GTSI retools for changing market

Government Technology Services Inc. in the midst of a major makeover under the watch of chief executive officer Dendy Young this winter will expand its business beyond the name-brand PC market and reposition itself for new opportunities in the federal market.

During the next several months GTSI plans major announcements in three key areas: new low-cost PCs broader workstation-oriented offerings and a significant investment in support services.

GTSI has no plans to abandon its core business in desktop PCs and related products from Compaq Computer Corp. Hewlett-Packard Co. and other vendors Young said. However with government agencies buying from a wide range of venues - including blanket purchase agreements (BPAs) and governmentwide contracts - GTSI needs a broader offering to match. "In the past we were a very response-oriented responsive company because we had certain contract vehicles and it was up to [the customer] to come to us " Young said. "Now it's up to us to find them."

Shifting Fortunes

GTSI's task is complicated by its own tumultuous fortunes. While still the largest reseller in the federal market the company has faced a series of setbacks in the last 18 months including costly mismanagement of product stockpiles that eventually helped lead to the departure of top company executives and a loss of market share to direct manufacturers such as Gateway 2000 and Dell Computer Corp.

Young has been rebuilding the company since taking the CEO position 11 months ago covering everything from his management team to warehouse equipment. He had been president of Falcon Microsystems before its acquisition by GTSI in 1994 and later started a consulting firm before joining GTSI.

As that rebuilding continues Young is focusing on products and services. Already this year the company has expanded its business to include telecommunications services on the General Services Administration Schedule 58.

New Products

Adding income became a particular concern this summer when the company failed to win the recompete of its highest profile contract the Air Force's Desktop IV. However Young said the company realizes it needs to diversify in any case because agencies have become less dependent on large agency contracts. "As much as GTSI is a company in transition this market is in transition " he said.

GTSI's strategy will accelerate this winter. In the next couple of weeks the company will announce a "no frills" PC for customers concerned more about cost than brand name. Currently "GTSI does not have a good solution in this area " Young said.

Market Positioning

The company already has taken steps in that direction with Nexar Inc. a low-profile vendor that specializes in highly expandable PCs. GTSI wanted a low-cost full-featured product that could compete head to head with Gateway 2000 and other manufacturers that sell directly.

The company sold more than 6 000 units through September "which ended up being a noticeable presence in our sales " Young said.

The company plans to take its strategy a step further by adding a true low-cost no frills computer. This strategy will give GTSI something to offer on procurements that otherwise would be closed to the company Young said.

Expanded Product Line

With the upcoming addition to its family "we have more choice for the customer " Young said. "If you want a brand name product we've got it if you want a best value product we've got it."

This strategy may get GTSI into some new bids but the tack has its limits industry observers said. "The government is certainly concerned with price but price is not the only issue " said Bob Dornan senior vice president at Federal Sources Vienna Va.

For example Dornan said the Navy got no-name PCs on one recent contract then turned around and awarded BPAs for name brands. However some government customers will be interested in a low-cost desktop option Dornan and other observers said.

New Focus on Workstations

GTSI also plans to increase its commitment to the workstation business including both Microsoft Corp.'s Windows NT and Unix-based technology. During the past two years its GSA Schedule 70A business - anchored by workstations from Sun Microsystems Inc. - has become a good source of revenue.

Without being specific Young said the company will add a broader range of workstation products in the very near future. "We see it as an opportunity to provide a broad range of solutions to our customers " he said.

One potential candidate is HP workstations which GTSI is believed to be offering as a subcontractor to Hughes Data Systems on Desktop V. GTSI would not comment on its role on Desktop V. The company has worked with Digital Equipment Corp. in the past as well.

Young also plans to improve GTSI's support structure for these products by building internal "technology teams" to drive the business. Falcon Microsystems under Young had used this business model. One of Falcon's key accounts was Silicon Graphics Inc. which GTSI was forced to give up earlier this year because it lacked the vertical market expertise SGI generally requires Young said.

Finally GTSI plans to have a major services announcement around the end of the calendar year. "We believe opening up the GSA schedule to provide more services is going to be a very important step for us " Young said.

Services Gain Importance

Indeed services have become a key component for vendors in the federal market said Norm Berthaut director of the federal IT market analysis program at Input Inc. a market research firm with an office in Vienna Va. "You are at a real disadvantage if you can't give a solution to a client as opposed to a product " Berthaut said.

This becomes a real factor when agencies buy products off the GSA schedule or from BPAs rather than having an indefinite-delivery indefinite-quantity contract with a systems integrator as the prime contractor. Agencies simply do not have the technical skills to do their own product integration Berthaut said.

This problem is exacerbated by the technical sophistication of many network-centric solutions that agencies are buying said John Leahy group manager of government affairs at Sun Microsystems Federal Vienna Va. "The end user has to have access to technical talent - someone they can call on who is going to correct a problem in a timely manner " Leahy said.