For VARs, Stimulus Package Ushers In New Opportunities

The $789 billion federal stimulus plan promises to be a boon to IT, representing opportunities for the tech industry that could reach well into the billions of dollars.

In fact, the savviest VARs are already spotting opportunities, from total modernization upgrades to the General Services Administration (GSA), Department of Health and Human Services (HHS) and the Department of Defense (DoD), to green infrastructure initiatives and broadband expansion.

In this environment, the advice given by everyone from government IT analysts to vendor executives targeting the public sector to VARs themselves is simple: Don't wait.

There's a better read on where the money is going to go now and in what forms, and those who hesitate are going to be left out in the cold.

"Education? Health care? Security? How is it going to flow into education or security? Is it infrastructure? New buildings? Grant initiatives? There's a lot of confusion when you look at what's coming down," said Mike Humke, vice president, public sector for Hewlett-Packard's Solution Partners Organization. "I say, let's watch to see where it's going, but let's not wait. Why wait? You can show a superintendent how to take a budget and make it work. Stop being a deer in the headlights."

"The pace at which to invest and pursue the projects that will be spawned by the stimulus package is really up to the judgment of the individual VARs," said Rick Marcotte, President and CEO of DLT Solutions, a Herndon, Va.-based solution provider. "There is probably a little more certainty on the federal side than the [state and local] sector. There are still plenty of unknowns on the S&L [state and local] horizon in terms of amounts pushed down to the states, the timing of that funding and the ultimate projects undertaken."

The clues have been there all along, said analysts, regardless of squabbling in Congress and constant revisions to the master plan. As the House version of the plan emerged late last week, government IT research firm Input had the number of federal contract opportunities pegged to be about $62 billion, and state and local opportunities at about $4.5 billion.

Differences emerged in the Senate version, of course -- and the finalized $789 billion package is trimmer than both the House's and the Senate's -- but many of the IT commonalities remain, if the numbers are a little different.

"We knew it would be a constrained budget anyway," said Jeremy Potter, a senior analyst at Input. "When you add the fact that we've had economic difficulties and there's a need for both a TARP [Troubled Asset Relief Program] and a stimulus, that's actually creating more spotlight on the money than there would otherwise be. And the other thing about the timing that's good is that agency officials are jockeying for this money and they know the Obama administration is going to be making some of those calls. If particular agencies are jockeying for money, then solution providers know where to look."

The trick, said Potter, is not to get bogged down in the details of the spending but to be ready to take advantage of opportunities as they arise.

"The way this funding comes through the Bill is important," Potter said. "Whether it's a contract, or a grant, or broad spending allocated by the secretary of a department. You [a solution provider] don't want to jump at the opportunity only to find out it's a grant, not a contract. You have to look at finding out which ones are likely to go into contract per department."

"Think about where the addressable market is," said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources. "Think not only about what dollars are going to be appropriated but how many are actually going to end up in the hands of contractors. You have to prioritize all your planning and get sales organizations to think that way, too. Should [VARs] go knock on the door of Indian Health Services? Maybe, I don't know. But VARs and solution providers can't afford to sit around and wait. Should they act today or tomorrow? No. But they should plan today and tomorrow."

If there's a piece of the stimulus going toward, say, facilities upgrades and the push to smart buildings, or improving the wireless network for first-responders, Bjorklund said, consider what that means.

"While that may not have traditional VAR perspective," he explained, "you can imagine the spin-off in places like dispatch centers and telecom gear in law enforcement vehicles. Even in places like explosive detection systems -- that's not traditionally an area for a VAR, but in the different modes of transportation, even containers, there's probably some pretty good opportunities."

Next: Insight From Everything Channel's 2009 Growth Study

Solution provider respondents to Everything Channel's 2009 Growth Study, fielded in late December and early January, showed some optimism about their growth opportunities in government accounts, education accounts and health care accounts.

For government markets specifically, 40 percent of respondents to the study predicted growth in federal government opportunities, while there was less excitement (33 percent each) in state and local government opportunities. Thirty-four percent of respondents predicted growth in education opportunities, and 41 percent saw growth as a certainty in publicly funded health care.

"I hate the term 'cautiously optimistic' but I am because we are focused on SLED and health care," said Tim Barto, vice president of marketing at Troubadour LTD, a Houston-based solution provider. "There are certain IT initiatives that for many companies are nice-to-haves but are going to get cut out of everyone's budget. When you look at infrastructure needs for those markets, though, plus compliance issues, then they become things they [the companies] have to do."

Barto and other solution providers interviewed by Everything Channel reiterated the hot interest in wireless technologies in the public sector and, especially, health care environments, also citing virtualization, security and data center convergence as major plays for VARs.

"A lot of time and money are being spent on networks," Barto said. "They're saying, when all the consultants go home, how do we manage this beast? While they're not exactly suffering in SLED, they're still being asked to do more with less. We're having a lot of conversations with SLED and health care clients about standardization, virtualization, cost and complexity, and how to automate the core business processes so they can manage their environment when all the consultants go home."

