Replicating a successful model

Like a huge ship turning at sea, the federal government is slowly but steadily

embracing the Internet as a way to increase the efficiency of its interactions

with industry and the public.

As such, Washington, D.C., lately has become a tempting target for many

Internet and information technology solutions companies that until now

have made their living selling only to state and local government customers,

who have been quicker to embrace commercial solutions.

Although many of the newcomers are pinning their hopes on Web- centric

solutions, officials at GovConnect Inc., Cincinnati, think that a more integrated

technology approach is what the federal government really needs, and that

this will set GovConnect apart in an increasingly crowded market.

Like the other recent arrivals, GovConnect can build Web sites that

enable citizens to file tax forms or companies to report employment data

to federal agencies. But the company also can pair a Web site with an interactive

voice-response system that links into a traditional call center, which would

help streamline transactions for citizens who lack either the means or the

desire to use the Internet.

"There's no reason not to adopt a one-door-to-government philosophy

across agencies when you have the technology to do it," said Paul Doty,

executive vice president of sales and marketing at GovConnect, which has

built systems for government offices in about 40 states. "Somewhere in the

neighborhood of 56 percent of households have Internet capability, while

over 99.8 percent have tele———phones. Our multi-access solution to these

problems is really what government is looking for."

The company had better be right about this point if its foray into the

extremely competitive federal space is to pay off. Indeed, strong technical

credentials — even unique ones — are merely a foot in the door. A firm such

as GovConnect must adapt quickly to the specific needs and procurement style

of the federal government, which differ greatly from those of the com-pany's

traditional state and local customers.

Experts also note that federal procurement procedure puts a premium

on past performance. However, the long track record that GovConnect and

similar companies might have in the state and local markets doesn't mean

much in the analysis of federal buyers. In some ways, these firms are starting

from scratch.

Federal Feelers

In the past few months, GovConnect has made several moves to raise its

profile in the federal market. For example, it recently added three salespeople

dedicated to the federal market. Playing on the company's strengths in the

state and local markets, the federal salespeople are focusing on agencies

that interact frequently with citizens or industry, such as the Internal

Revenue Service, the Labor Department and the Social Security Administration.

Meanwhile, in May the company launched GovConnect.com (www. govconnect.com),

a Web portal with links to general federal government information and some

government-specific search engines. For now, however, the Web site is not

intended to serve as the main front end to the e-government applications

that GovConnect builds.

"We're not trying to make GovConnect a household word," Doty said. "It's

really just a place to showcase our technologies....Our model is to make

our applications look to the citizen like they're part of the government."

Indeed, GovConnect's role often is transparent to the people who use

the Web- and telephone-based solutions the company builds, even though in

about 40 percent of the company's state and local engagements, the actual

systems run on servers in GovConnect's data center in Cincinnati.

However, in the future, Doty expects that most federal agencies will

want to use their own resources to host the applications because they already

have significant investments in staff and infrastructure.

GovConnect has built a variety of systems for its state and local customers,

and has won repeat business from many of them. For example, it is developing

a Web-based tax-filing system for Pennsylvania to complement the telephone-based

system it previously built for the state.

Deep Roots

This type of work has been a staple for GovConnect, a wholly owned subsidiary

of IT services firm Renaissance Worldwide Inc. GovConnect grew out of the

Renaissance Government Solutions (RGS) unit, which had been providing IT

consulting services to state and local governments for more than a decade.

The electronic services delivery portion of RGS' business took off in

1998 when Renaissance acquired International Public Access Technologies,

a company that specialized in building interactive voice-response solutions

for government. GovConnect was spun off from Renaissance in January; in

September, RGS and its 150-person staff were rolled into the Gov-Connect

subsidiary.

Doty said GovConnect is on track to produce about $42 million in revenue

in 2000 — almost exclusively from state and local work — and will nearly

break even. Expenses have been especially high this year because of extra

spending on marketing and advertising, but Doty expects that the company

will turn a profit next year. He said the e-government delivery portion

of GovConnect's business, not including consulting, has grown at a rate

of 50 percent during the past two years.

However, some observers think there isn't a lot of room left for firms

like GovConnect to grow in the state and local markets, hence the shift

to the federal space.

"What's changing in the state and local market is not that there are

a lot of new companies, but that the ones already there have grown and

moved into new application areas as they fully penetrated the ones they

started out in," said Joe Buttarazzi, an analyst with Adams, Harkness and

Hill Inc., an investment bank and brokerage house in Boston that tracks

Renaissance Worldwide and other IT services firms. GovConnect is joined

in its move to the federal market by competitors such as EzGov Inc., govWorks

Inc. and others.

"If you can be successful in the state and local market, which is very

fractured, it's much easier to get into the federal market, which tends

to be much more homogeneous and have more information available about it,"

said Mark Struckman, director of research programs at the Center for Digital

Government.

Buttarazzi also said that GovConnect's large size and backing by Renaissance

Worldwide will be advantageous when the company has to weather prolonged

federal sales cycles — staying power that smaller competitors may not have.

On the other hand, the federal government prefers to hire contractors

it has dealt with before, a bias that may work against companies such as

GovConnect. "It means that they'll have to price aggressively to compensate,"

Buttarazzi said.

GovConnect Inc.

* Specializes in electronic government solutions that streamline citizen-to-government

and business-to-government transactions.

* Builds solutions using the Internet, interactive voice response and

natural language systems, automated call centers, fax solutions, e-mail

and electronic data interchange.

* Develops applications that can run at a government customer's facility

or can be hosted and operated by the company at its corporate data center

in Cincinnati.

* Has developed applications for more than 40 states but is now targeting

the federal market.

* Is a wholly owned subsidiary of IT services firm Renaissance Worldwide

Inc.