100 Points Of Success: Government's Top Integrators12:00 AM EST Wed. Apr. 25, 2007
The road through the government channel is paved with greenbacks. Consider this: The 2006 VARBusiness 500--the top solution providers, resellers and integrators for the commercial and public sectors--generated a little more than $350 billion in revenue. By comparison, this year's GovernmentVAR 100 generated $107 billion in top-line sales, growing 11 percent over 2005.
The gross revenue and double-digit growth are impressive, especially since federal IT budgets grew less than 2 percent in 2006 and state spending was relatively shallow compared to expectations. Add to the challenge of achieving success in the government channel the long sales cycles, different contracting requirements and razor-thin margins and you've got a recipe for low, slow growth. Quite to the contrary, though, government solution providers are knocking the cover off the ball.
The GovernmentVAR 100, now in its fourth year, is the definitive list of the top federal, state, local and education solution providers and integrators. The ranking is by gross government revenue for IT products and services.
Solution providers on the GovernmentVAR 100 are averaging revenue of $1.1 billion annually, up from last year's adjusted average of $964 million. The billion-dollar club gained six new members with the addition of two new companies earning 10-figure incomes. And an astonishing 51 of the 100 earn from $100 million to $1 billion.
The bulk of this year's list-makers recorded positive growth, with three companies posting triple-digit revenue increases and 41 solution providers reporting double-digit growth. Only 20 companies on the list declared losses, and only a fraction had double-digit losses.
The majority of solution providers on this year's GovernmentVAR 100 list are truly dedicated to the public-sector channel. Thirty-two companies derive 100 percent of their revenue from public-sector sales, and another 24 earn more than 50 percent of their income from government customers.
While the Government 100 grew 11 percent, the top 10 didn't shift much. Defense and integration conglomerate Northrop Grumman remains king of the hill with $11 billion in revenue, fueled by its various federal contracts. Nipping at Northrop's heels was second-place finisher Lockheed Martin, which grew 10 percent with revenue of $10.9 billion. Third place was locked down by General Dynamics, whose revenue jumped 16 percent to $9 billion.
One of the most surprising to make the top 10 is the government services division L-3 Titan Group (No. 9), Reston, Va., whose revenue shot up 75 percent to $3.8 billion, allowing the company to place ninth, and forcing EDS into the No. 10 spot.
"We look forward to another strong year for 2007. The company is well-positioned in its core business areas," said Michael T. Strianese, L-3's president and CEO, in the company's quarterly financial statement. "We will continue to grow organically and generate significant cash flows that will be used to increase returns for our shareholders through share repurchases, dividends and continued acquisition growth."
NEXT: Integrators that are burning up the charts.
Although rankings are based on gross government revenue, success is often measured by rate of growth. Several companies are growing at rapid-fire clips.
L-3's growth is impressive, but comparatively small compared with the fastest-growing solution provider, ITT Defense Electronics & Services (No. 20), whose revenue skyrocketed 218 percent. In 2005, the company reported $411 million in public-sector sales. In 2006, the company kicked into overdrive and propelled sales to $1.3 billion, achieving growth of 218 percent. ITT is one of three GovernmentVAR 100 companies with triple-digit growth.
Carahsoft Technology (No. 76) grew its public-sector channel business an astounding 150 percent, increasing income from $36.4 million in 2005 to $91 million in 2006. And MTM Technologies (No. 90) more than doubled its government business; its income grew 137 percent to $48 million.
Government consulting firm Booz Allen Hamilton (No. 18) was the fourth fastest-growing integrator; its revenue of $1.6 billion was an increase of 81 percent over 2005. Fujitsu Consulting (No. 87) rounds out the top five on the fast-growth list with 79 percent revenue growth--from $31 million in 2005 to $55 million in 2006.
Breaking Down the Silos
As much as there's a distinct difference between the public-sector and commercial channels, there are significant differences between the four pillars of the government channel.
The federal market--marked by massive contracts and complicated procurement processes--is vastly different from the state and local markets, each of which has its own rules of engagement. And the education market is fractured between the public secondary schools that must submit to federal, state and local regulations--depending on the source of IT funding--and higher education (colleges and universities), which act like private companies but are subject to government regulations as well.
Winning in each of these government silos is complicated. While not all solution providers and integrators break out their public-sector revenue into subcategories, the GovernmentVAR 100 is replete with solution providers and integrators that clearly have mastered the intricacies of each submarket.
Capgemini (No. 11), for instance, is one of only two GovernmentVAR 100 companies to make it into the top 5 list for each of the submarkets. The integrator is No. 5 on the federal list, with $1.9 billion in revenue; No. 1 on the state and local lists, with $417 million and $277 million, respectively; and No. 3 on the education list, with $55.5 million.
The other company to make all four lists is Federal Technology Solutions (No. 12). Its federal revenue ranked fourth, at $2.1 billion. Its sales were $125 million in the state, local and education markets.
Software House International (No. 28) demonstrated strength in the state, local and education markets. It earned a fourth-place state ranking, with $189 million in revenue; fourth place in the local market, with $115 million; and first place in education, with $138 million.
While Northrop is the top overall company on the GovernmentVAR 100, rival Lockheed snuck by on the top federal solution providers list. Lockheed reported earning $10.7 billion of its public-sector revenue through federal sales. Northrop reported that 4 percent of its revenue came from state and local sales; at $10.6 billion, its federal sales fell just behind Lockheed Martin's.
Next: Who will make next year's list?
The fastest-growing GovernmentVAR 100 companies have revenue increases from a high of 218 percent to low-double-digit rates. Impressive, yes. Unprecedented, hardly.
Several companies surveyed by GovernmentVAR have better or equal growth rates, putting them on a path to a spot on a future GovernmentVAR 100 list.
Topping the list of future GovernmentVAR 100 stars is eTeam, a provider of incident management and disaster recovery solutions to government agencies and first-responders. ETeam posted $8.5 million in public-sector revenue for 2006, a 2,615 percent increase over its $313,000 in 2005. CompSource, a direct market reseller, earned $2.75 million in government sales, an increase of 1,070 percent over 2005 sales.
GreenPages Technology Solutions earned $12 million, a $10 million, or 500 percent, increase over 2005. Works Computing posted a 404 percent increase over its previous-year revenue. And Incentra Solutions more than tripled its government revenue, partly due to its acquisition of Tactix, a provider of networking, storage and security solutions to state and local agencies in the Pacific Northwest.
Most of the companies on the next-generation list are cutting their public-sector teeth in the state and local markets, which are sometimes more focused and less cumbersome than the integrator-dominated federal market. Such specialization helps solution providers gain experience in navigating government sales and provides a platform for expanding into other states, the education space and federal agencies.