Beyond.com Aims for Civilian Agency Business

By Richard McCaffery, Staff WriterA $6.1 million contract from the U.S. Patent and Trademark Office has given Beyond.com its first federal customer outside the defense arena and a foot in the door at the Commerce Department, a company official said.The Internet retailer plans to follow up the three-year contract with the Patent and Trademark Office, part of the Commerce Department, and its newly awarded General Services Administration schedule with an advertising campaign this summer, keyed to government customers, according to Kendall Fargo, Beyond.com's vice president of enterprise and government sales. It is part of the Sunnyvale, Calif., software reseller's strategy to expand its federal business to civilian agencies. About 25 percent of Beyond.com's revenue comes from the government. Its customers include the Department of Commerce, the National Imagery and Mapping Agency and the Defense Information Systems Agency."We're getting more recognition outside the DoD," Fargo said. "We think this is a very significant year for us. We just went public last summer, and we're really focused on expanding government market share this year."Competitors include hot Internet companies such as Amazon.com, traditional retailers such as CompUSA Inc., and niche players such as Government Technology Services Inc. Digital River Inc. of Eden Prairie, Minn., one of Beyond.com's primary direct competitors, also gives customers the ability to download software electronically.One way the 137-employee company plans to grow in the government is through partnerships with system integrators. Fargo declined to comment when asked whether the company has signed agreements with integrators, but said the company is in discussion with several and expects to solidify a few partnerships by the end of the year.Fargo said the company must team with integrators to give government customers complete service."We're strictly focused on selling software," he said. "We don't do any consulting or on-site work."Though Beyond.com sells products directly to end users, it is not shy about forming partnerships. In December, Government Technology Services Inc. of Chantilly, Va., picked Beyond.com to supply software for as many as 200,000 users under GTSI's Army License Software Upgrades contract. As a subcontractor to GTSI, Beyond.com will provide Microsoft software for customers throughout the Army over the five-year life of the contract.Fargo was one of the first six employees at Beyond.com, a company that sells 44,000 software titles from companies like Microsoft, Adobe and Lotus online. More than 5,600 titles can be downloaded electronically.The company was founded in 1994 as Software.net in an office above a barbershop in Menlo Park, Calif. Like many Internet companies, Beyond.com grew up fast, helped recently by its multimillion-dollar advertising campaign. Revenue increased from $5.9 million in 1996 to $17 million in 1997 and to $37 million in 1998. The company went public June 17, 1998, selling 5 million shares at $9 each. After hitting a high of more than $41 in January, the issue settled down and now trades around $29 with a market value of $875 million.In August 1998, it changed its name to Beyond.com and launched a national advertising campaign to build brand awareness. Mark Breier, who joined the company as president and chief executive officer in March 1998, was formerly vice president of marketing at Amazon.com. "I've been relatively pleased with their performance," said James Lin, an analyst at Wedbush Morgan Securities in Los Angeles. Lin said the company's government contracts provide stability in terms of revenue that many Internet players lack. He expects Beyond.com's government business to continue growing. Still, it will take awhile for the company to turn a profit. Lin expects to see it break even in the third or fourth quarter of 2001.Lin is less concerned about so-called e-tailers, companies like Amazon.com and barnesandnoble.com inc., which sell and deliver shrink-wrapped software packages through the mail. Beyond.com entered the government space in May 1995 when the Defense Information Systems Agency, looking for a better way to acquire and maintain software, came knocking, Fargo said. The company received a $1.3 million contract with the Defense Mapping Agency in early 1996 and has been growing its defense business ever since.In 1997, it won a five-year, $50 million contract with the Defense Logistics Agency, and last fall it won an $8.3 million contract with the National Imagery and Mapping Agency. Beyond.com has contracts to electronically distribute software upgrades and updates to 70,000 users at the Defense Logistics Agency and 5,000 users at the National Imagery and Mapping Agency.