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
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,"
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.
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
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
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
"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
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.