Industry, Government Embrace E-Mall Idea

By Steve LeSueur, Staff WriterLeading technology firms are launching new projects and services to tap the potentially lucrative market for multigovernment procurement vehicles where state and local officials can purchase goods and services over the Internet from qualified suppliers.American Management Systems Inc. is among a handful of companies working on so-called e-mall systems or applications in anticipation that strong interest among state and local governments will soon make their vision a reality."We're committed to a very rapid time to market," said Ross Kory, vice president and director, state and local government and education for Fairfax, Va.-based AMS.The AMS system would be similar to the Massachusetts Multistate Electronic Mall, now in pilot development, in which five states are purchasing commodities online in a standards-based architecture that allows the states to share suppliers and contracts. Among the companies playing a role in the Massachusetts E-Mall project are Science Applications International Corp., Intelisys Electronic Commerce, Motorola and Software AG.The Massachusetts E-Mall represents the first major opportunity for a multistate online procurement project. After the pilot is completed in June, state officials will assess the results and open up the competition for the full production model in the fall. Systems designed for cooperative buying of goods and services and based on open architecture and standards — rather than systems designed for individual governments — will become the dominant model for electronic procurement among state and local governments, Kory said.AMS initially started developing a more traditional e-procurement system but opted for the open model because of "our understanding of how the largest [government] organizations work, the way technology seems to be evolving and the way people are behaving on the Internet," he said.The company signaled the seriousness of its effort last month when it hired Bill Kilmartin, who served as the Massachusetts state comptroller and co-project director of its E-Mall project. Now a vice president with AMS, Kilmartin said his experience with that project convinced him that the time is ripe for developing a multigovernment, online procurement system."The approach here is about choices, about community, about the free market, and about the self-organizing principles among a group of participants," he told Washington Technology. One of the leading systems integrators in the United States, AMS had revenues of over $250 million from its state and local government work in 1998, and does business with 41 of the country's 100 largest state and local governments.Two other companies specializing in electronic procurement applications with new product offerings that could make the creation of multigovernment e-malls much less expensive and cumbersome are Ariba Technologies and Intelisys Electronic Commerce.Both companies have created portal Web sites where suppliers can register their catalogues for access by government buyers. Rather than forcing suppliers to develop proprietary catalogues designed specifically for each buyer, the Ariba and Intelisys portals provide suppliers with a low-cost method for making their products and services available for sale over the Internet. This is significant to the future of multigovernment e-malls because it expands the number of potential suppliers by lowering the price to participate. "Some small companies thought they would be shut out of the [Massachusetts] E-Mall because it would be too expensive to set up the catalogs," said Gary Lambert, deputy state purchasing agent and director of the E-Mall project. "A portal service would give every business an opportunity to create a catalog." Intelisys was founded in 1996 and has sold its Internet-based procurement solutions to government agencies in Australia and to such companies as Ford Motor Co., Alltel Corp. and the Chase Manhattan Bank. "We think our business model is a perfect fit for the way state and local governments operate," said Lloyd O'Connor, chief executive officer for New York-based Intelisys. "Government procurement requires large and small business suppliers." The new portal service, Intelisys.com, was unveiled Feb. 25. Ariba's competing Internet portal, Ariba.com, provides a similar service. Introduced March 3, that portal enables the users of Ariba's e-procurement software to link with suppliers worldwide. Ariba's 25 commercial clients, which include Cisco Systems Inc., Lucent Technologies Inc. and Hewlett-Packard Co., collectively spend about $75 billion annually on indirect purchases, said Dave Rome, vice president of marketing for Sunnyvale, Calif.-based Ariba.Ariba also is providing the e-procurement software for the California Statewide Procurement Network, a project to streamline the way the state buys $4 billion worth goods and services annually. The pilot system for the California project is slated for its online debut in May.The company recently sold its e-procurement application to a major university, which company officials declined to identify. In Massachusetts, SAIC is implementing the Intelisys software for the pilot project, and officials from both companies said the two firms likely will remain teamed in the final competition. "We're very committed to the e-commerce business and have many initiatives going on in this area," said Bob Fournier, a director of business development for SAIC.Andersen Consulting of Chicago, the systems integrator in the California project, also is interested the E-Mall competition, but its participation depends on how the request for proposals is structured. "I am sure that the Ariba.com solution could work in Massachusetts, if the state is as flexible as California about the protocol and standards the vendors are allowed to use," said Edward Burke, managing partner of government strategy with Andersen.While there are technical and political challenges to overcome in implementing the new system, Kilmartin described them as speed bumps, not barriers. "They are not insurmountable," he said. "We're talking about a realistic, feasible undertaking."Lambert said there is great interest in multigovernment purchasing. The Massachusetts project has five participating states (one of the original six dropped out), as well as 10 observer states, said Lambert. Lambert said he continues to get calls from other states wanting additional information and even asking whether it's too late to join the project.It is difficult to estimate the potential value of the e-procurement contracts with state governments.Neither Ariba nor Intelisys reveal the prices of their contracts with private customers. But the California project has a price tag of about $14 million, including $6 million that will go to Andersen Consulting, Ariba and the rest of the industry team."You're finding that a lot of state and local governments want to integrate their procurements across jurisdictions," said Leslie Kao, a senior analyst, public sector, for G2R Inc., Mountain View, Calif. But the difficulties associated with establishing common procurement rules also made it more logical for California to focus on creating its own system rather than go the multistate route."Multistate purchasing is probably more forward-looking, but California needed to take that first step," she said.