Falling in Gov: What industry is turning the most heads now that dotcom doesn't equal success? It's e-government

Entrepreneur,  March, 2002  by Amanda C. Kooser

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MEET THE EARLY DAYS of e-government. "This is the beginning of a great thing," Kaleil Isaza Tuzman says in Start up.com, a 2001 film documentary. Tuzman, along with buddy Tom Herman, founded GovWorks.com, one of the pioneering and highest-profile players in the e-government space. Startup.com chronicled the company's heady rise through 1999 and 2000, from clever concept to spectacular crash.

Despite the unfortunate end to GovWorks.com's story, e-government is still very much a technology and business frontier. It might be more civilized than the Old West, but it's just as wide open and untamed. GovWorks.com hatched as an Internet portal and epitomized the early, wide-eyed view of the multibillion-dollar government horizon.

"You go to GovWorks.com to do basically anything you do with local government," says Tuzman in the film. "It's a pretty tremendous market space." With no positive revenue model, GovWorks.com didn't survive the dotcom downfall. But Tuzman was right about one thing: E-government is a fertile, immense market space. Go west, young entrepreneur, go west.

It's impossible to tie this market up into a neat package because it sprawls out like a growing city. And you don't have to be in the technology business to take advantange of these new opportunities, because there are angles for every entrepreneur. E-government is businesses that provide tech services to state agencies. It's Web sites that let citizens pay fines online. It's office-supply stores bidding for local contracts online. It's entrepreneurs building Web sites for municipalities.

Forrester Research estimates that 15 percent of federal, state and local fees and taxes will be collected online by 2006. The technology research and consulting firm also predicts that nearly 14,000 online service applications will roll out across the nation by 2006, the majority coming from cities and towns. Some governments plan to tackle technology issues on their own with proprietary systems, but many will turn to private businesses that offer to get them there.

CLEAR AND PRESENT OPPORTUNITY

You may already be familiar with traditional, time-consuming government procurement processes. E-procurement, however, which is also known by the buzz-acronym B2G, involves governments using the Internet for notification, bidding and buying processes for goods and services. Jupiter Media Metrix forecasts public agencies will spend a whopping $286.1 billion by 2005, with 17 percent of total purchasing done online. E-government is looking to become a boom town.

Two distinct angles exist for entrepreneurs. One is providing the technology services to make c-procurement possible. The other is taking advantage of governments' new online offerings to expand the way you do business. Small suppliers are gaining unprecendented access to all types of government bidding and contract processes nationwide, and it will open up even more over the next few years.

The city of Evanston, Illinois, just outside Chicago, has an annual budget of $180 million--$70 million to $90 million is spent each year on goods and services. That includes everything from medical services for inmates to vehicles and pencils. Chad Walton, the purchasing manager for Evanston, recently supervised the transition of the city's procurement process online using service from MunicipalNet Inc. (www.municipalnet.com), a growing c-procurement business in Boston.

Walton echoes the sentiments of many municipalities when he discusses reasons for heading into c-government. "It lessens the cost of responding to solicitations from the city for businesses, which in turn should translate to lower costs for us as well," he explains. Both sides save time by cutting out much of the red tape from the process.

In addition to expanding potential markets for American entrepreneurs, c-procurement is a wide-open door for tech-minded start-ups. David Nute, 32, founder and CEO of MunicipalNet Inc., isn't planning on getting filthy rich, but he does expect his company to thrive while focusing on services to small states, local governments and the businesses that supply them. His company's revenue model is based on selling advanced options and extra services to suppliers. Basic access is free for businesses, an approach that sets them apart from most competitors.

The get-rich-quick glow of early c-government plays like GovWorks.com has faded, leaving entrepreneurs to forge ahead with sensible business models and back-to-basics marketing. "It's very grass-roots," says Nute. "There is no substitute for calling up a procurement director, going in, sitting down, looking at [him] face to face, earning [his] trust. It may be old-fashioned, but it works."

PROCEED WITH CAUTION

But before you jump into the e-gov ocean, take some time to survey the waters. The growth of the market can be attributed to some age-old image reasons and to some practical business reasons as well. Jeremy Sharrard, associate analyst with Forrester's Internet Policy and Regulation Group, observed political motivations from the evolutionary outset of e-government. "Governors and mayors wanted to be able to stand up and say 'We're offering services online so you don't have to wait in line.' There was some political capital to be gained there," says Sharrard, who points to a shift over the past few years to a strong emphasis on cost savings.