcing was a controversial issue long before agencies started developing Web sites. Many federal officials believe there are limits to how far the government can go in turning responsibilities over to private contractors and argue that some functions are clearly governmental.

The question is, to what extent does the dot-com proposition push federal agencies further than they want to go? "Would you outsource a judge?" asked Christopher Wren, an IT program director for GSA.

Adjudication and punishment are responsibilities of the government acting on behalf of the people. Outsourcing justice would be unseemly. Yet a number of states have turned to private companies to build and operate prisons.

Tax collection is another inherently governmental function, Wren said. The government might hire companies to develop software that enables taxpayers to file returns online. And companies might provide the means to transmit electronic tax returns to the Internal Revenue Service. But it may not be appropriate to have a private company receive and examine the returns. That may need to remain the responsibility of the government. "I don't think the taxpayers are ready to turn things over to commercial companies," Wren said.

Security and privacy issues must also be addressed before government agencies can successfully outsource services to application service providers, which typically lease out servers and networks to run applications for companies and agencies.

"There is a risk in relying on outside organizations to manage sensitive information and transactions," said The Burton Group's Kobielus. "When information flows over an ASP network and is stored in an ASP database, there are security risks. Government agencies must decide if they trust an outside agency to make necessary certificate authorizations or if it is better to keep the information [in house]."

A Matter of Time

Ready or not, more outsourcing may be unavoidable, said Paul Wohlleben, a partner at the consulting firm Grant Thornton LLP and a former senior IT official at the Environmental Protection Agency and Treasury Department. "I think you will see more and more outsourcing just because the government is not going to be able to get the work force it needs" to continue performing some IT functions itself, he said.

As for contractors performing work that has traditionally been done by government employees, "I don't know that it really matters," Wohlleben said. Much of the work now done by civilians is government work by practice, not by requirement, he said.

Even so, it is unlikely that agencies will rush to outsource, he acknowledges. More likely, government will turn to private-sector contractors to provide pieces of agency-run operations. And when it comes to matters that require security, privacy or public confidence in mission-critical operations, the public will expect government to retain control.

"I think you'll find that people are not comfortable with relying on someone else to provide those functions," Wohlleben said.

The government also must break down political and cultural barriers before agencies will be ready to accept e-government practices, said Alan Balutis, director of the Commerce Department's Advanced Technology Program at the National Institute of Standards and Technology. "We are at the end of a generation. We need to bring in people who are more comfortable using the Internet to make the transition to e-government."

Some of the changes must be brought about by changes in policy. Government agencies will not be able to fully realize the benefits of e-government until they stop thinking about it as strictly a question of technology, said Jim Dodd, president and CEO of NIC.

"This is not just a technology challenge or a technology transformation," Dodd said. "Governments need to take into account policy and marketing issues."

With e-government, the federal government essentially is creating an online "government superstore." The technology enables agencies to build those stores, but they need to have the policy and marketing know-how to make them successful, Dodd said.

Additionally, the government's push to put its wealth of information and myriad services online will not have a substantial impact until government, as a whole, establishes a formal "accountability system," said one observer.

The federal government must clearly spell out what it hopes to achieve by moving its operations to the Internet and decide who is accountable for achieving those goals, said William Halal, professor of management at George Washington University and author of 1998's The New Management.

"The competition between the [B2G] companies will get a good Internet site up and running, but it will not fundamentally change the way government works."

But as technology continues to improve, many agency fears and uncertainties may be addressed and the government will have no choice but to enter the Internet world, USPS' Krause said. The Postal Service has been forced to enter the dot-com world in order to survive and make up revenues lost as people move from handwritten to electronic communications.

"We could sit back and watch as the mail volume evaporates and live with the consequences of not being able to make up the lost revenues," Krause said. "But that is not good for the consumer because we would have to raise prices, which would decrease demand. We would have to raise prices again, and it would lead to a horrible downward spiral."

When Web appliances become readily available and become as accessible as everyday appliances such as refrigerators, true changes could occur in the way government operates, according to American University's Bergin. "It's about here now," he said. "It's more about the economy and a learning curve thing than a technology thing."

Bergin said the time and money the federal government has spent in developing technologies and attempting to transform itself into an e-government should yield a smaller, leaner government.

"At the end of some process, do you see benefits to management and education? Is the quality better?" Bergin asked. "If a publications office is the same size after they dot-commed it all, and it costs money to move to the Web, shouldn't we see some payoff?"

Answering those questions and producing that payoff is what the B2G companies and the agencies they serve will have to do.

"It's something we need to pay close attention to and look at some of the services [these companies] are interested in providing," said Tony Trenkle, director of electronic services at the Social Security Administration. "It's not just cost/ benefit you have to look at, but what is governmental and what's not governmental," as determined by the leadership of the country.

"The potential for this is going to continue to increase, but it is going to be politics as much as a cost/benefit analysis that will determine how far it goes," Trenkle said.

— William Matthews contributed to this article.