Vendors, too, see those pockets as keys to growth in the verticals.

"I think you are going to see growth. Is it double-digit growth? No," said HP's Humke. "But virtualization, collaboration, maximization -- there's an awful lot of energy here. If we're going to improve productivity, it's got to start with technology. You can't throw a box at a problem -- it's a solution, and how you're going to use it. It's asking, 'Do I want to throw 500 PCs at a problem or a thin client and create a virtual environment?'"

Most solution providers agreed that, as in other sectors, unified communications especially has transformed from an encouraging trend into a major play in government agencies, health care facilities and educational institutions alike.

A recent survey by CDW-G found that 53 percent of those markets are either actively implementing or planning to implement UC solutions, and that 70 percent of the organizations currently in the UC planning and implementation phases expect to complete adoption in two years, regardless of how the economy continues to sputter.

"It has a lot to do with the consolidation of the number of devices they have for communication. Think of it that way," said Pat Scheckel, a senior director at CDW-G. "If I can have a pager, cell phone, desk phone, e-mail everything and have one number to dial and advanced cal lrouting functionality, that's big. The big thing to look at is the complete ROI. If you take into account all of their current spend, oftentimes they're spending on conferencing, spending on circuits and spending on other communications systems. Once you factor in all of this and compare it to both the capital and operating expenditures, you see very favorable ROI on a three-to-five-year time frame. We've seen payback scenarios in as short as 16 to 18 months."

Breaking down the UC study into market specifics, CDW-G found that federal government organizations are more likely to consider the continuity of operations benefit of UC to be very important (43 percent vs. 27 percent of respondents from the other verticals); state and local organizations are most likely to want an e-mail-centric approach to UC; health care organizations are more apt to select a telephony-centric approach to UC; and that larger, higher-education institutions with 8,000 students or more are more likely than smaller institutions to have developed a strategic plan for UC adoption.

Ron Sheps, vertical markets manager at distributor Westcon Group, suggested that while he was encouraged by growth potential in public sector and health care markets, the "wild card continues to be the stimulus package."

"I think you're going to see above-average growth this year for health care, and for the public sector," Sheps said. "If we were to pretend for just one second that the [stimulus] didn't exist, then health care would be hands-down the No. 1 growth industry. Education is continuing to grow, too. But wireless is going to be your growth this year. People don't realize the vastness of records in places like health care, and wireless is portable infrastructure."

The move to electronic health records and upgrading health care IT as a whole has really not been incentivized in the past to the degree it is at the present moment, said Harry Greenspun, chief medical officer for the health care group at Plano, Texas-based solution provider Perot Systems.

With billions headed for health care IT initiatives, "even in Washington, that's real money," Greenspun said.

Strong pushes like e-prescribing mandates and state-based initiatives are helping to turn the tide -- with 43 different bills in process or already approved at a state level, the National Conference of State Legislatures proclaimed that states are leading the way regardless of how the federal stimulus progresses.

"You have funding for the first time that was never there before," argued Janie Tramlett, senior vice president and chief marketing officer at Concordant, which specializes in electronic health record integrations. "People laugh at me sometimes, but this right now reminds me of the beginning of retail automation. The reason for that is that these are massive enterprise projects being delivered locally, and to a group of people that have not gone through automation to a huge degree. We talk about being able to have this infrastructure that seamlessly connects people, but it's really not true. We are still at a very basic level of functionality."

Next: Without Daschle, Does Health Care IT Agenda Stall?

As in anything, some solution providers cautioned, nothing in the stimulus or health care IT is a fail-safe. You're still making a sale, argued DLT's Marcotte, not being handed a magic bullet, thanks to the government's priorities.

"I don't buy the 'ready, fire, aim' approach to pursuing business in the public sector," Marcotte said. "There is no substitute for customer intimacy and fundamental business development and marketing activities to intelligently pursue new business. In these trying times, your value proposition better be centered around a very strong ROI and bulletproof financial justification, or you will be sorely disappointed."

Even health care has its drawbacks -- especially now, after the president's ill-fated appointment of Tom Daschle, HHS is presently without a firm hand on the tiller.

"The secretary has so much vision over the culture and themes that the department goes after," Potter said. "With health IT, the Obama administration has been very vocal, so I think from one level, everyone already knows it has the White House's support and that'll take some pressure off. But I think the delay in having an HHS secretary means that some of the funding some agencies will get very quickly may not come to the HHS offices quite so quickly."

"It does matter. They've lost momentum there, too, because the incumbent has left," Bjorklund said. "I think the institutional momentum is there. Whether you have enough leadership at the secretary and undersecretary levels -- whether senior leadership is there to keep momentum going -- there are going to be statutory requirements about the speed in which this money is to be spent. [HHS] might be like a lot of agencies that suddenly have this bag of money arriving on their doorstep, and a lot of them don't have a real clue how to execute it in a short time frame."

"That's not to denigrate the agencies themselves," he added. "To the House's credit and the Senate's, too, they've chosen to piggyback on a number of existing programs so there won't have to be a lot of new starts."