Uncle Sam Helps Vendors Weather Storm

Providers increasingly looking to federal projects in the face of downturn

As enterprises continue to watch IT budgets closely, technology and telecommunications companies are turning their attention to providing services for Uncle Sam.

But while many vendors wrap public sector wins in the rhetoric of promoting democracy through e-government, most citizens wont feel a direct impact because the lions share of federal technology procurement involves defense and intelligence agencies.

Marketing to the government is nothing new, but it takes on disproportionate importance for tech and telecom vendors when commercial sales lag. In boom times, Uncle Sams slow sales cycles and convoluted procurement practices make the public sector a less attractive target. But these days, vendors are eager to make the most of the sometimes difficult but deep-pocketed relationship.

"You can see the specter of government spending looming large," said Tom Nolle, CEO of Cimi Corp., a consultancy in Voorhees, N.J. "The government has discretionary technology funds committed to projects even now, while most private companies would probably put a hold on those projects."

Many industry luminaries are championing public sector sales as a boon to democracy. At the E-Gov conference in Washington earlier this month, Palm Inc. CEO Carl Yankowski told an audience of federal procurement professionals that "the pressure to provide better services to citizens is getting tougher and tougher."

Providing better services to average citizens accounts for a small portion of the major vendors federal contracts, however, compared with providing better services to the military and intelligence communities. This month, for example, Palm clinched a deal with the U.S. Navys Space and Naval Warfare Systems Center, in Charleston, S.C., which will buy Palm.Net wireless services for Palm VII handhelds. In negotiating the deal, the Santa Clara, Calif., vendor also took steps to clear a path for more business with the feds by arranging a government payment vehicle through which all federal agencies can buy Palm.Net services.

Like Palm, Hewlett-Packard Co. is trying to better meet the peculiar demands of federal purchasing. The Palo Alto, Calif., manufacturer set up a Public Sector Organization about a year ago as part of a companywide marketing strategy restructuring. Approximately 65 percent of HPs federal business is with military agencies, including the U.S. Coast Guard, the Pentagons Defense Message System, and the U.S. Air Force, Navy and Army.

This year, HP plans to bring in more than $1 billion in federal contracts, according to Bruce Klein, national federal manager of the Public Sector Organization.

"Were growing this business," Klein said. "We see adding resources inside HP to the public sector. When you look at a federal budget of $40 billion, theres a tremendous opportunity for growth for companies like HP."

Telecom carriers, too, are devoting increased resources to showcasing—if not necessarily securing—their government sales. This month, Global Crossing Ltd., of Hamilton, Bermuda, won a bid to provide advanced WAN services for the Pentagons Defense Research and Engineering Network. The contract, valued between $137 million and $400 million, represents "by far the most significant" public sector win for a telecom carrier, said Paul Kayatta, president of Global Crossing Government Markets.

Global Crossing, which has contracts with several other Defense Department agencies and the Department of State, touts its global footprint and state-of-the-art multiprotocol label switching capability, which strengthens the reliability and security of IP networking. Because of the security advantages it can offer, military and intelligence operations are a natural marketing focus, Kayatta said.

While belt-tightening at private enterprises is not driving the carriers interest in government business, it could be a factor in the relatively high news profile of public sector wins, Kayatta said.

Some analysts see a heightened focus on marketing to the government as short-sighted, however, in that it could create a false expectation of increasing growth in a sector that traditionally remains fairly constant in its spending.

"The short-term focus on the government market is a tactic, not a strategy, and its a tactic thats ultimately going to fail," Cimis Nolle said. "Everybodys going to bed at night praying Please dont let me get caught in the next quarter. Everybodys goals have turned short-term."

But fear of boosting the bottom line with revenue they may not be able to sustain hasnt stopped vendors from continuing to tout their wins in the public sector.

Even smaller vendors are waving the banner of government contracts lately.

Last week, eOn Communications Corp., a provider of unified voice and data systems and software, touted a five-year purchase agreement awarded to it by the Coast Guard. The Kennesaw, Ga., company has already installed more than 220 of its digital server platforms on Coast Guard sites for ship-to-shore communications.

The multimillion-dollar agreement gives ships and shore stations a contact center product that unifies voice, e-mail and Web-based messages.