E-Commerce Attracts Leaders, Followers

By Steve LeSueur, Staff Writer



Electronic commerce is ready to take off in the public sector, with state and local governments set to devote significant portions of their technology budgets so that governments get online and their citizens get out of lines, government and industry officials said.

"Government e-commerce will grow by at least 100 percent a year over the next five years," said P.K. Agarwal, chief information officer for California's Franchise Tax Board. Government spending on information technology is growing at a rate of more than 10 percent annually, he said, and at least half of that growth could go toward e-commerce.

State and local governments spent an estimated $600 million on e-commerce projects in 1998, according to Rishi Sood, an analyst with G2R Inc., a Mountain View, Calif., market research firm. Although projecting less rapid growth than Agarwal, Sood still expects annual e-commerce spending by state and local governments to reach $5 billion in 2003.

While many state governments are developing Web sites and beginning e-commerce projects, many others are moving more cautiously, taking small steps and closely watching those in the lead.

"Governments tend to be risk averse," said Chuck Shih, a research director with the Gartner Group's electronic commerce and extranet applications service. "No one wants to be the pioneer. They're looking to see if the technology and return on investment in other projects proves out."

Both Agarwal and Shih were prominent players last month at the Conference on Electronic Commerce in the States, sponsored by the National Electronic Commerce Coordinating Council and held in Phoenix. Agarwal served as chairman, while Shih was a keynote speaker at the conference, which featured industry displays and discussions of new projects, recent successes and problems to overcome.

The most sweeping change by state governments has been their use of the Internet for informational purposes. Just about every state and local government now has a Web site where citizens can log on for information about how to apply for licenses, which agencies to call for specific problems and what's going on in a city.

Governments also have been creating intranets where state employees can get information about health and retirement benefits, vacation policies, job opportunities, internal forms and other information handled by human resources departments.

"These are quick hits and easy to do," said Bill Nosal, a managing associate with PriceWaterhouseCoopers who has been following e-commerce for the consulting firm's Fairfax, Va., office.

One of the next important growth areas will be electronic procurement, which has the potential to save governments significant amounts of money by streamlining the buying process and eliminating paperwork, government and industry officials said.

E-procurement enables state employees to purchase products over the Web from approved vendors. Rather than combing through hefty catalogues, employees can use their computers to find what they need quickly and then send their requests immediately through the approval chain.

Massachusetts is exploring this technology through a pilot program to build an electronic mall that would be shared by a number of states.

Begun in April 1998, the project has signed up five other states and had its first transaction in October 1998.

State officials said their goal is to reach 200 transactions a week by the end of January. The pilot will continue through June 30, when officials will evaluate the project.

California's Department of General Services is just beginning an e-procurement project that will attempt to unify under a single buying system the state's 250,000 employees and the $4 billion in goods and services they purchase annually.

Andersen Consulting is the prime contractor in this project, which many observers believe will serve as a model for other states if it proves successful. (See related story, page 1.)

Another key area for government e-commerce is in Web-based applications that allow citizens to obtain a variety of things such as drivers' licenses, fishing licenses and professional licenses as well as pay commercial fees and taxes.

"This is something many governments will want to do, because they can give 24-hour service, seven days a week," said Shih. Minnesota and a number of other states have started providing some of these services, but e-commerce licensing is not widespread among the states, he said.

While there was much discussion among state officials at the conference regarding outstanding technical problems, such as privacy and security issues, these are not the biggest stumbling blocks to government e-commerce, government and industry officials said. Major obstacles to e-commerce are changing government policies, procedures and even laws that support the old way of doing business.

Consequently, one of the main reasons for the small, seemingly unambitious pilot programs is not just to demonstrate the technology, but to identify the political and procedural barriers to e-commerce solutions.

"Historically, technological availability has not been the problem for governments," said Nosal. "It's been the willingness on the part of the states to establish new policies and change processes to take advantage of technology."

Agarwal concurred. "Those states that can transform their infrastructure for electronic commerce are providing the foundation for a new economy," he said. "But if states don't become a significant player in e-commerce, they might be left behind."