Be Nice Or Don't Play In the Education Space

In an effort to up purchasing power and drive standards, more and more states are centralizing IT procurement for education. The model they're using, however, goes way beyond a few districts teaming up to snag volume pricing. Created by legislation, educational service agencies (ESAs) provide varying degrees of integration and support services along with products. The result? Many view them as full-fledged VARs--including the vendors and school districts that might otherwise look to the private sector for such services.

To call ESAs a growing trend would be an understatement. With 44 states utilizing the model now and two more states mulling it over, ESAs are actually becoming the national standard.

"No question, purchasing [in K-12 education] is changing from the local-district model to the regional model," says Brian Talbott, executive director of the Association of Educational Service Agencies (AESA). The professional organization serves more than 550 ESAs as the national voice and provider of professional- growth opportunities, technical assistance, advocacy and research. "Whenever you can buy in bulk, you have savings. Some of the best pricing in the nation goes through an educational service agency," Talbott says. "At the same time, it unifies the direction. If everyone marches off on their own, there's no standardization or consistency."

Originally established in 1948 by the New York State Legislature, New York's Board of Cooperative Educational Services (BOCES) is among the longest-running and most successful ESAs. BOCES enables small, rural school districts to combine resources and access services that would otherwise not be affordable or available. There are 38 BOCES broken down geographically, with three to five BOCES making up each of the regional instructional centers. Although voluntary, membership is necessary to receive state funds, and is available to all school districts except the "Big Five"--New York City, Yonkers, Rochester, Buffalo and Syracuse.

Similar in structure, the ESAs in Pennsylvania are referred to as Intermediary School Districts and as Education Service Centers in Texas, to name just a few.

In general, ESAs function like nonprofit associations, receiving funding from taxes, and state and federal government grants, and then doing the IT purchasing and providing some services. Under the No Child Left Behind Act, ESAs can assist with teacher training, alternate certification, supplemental services, school improvement and technology.

All agencies are becoming more adept at commoditizing planned purchases for preexisting products like licensing renewals, desktops and networking gear. Usually, those purchases are dominated by large national hardware players--whether a vendor like Dell or large resellers such as GovConnection or CDW Government. The key for smaller solution providers is, of course, to make additional margin on professional services.

NEXT: But therein lies the rub...

But therein lies the rub: A lot of these ESAs handle that too. They vary in the degree of services they provide, but many are equipped to write software applications, provide consolidation services and implement network administration. AESA even maintains a Web-based Solution Marketplace, which allows ESAs nationwide to share product and service offerings they've developed with one another. So they have the buying power, feet on the street, proficiency in IT support and services, and access to a virtual think tank for meeting IT requirements.

"If you say VARs in our world, we are them," Talbott says.

Indeed, some vendors opt for ESAs in lieu of the traditional channel partners. East Setauket, N.Y.-based Finance Manager, for example, provides its accounting software to the BOCES regional information centers that, in turn, provide demonstrations, implementations, data conversions, training and ongoing support to their associated school districts. Using this model, Finance Manager is able to provide software for nearly 300 school districts with more than 100,000 employees.

"BOCES is a buying group that attempts to get the best prices for their end users," says Bob Laclede, vice president and general manager of GovEd sales at Ingram Micro. "But that squeezes most of the product margins, and many of the vendors just bid the BOCES contracts direct and cut the VARs out. Even if the VARs bid, the product margins are very tight and not usually profitable."

But the reality is that any VAR working in a state that relies on an ESA--which will probably be all of them in the near future--has to figure out a way to play in the model if it stands any shot of landing work in the K-12 education market. North Syracuse, N.Y.-based Annese & Associates, for one, has a long-standing relationship with BOCES, having served it for more than three decades.

"It's a challenge, because legislation is involved, OEMs are involved, and everyone is trying to figure out the best way to do business," says Bill Bullen, director of marketing at Annese. "But everyone has one common goal. If we stay focused on the bigger picture, there's easily a position for VARs in that business network."

In fall 2005, Annese developed a converged network with both a fiber backbone and connection to Albany BOCES for Internet services for Bethlehem Central School District.

In that sense, VARs need to provide service offerings that can result in a blended margin within an acceptable range. Specifically, those that partner with an ESA on a project will take anywhere from 40 percent to 80 percent of the money from state aid, says Amy Perry, director of strategic initiatives for the Wayne Finger Lakes BOCES in Newark, N.Y. The region includes 27 school districts with 110 buildings.

"Our philosophy is that if VARs or companies can offer either a more enhanced service or an emerging cutting-edge service, absolutely we'll work with them. Why wouldn't we? It would cost far more for us to create that functionality on our own. The reality is there's enough business for everyone; your profit margin might be a little lower, but [volume] will be much [higher] at the same time."

Also important to keep in mind is that while ESAs take on some services, IT is only about 5 percent to 10 percent of what they do, Talbott says. Most provide up to 200 different kinds of services, from printing operations and transportation systems to science and math programs and arts in the schools. Partnerships are essential to get the jobs done.

"What I see as the business model we advocate is not so much being caught in a bid situation with vendors going direct, as finding those that want the value that comes with a trusted relationship," Bullen says. "In education, there's the government, which in this case is BOCES, the community and the private sector all in a loose partnership. Yes, that means margins may be reduced, but it's typically margins on commodity products. If we don't add value to a product, shame on us for being in this business in the first place."