Secure Position

The federal government is increasing IT spending at a healthy 8 percent projection. Thanks to vendors experienced in government sales, solution providers are finding it easier to get a piece of that pie. And, it also appears Washington is opening up the checkbook: President George W. Bush has requested an estimated $52.1 billion in federal IT spending this year, up from an estimated $48.2 billion in spending last year. (The Congressional approval process could extend through December, so the figure is subject to change.) Clearly, there's no shortage of demand for anything having to do with security,whether at home or abroad.

"This has been going on for the past five years," says Payton Smith, who oversees public-sector analysis for Chantilly, Va.-based Input, a marketing research firm that tracks government-spending opportunities. "But the events of 9/11 have brought this home even more. The proximity of the threat is much more real now, so there's more urgency."

According to Input, the largest net increase in fiscal year 2003 IT spending is being requested for the Department of Defense (DOD),a total increase of $2.6 billion (11.3 percent) from the estimated spending for fiscal year 2002. The name of the game in the homeland security era is infrastructure modernization, says Tom Oles, vice president of business development for Bethesda, Md.-based Lockheed Martin, the top federal vendor, with more than $3.5 billion in fiscal year 2001 IT contract obligations.

"We're talking about taking an agency's IT capability and making it interoperable with other agencies'. We've had many years of stove-pipe systems,those developed for one agency, or even a department within an agency," he says. "Now, all we're hearing about is integration of data among agencies and departments. That requires a sound infrastructure on which applications can be placed, so the information can be shared across the board."

Gene Bulla, vice president of government systems business for Argus Group, says the terrorist attacks last Fall had a profound effect on how the government views IT today. The Savoy, Ill.-based company supplies government agencies with its PitBull system security product through solution providers.

"Priorities have shifted radically from domestic programs to national defense. Anything that can be couched in terms of 'homeland defense,' 'critical infrastructure,' 'asymmetric threats' or 'cyberwarfare' will receive increased attention and possibly funding as well," Bulla says. "Agencies will bend requirements to fall into those areas of interest not only because they're important, but because they'll raise the probability of funding." Historically, 1 to 3 percent of IT budgets go toward security,but that has changed. And the resellers that can package security products in a form pertinent to these changing government customer requirements can reap significant dividends."

At the same time, niche products and services that were gaining acceptance before Sept. 11 are still the object of interest by government purchasers. These include e-government, via the Web and also through telephony applications, as the push continues to get agencies to reduce paperwork and financial management because they are under pressure to provide results to account for spending. VARs that can help agencies revamp existing systems,rather than replacing them outright,are in high demand.

Pricing is also an important consideration, says Jeffrey Westerhoff, vice president overseeing government-wide agency contracts (GWACs) for SRA, a Fairfax, Va.-based IT services vendor. Currently, SRA, which had 2001 sales of $312.5 million, serves more than 300 government clients.

"We provide resellers with access to all government agencies through our large portfolio of contract vehicles," Westerhoff says. "We work closely with many different vendors to increase the reseller's visibility in the federal marketplace. But we must provide our customers with the best possible price. From there, strategic relationships are developed as we work closely to provide our customers with solutions."

SRA delivered 93 percent of its sales in fiscal year 2001 via the U.S. government, with national security accounting for roughly 43 percent of that.

Keeping Ahead Of the Curve

Although the layman's perception might be that the government is slow to adopt new and emerging technologies, industry executives report the opposite is true.

"When it comes to information assurance, privacy access, biometrics, crisis response and contingency planning, the government isn't lagging behind," says Scott Friedlander, vice president of solution teams for GTSI, Chantilly, Va. "Some agencies are far ahead of the curve, even with applications such as e-mail as tied to wireless solutions. There's also a lot of ahead-of-the-curve growth with regard to the Americans with Disabilities Act, in providing solutions for the government customer who could be blind [for example, and needs to access a federal Web site via voice-activated technologies."

GTSI is one of the top VARs in General Services Administration-based sales, with $104 million in fiscal year 2002 (see "Top Guns," this page). GTSI maintains partnerships with 1,400 companies, eight of which represent $25 million or more in strategic alliance revenue.

"It's a massive undertaking to have all of these partner agreements in place," Friedlander says. "Our premier partners,those doing $2 million to $25 million in revenue,now total 60. We also provide an 'Emerging Growth Technology' team, which incubates new, emerging technologies that are sold by the GTSI sales force. The team evaluates the very best technology the government wants. It educates the government and the sales force on the newest technology and solutions. Web portals, storage solutions, security,whatever the government customer needs."

The upshot? Agencies are requiring a sophisticated reseller, one that brings core competencies and understands not only the bidding and proposal process, but intimately knows the contract vehicles' needs as well. Recent events have shed disturbing light, for example, on the lack of knowledge-sharing between agencies such as the CIA and FBI. Resellers with ties to vendors selling knowledge-management applications stand to profit.

"There's now a huge call for agencies to simply do a better job of sharing what they know," Input's Smith says. "So there's much more spending in this category."

Following the lead of larger players, many vendors are seeing sufficient growth to warrant establishing special programs to address government needs. Mark Goldman, vice president of government systems for Fort Lauderdale, Fla.-based Citrix Systems, a virtual workplace software/services company, says he's launched a government systems team to partner with resellers and systems integrators. For resellers, Citrix provides marketing, sales, training and technical services, as well as the tools they need to deliver maximum service and lower total cost of ownership to their customers.

