Surviving the dot-com bust
- By Dibya Sarkar
- May 16, 2002
Two companies specializing in e-government software and services have weathered
the dot-com industry bust, either gaining in profitability or nearing it
during the past year.
Both EzGov Inc. and NIC (formerly the National Information Consortium)
provide software and services for Web portals and related applications,
with most of their business coming from the state and local government market.
Mirroring the fallout in the commercial market, many government-focused
Internet firms folded or were bought out during the past year, including
Fedcenter.com and govWorks (as documented in the movie "Startup.com").
But EzGov and NIC believe they have it made.
Atlanta-based EzGov had its second consecutive profitable quarter in
the first quarter of this year, earning more than $6 million in revenue.
That puts the company on pace to double its 2001 revenue of $12.2 million,
company officials said. Plans include making an aggressive push into the
Overland Park, Kan.-based NIC last month reported a 54 percent increase
in revenues over the same period last year. During an April 25 Webcast conference
call, chief executive officer Jim Dodd said it was the "finest quarter"
in the company's 11-year history, reporting a record-high $12.4 million
The public company reported positive earnings before interest, taxes,
depreciation and amortization of $500,000 in the first quarter, compared
with a loss of $500,000 in the same period last year. Net loss for the current
quarter was $900,000, or 2 cents per share.
"I think if they've made it this far, they'll survive," Thomas Meagher,
first vice president for equity research at BB&T, said of the two companies.
"There's no doubt about that. But the question, obviously from an investor
standpoint, is, 'Are the numbers going to be there?
EzGov is a much more
attractive company in terms of profitably, he said."I think the difference
between EzGov and NIC is that the EzGov model is essentially a software
licensing model whereas I believe NIC is looking more to the outsourced
service model," Meagher said. "I think the software licensing model can
be a lot more profitable in a much quicker time frame."
During the past year, EzGov has done just that. It scaled back its hosting
services and focused more on its core business: software development and
licensing, said Ed Trimble, president and CEO.
The company has formed several major alliances with integrators, such
as EDS, IBM Corp. and PricewaterhouseCoopers, which use its FlexFoundation
product, a Web-based commercial off-the-shelf software platform for payments,
e-forms and business rules.
Early last year, EzGov suffered a terrible blow with the accidental
death of co-founder Bryan Mundy. Although devastated, the company stepped
up its efforts to succeed and its board of directors became more involved,
Trimble said. "I think [Mundy's death] brought us closer on a personal and
emotional level," he said.
Since then, the company expanded to 170 employees and established offices
in Washington, D.C., Amsterdam and London. It has more than 60 public-sector
clients, of which 15 are state governments and international governments.
Internationally, the company has established itself in Great Britain
through an alliance with EDS. The companies built an online tax filing system
for the Inland Revenue, the equivalent of the U.S. Internal Revenue Service,
and an online money claims application for the Court Service, an executive
agency that carries out administrative and support tasks for courts there.
NIC continues to focus on the state and local government market. The
company provides online government services for businesses and citizens
for more than 1,000 state and local agencies, reaching nearly 50 million
people, according to company officials. The company also has helped develop
and manage 16 state government Web portals.
The company usually offers three means of financing e-government applications:
The government pays for the entire implementation up front; the company
assumes the technological investment, recouping it by charging convenience
fees for e-government applications (commonly called a "self-funding" model);
or a combination of the two.
Dodd said that more than two-thirds of NIC's revenue comes from transaction-based
revenues and outsourcing contracts, "and we see that kind of mix into the
Meagher said industry analysts have never "really been enamored" with
the self-funding model because adoption rates for e-government have been
slow. "I think it really caused the investment community some concern because
[NIC] would build the site, they would maintain it and they would hope to
get revenues off of it at some point in time, and that was a very, very
slow process, much slower than they had anticipated in terms of adoption,"
he said. "And that's why it took a lot longer I think than they had anticipated
to get themselves to where they are right now."
Although governments are struggling financially, EzGov and NIC are optimistic
about their growth this year. Trimble said that lawmakers and officials
need to be educated about how e-government projects can benefit their constituents
and that they need to justify their projects to a greater extent.
NIC's Dodd said certain security and data retrieval projects might be
"accelerated" due to homeland security. For example, infrastructure security
and the integration of public criminal history records directly intersect
with Web-based initiatives surrounding homeland security.
However, Meagher said e-government is a "partial casualty" of Sept.
"It's kind of been put on the back burner in my assessment in light
of everything else that has to happen," he said. "And so between that and
the budget shortfalls, if it comes down to putting driver's licenses online
or doing something else that would be homeland security-related, my sense
is the states are going to pay attention to that first."