GovLoop acquisition by GovDelivery strengthens both, analysts believe

GovDelivery Inc.’s announcement today that it is acquiring the GovLoop social networking Web site is a good fit that makes good use of what both entities have to offer and offers prospects for new revenue-producing services, according to industry analysts.

Steve Ressler, a Homeland Security Department employee, founded GovLoop about 15 months ago as a free networking site for federal, state and local employees. As part of the GovDelivery deal, Ressler resigned from DHS to operate GovLoop full-time as a division of GovDelivery. GovLoop, sometimes described as "Facebook for feds," has more than 18,000 members, according to GovDelivery.

Founded nine years ago, GovDelivery has about 50 employees and expects to earn revenues of $10 million this year selling services including e-mail message subscription management and software-as-a-service cloud computing applications to 300 government clients. The company sends about 140 million targeted emails a month on behalf of agencies, such as alerts about tainted food from the Food and Drug Administration or disaster warnings from the Federal Emergency Management Agency. Somewhere between 15 percent to 30 percent of GovDelivery's subscribers are government employees, according to the company.

Industry observers are terming the purchase a savvy decision that takes advantage of both entities’ strengths and offers solid possibilities for growth, although it also poses some risks.

GovDelivery will benefit from its access to a pool of more than 18,000 government employees, which it can use to raise awareness of its products and services and to help launch new services. GovLoop will get access to more capital and expertise and Ressler’s full-time leadership.

“It’s a fantastic move for Steve, and a shrewd move for GovDelivery. It's a way for GovDelivery to extend the services they offer,” said Steve Lunceford, strategic communications consultant with Deloitte in McLean, Va. He predicts GovDelivery will offer additional services leveraging the GovLoop membership, including Web dialogues and access to interactive conversations on topics such as government best practices and solutions.

“GovDelivery has experience in connecting government agencies to each other, and to citizens,” said Mark Drapeau, an associate research fellow at the National Defense University’s Center for Technology and National Security Policy and a Federal Computer Week columnist. “Steve has created a community, which GovDelivery lacks.”

GovDelivery can use the GovLoop membership in ways that will benefit both entities, he added. GovLoop could become a portal to the community to create solutions and share best practices. GovLoop also is a key player in the broader world of government 2.0 solutions as a whole, and provides valuable access for a contractor.

“GovLoop is more of a part of the government 2.0 community than GovDelivery, and in that sense this is a big win for GovDelivery,” Drapeau said.

Ressler said today his goals include boosting GovLoop’s membership to 100,000 government employees by 2010 and to produce revenue for the site for the first time. He said that while employed at DHS, he was limited by government ethics rules from generating revenue from GovLoop.

Prospects for revenue appear to have expanded under the new ownership, analysts say. “This will be the first step toward monetizing GovLoop’s social network,” Drapeau said. It probably hasn’t been decided exactly how it will happen, but it is very likely the site membership itself will remain free. “You can envision many other synergies with GovLoop.”

Several ideas on the drawing board include creating subgroups on GovLoop with possible corporate sponsorship, such as a site for Microsoft Sharepoint solutions, Ressler said. Another option is to create a subgroup that focuses on a specific topic or problem, such as the swine flu.

“Technology will be invested over the long term that will increase our features and our resources,” Ressler said. He said access to GovDelivery’s information technology experts also provides additional skills that GovLoop needs.

On the other hand, the acquisition does present some risks, although Drapeau and Lunceford said they are relatively minor. For a Web site billed as by and for federal employees, it could be a tricky transition to move into ownership by a private company, they said.

“The most important thing is that it remain an open, valuable participatory tool for the government 2.0 community,” Drapeau said. “If they do that, and continue to monetize and grow it, I am sure it will be done with the community in mind.”

“The risk could be that it’s not not a ‘govie’ running it,” added Lunceford. “Steve was an employee of DHS and that provided folks with a level of, “He understands where we are coming from.’” It might be different when run by a private entity, with slightly less trust, but Lunceford believes it is a “fairly minimal” concern.

Ressler’s strong track record in providing public service on GovLoop, as well as his stated commitment to continue doing so and his belief that GovDelivery shares those values, will be factors that will help to maintain the trust with government employees, Lunceford and Drapeau said.

And GovDelivery’s relatively small size, in comparison to much larger prospective purchasers, actually could be an advantage, Drapeau suggested.

“This isn’t some gigantic global cooperation where GovLoop will get lost in the shuffle,” Drapeau said.