USi Goes After Government Business

By Marianne Dunn, Staff WriterUSinternetworking Inc., Annapolis, Md., has one federal contract under its belt and is gearing up to go after more.USi landed its first government contract with a civilian agency in February, said company officials, who declined to identify the agency or disclose the value of the award. "The government has been buying outsourcing services for years, so it is a natural evolution of what we are trying to do," said Richard Terhorst, vice president of sales for the company's Federal Sales Group, a three-person team formed July 6. The company expects to be added to the General Services Administration schedule within a few months, according to Terhorst. In the meantime, the sales group will bid on "several opportunities where there will be open rewards," he said.Founded in January 1998, USinternetworking, an application services provider, offers customers a host of business applications over the Internet for a flat fee. Such services include financial and human resources management, electronic commerce and Web site management. Company officials said these services allow its customers to deploy enterprise applications quickly, without the associated cost and burden of owning, managing or supporting the applications or underlying infrastructure.The brainchild of Christopher McCleary, the company's chairman and chief executive officer, USinternetworking has 543 employees and reported revenue of slightly more than $4 million in 1998. Revenue for the second quarter of 1999, which ended June 30, was $6.7 million. For the first six months of 1999, revenue was $11.1 million.Last summer, a sales representative contacted federal agencies to determine if there was a market opportunity for USi. Input, a market research firm in Vienna, Va., expects the federal market for outsourcing services to grow from $2.3 billion in 1998 to $3.2 billion by 2003.USi is positioning itself as a company that can reduce procurement and implementation costs, curtail staffing needs and help agencies stay year 2000 compliant. Terhorst, who founded integrator Government Systems Inc. in 1989 and sold it to CACI for $33.5 million in November 1997, was hired in October 1998 and charged with putting together a strategy for pursuing federal business. "We are seeing a couple factors merging here: The Internet is now part of just about any federal agency's operational strategy, and these agencies need the kind of world-class, commercial off-the-shelf software that will help them run more efficiently and cost effectively," he said.Also, regulatory changes have made it easier than ever for agencies to outsource IT, "and this makes USi's services the solution for many federal needs," he said. The company "can combine the applications, technology, operations, management and staff into a comprehensive service for effective and efficient government operations."Right now, Terhorst said, a minimal amount of revenue is generated from the federal group. But looking several years out, he said, it will likely be 25 percent to 35 percent of the company's revenue. "I can see really big numbers," he said.Todd Weller, an analyst with Legg Mason Wood Walker Inc. in Reston, Va., is not quite as optimistic. "I do not think the number will get that high," said Weller. But, he said, looking to the federal government for business is not a bad idea. "It is a smart move," he said. "They are a local company and this is a hotbed for that kind of activity."Commercial clients make up the lion's share of the company's business, with 19 new clients during the second quarter of 1999, company officials said. Among its commercial clients are Hensley Segal Rentschler Inc., Cincinnati; Hershey Foods Corp., Hershey, Pa.; Liberty Financial Companies Inc., Boston; and The Baltimore Sun Co., Baltimore. Terhorst said USi would be the first application service provider to target the federal market. There are other companies that offer similar services, he said, but they do not specialize in it.In the private sector, USi competes with Corio Inc., Redwood City, Calif., and IBM Global Services, Somers, N.Y. Competition for public sector dollars most likely will come from Electronic Data Systems Corp., Plano, Texas, and Computer Sciences Corp., El Segundo, Calif. Maximus Inc. of McLean, Va. is offering services at the state level. "[USi] was designed from the ground up to be an application services provider," Terhorst said. "These people do other things, and we are very focused on what we do. That is not a criticism; they are very formidable companies and they have been very successful, but they specialize in a lot of different areas."