"Since Sept. 11, we have seen a significant demand for homeland security technology," Goldman says. "A number of our resellers and partners are working with us on delivering solutions that meet the demand of various aspects of increased secure computing."

Resellers involved with storage and disaster recovery stand to gain the most in the next two to three years, says Mark Milford, senior vice president and general manager overseeing the government licensing program at Islandia, N.Y.-based Computer Associates (CA). CA resellers need to establish a minimum commitment of $250,000 in government sales per year and 15 percent growth, or one-quarter of company revenue must be derived from government and/or education sales. The VAR must also take part in quarterly sales and technical training. Once established, the solution provider can take advantage of CA's many government sales vehicles.

"Our Government License Program was introduced in February 2002 to address the unique evolving needs for both government and educational customers, as well as resellers servicing these verticals," Milford says. "It offers government agencies and academic institutions substantial discounts without the obligation of making volume purchases. The program's streamlined process offers the quickest, easiest way to purchase licensing for large environments by reducing paperwork and administrative headaches associated with traditional contract- licensing programs. Furthermore, with no minimum purchase requirements, cost of software ownership is reduced and administrative redundancy is avoided."

Making It Through the Maze

So does all of this translate to slam-dunk, megabusiness for resellers? Not so fast. The government is unlike any other customer in the world. Resellers who enter the government workplace may be used to fatter margins. And, while it's true the government-procurement process has loosened up a bit, by opening up the marketplace with business-friendly "Government Wide Acquisition Contracts" (or GWACs, which allow agencies across the board to buy off one particular agency's contract, accelerating the buying process), it's still a labyrinthian process compared with the commercial sector. And it's one that still comes with demands similar to the commercial customers'. As always, systems and services reliability among resellers is crucial, especially in these critical times.

"The biggest trend we're seeing among federal organizations is the desire to get the 'biggest bang for the buck,'" says Barbara Mandes, federal business development manager for BMC Software, Houston. "The concept is simple but crucial: For every hour that a company's systems are down or being manually managed, the company loses money. To provide them with their enterprise-management needs, we look for resellers with significant inroads or current accounts with key federal organizations that are using strategic contract vehicles."

BMC values solution providers that understand customer requirements and help them solve problems in a cost-efficient manner, and those resellers find further opportunities in network and application management. As for federal market niches on the rise, BMC sees continued growth in security management, application-centric storage and network management, capacity planning and server consolidation. BMC's customers include the Federal Emergency Management Agency, NASA, the U.S. Postal Service and the DOD.

Light At the End of the Tunnel

Most vendors are willing and able to make life easier for VARs. Take Quantum, a Milpitas, Calif.-based data protection/network storage vendor that provides a special 3 percent discount for all government and education sales through distribution partners to offset the thin margins. The company works closely with resellers to help them do business, investing in the generation of leads for resellers and assisting them with closing opportunities.

"Quantum is serious about investing in government resellers that are serious about investing in our solution set," says Jim Simon, Quantum's director of channel marketing for its NAS division. "To that end, we ask that our resellers receive training on our solutions, join us on end-user sales calls, take advantage of our free direct-mail campaign to their top customers and allow us to partner with them at regional shows and government facilities."

With increased focus on user-friendly online services, vendors are making it easier for resellers to do their jobs with less paperwork, which is a big shift from the more paper-laden, more bureaucratic days before the 1990s Internet explosion.

"For direct resellers, we require them to complete an electronic claim form on a monthly basis, which lists the entities they've sold to, the quantity sold and the amount of their credit due," explains Sharon Dickerson, manager of channel programs and development for Oki Data Americas, a Mount Laurel, N.J.-based hardware vendor that sells dot-matrix impact printers, color LED printers and facsimile machines to the DOD, Federal Aviation Administration and other federal customers.

"Resellers who purchase through our authorized distributors receive their discounts at the point-of-sale, so there's no paperwork on the resellers' part," Dickerson says. "For the most part, our discounts are significant enough to allow the reseller to bid on an opportunity and win."

Another business-friendly practice for solution providers? Allowing them to establish a sufficient line of credit to handle big-time government contracts. Transamerica Distribution Finance is a Hoffman Estates, Ill.-based asset-management company that recently launched a commercial financing program that will allow VARs with Clearwater, Fla.-based Tech Data to better compete for large federal contracts.

"Federal government market spending experienced the same hiccup that most other sectors did in the immediate aftermath of Sept. 11, but quickly returned to the consistent growth of prior years," says Brian McDevitt, director of corporate development for Transamerica. "Our government programs prevent the sales disruption that open-account credit lines can cause."

Transamerica offers programs that are customized to help IT manufacturers, distributors and resellers meet their sales targets for the government sector. They were designed, McDevitt says, to preserve the reseller's day-to-day credit line for normal, everyday business. As a finance company, Transamerica Distribution Finance designs customized programs to help information technology manufacturers, distributors and VARs meet their sales targets for the government sector.

"We expect consistent growth for the government market," he says, "and, therefore, for the businesses of IT resellers that supply the government sector."