Q&A: How Eight Government VARs Will Face a Tough Year Ahead

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The federal government increased its IT spending less than 1 percent for fiscal year 2007. Many anticipate state and local spending to stall for several months because of the massive power shift in the midterm elections. And, the channel community is saying that consumer sales have a greater potential for growth than do government sales.

All of that points to a tough year ahead for public-sector solution providers. Is the channel ready for the new challenges? At the recent Ingram Micro GovEd Alliance conference in Atlanta, GovernmentVAR editor Lawrence M. Walsh and senior editor Jill R. Aitoro sat down with eight solution providers who service all levels of the public-sector channel--federal, state, local, and secondary and higher education. We asked them about their experiences with shifting market conditions, tight customer budgets and strategies for success in this tricky market.

Slide Show: VARs Weigh In On a Tough 2007 Outlook

GV: While the public sector remains the biggest vertical IT market, all signs point to 2007 being a challenging year for capturing government IT dollars. How optimistic are you about the government channel in the coming year?

ASHLEY LEHMAN: Actually, we have seen a tremendous growth rate in the past year in the federal market. The company is up 70 percent year-over-year, and we are expecting at least another 40 percent growth rate next year. But I think the federal market is changing somewhat in that it is no longer a run-rate business; it's much more contract-centric, much more multivendor-focused. To succeed, it really takes a lot of teamwork within our partners and other people in the channel community.

KAREN EDDY: We're mainly serving the Army and the Air Force, and those contracts have been a very commodity-based business the past several years. But with what's happening in the Middle East, a lot of that money seems to be going to bullets and guns that was being spent on technology in the past few years. So there's been somewhat of a slowdown for us, but a lot of our services business is now taking hold, and we're seeing more of a growth in that than we have in the past. So it's just kind of moving away from one and putting more emphasis on the other.

GV: How about on the state level? With so many statehouses turning over in the midterm elections, everyone seems to be anticipating a slowdown during the transition period?

RYAN YU: We've also seen some things that are concerning. A lot of practices that have been taking place in the federal space are being picked up by the state. Some states are coming out with different contracts that are task-order oriented, or a large contract that's an outsource type. It's more important than ever that we're able to team up with other people to go after those contracts and get a piece of that action.

CHRISTINE LENY: Almost 40 percent of our schools in Wisconsin are running at a deficit; there are school districts that are looking through their fingers to meet their payrolls. And if they're having difficulty accommodating that, expenditures on technology just are not happening to the same extent that they had several years ago. Wisconsin is probably typical of some of the other states. We have a negative budget within our state. So we've noticed a drastic slowdown on IT spending in K-12.

NEXT: Where ROI fits into the government sales pitch