Eye on the States

By Thomas DaviesHow large is the potential market for electronic government business in state and local government? That question is on the mind of almost every information technology company looking to capture its share of this rapidly growing market.Traditional approaches to sizing the public-sector IT market just do not work very well. For example, state and local governments this year are estimated to spend about $55 billion on information technology. IT expenditures probably make up less than 10 percent of the e-gov market opportunity. So what makes up the rest? Consider the following sources of potential revenue: • Administrative revenue, such as billing and payment processing, over the Web.• Revenue when the Web is used to deliver government benefits, such as health care.• Advertising revenue from advertisers who want to reach the populations served by government.State and local governments spend more than $1.5 trillion annually. This represents more than 15 percent of the U.S. economy. Most of this spending is for transfers and subsidies, such as income support and health care benefits, and consumption, such as education and public safety. Just as important, state and local government's control access to the populations that are dependent upon or regulated by government. Control of the access point to these populations and the supply chains that serve them means state and local government is in the driver's seat. The populations served by state and local governments represent markets with lots of eyeballs: more than 45 million children in public schools nationally, more than 11 million students in higher education, more than 14 million state and local employees, and more than 34 million recipients of Medicaid. Herein lies the real e-gov opportunity. Take, for example, a Web site that supports government's responsibility to regulate professional occupations, services such as the certification and licensing of teachers and other occupations. In addition to being responsible for one-time development costs, industry will be involved in the ongoing hosting of the site and its administration.Depending upon the contractor's business relationship with the government, a contractor also could assume responsibility for program administration, such as billing and payment, and any advertising revenue that results from opening up the Web site to advertisers who market products and services to professional workers. Over 2.6 million primary and secondary school teachers in the United States, who in the future will be certified over the Web, represent tremendous buying power.Another example points out how large the e-gov market could become. The states spend more than $100 billion annually on health care under the Medicaid program. Only a relatively small part of this spending goes to IT. The lion's share is for benefits. These funds are paid out by the states to tens of thousands of physicians, nursing homes and hospitals across the country. State-sponsored Web sites dedicated to serving this needy population, providing essential information and processing health care transactions for the entire health care supply chain, will act as magnets for e-commerce opportunities and dollars. The bottom line is spending on IT is just the tip of the large e-gov iceberg. As government turns to industry for support in implementing, managing and operating e-gov sites, industry will have the opportunity to exponentially expand the total size of the pie. For every dollar spent on IT, there may be another $100 in associated administrative, program and advertising revenues. The programs state and local governments are responsible for and where most of the public-sector civilian spending goes, such as driver's licensing, social and health care benefits administration, unemployment benefits and education, involve national supply chains and millions of people. New Web sites offer opportunity to create communities of interest among suppliers, recipients and governments.The opportunity is so great, it remains to be seen whether government can move fast enough to capture it. When the market begins to move, what appears to be large e-gov opportunities, such as e-purchasing, will seem small by comparison. With so much economic potential locked up in the populations that government serves, the underlying e-commerce potential of government will rival even the most successful e-commerce sites of the 1990s. Thomas Davies is senior vice president for Internet services at Federal Sources Inc. in McLean, Va.