Nimble Upstarts Clamor for Role in State, Local E-Services

By Steve LeSueur, Staff WriterA handful of small, scrappy upstarts are challenging established systems integrators in the race to build Web portals and online services applications for state and local governments.These Davids are hoping to knock aside Goliaths such as IBM Corp. and Lockheed Martin Corp. by offering their products and services at virtually no cost to governments. The companies obtain revenue through transaction fees charged to the government or to businesses and citizens that use the online services.Some larger systems integrators have provided state and local governments with self-funded services models, many of which have been successful, but executives question whether an approach that relies solely on transaction fees will be profitable.The smaller companies, which sport names such as ezgov.com inc., govWorks Inc. and National Information Consortium Inc., hope to grab a sizeable chunk of the $600 billion-plus market in online transactions conducted by citizens and businesses with local governments each year. Executives from these companies boast they are more nimble than their larger competitors, enabling them to do electronic government applications faster and more economically."Our costs are lower than IBM's. We're a different kind of company," said Bryan Mundy, chairman of ezgov.com of Atlanta, at the Nov. 9 unveiling of the Web site, www.ezgov.com. At the site, citizens from any city or state can obtain business and driver's licenses and building permits, pay property taxes and transact other business.Ezgov.com executives have high hopes for the site, which they aim to make the Amazon.com of government portals: the first place citizens and businesses go to obtain services and information about their federal, state and local governments. All information at the site will be provided free, but ezgov.com intends to charge transaction fees of $1 to $5 for its services, which allow people to purchase licenses, permits and pay for parking and moving violations online. The company, which was incorporated in April, has only four government clients today, but Mundy said he expects to begin announcing soon five to 10 new contracts every couple of weeks "for a long time." Both Mundy and ezgov.com co-founder Ed Trimble, who serves as president and CEO, have strong IT roots. Mundy was a technology consultant for BellSouth; Trimble worked for Andersen Consulting, specializing in solutions for the airline, telecommunications and health care industries. And the company has recruited to its board household names such as Jack Kemp, former U.S. congressman, and Mario Cuomo, former governor of New York."These new vendors are throwing down the gauntlet to the big systems integrators," said James Macaulay, a public sector analyst with Dataquest, a research arm of the GartnerGroup, Stamford, Conn. "If I was a vendor, I would take a long, hard look at these start-ups," said Macaulay, who gives these companies high marks for their flexibility and willingness to innovate."I think it's a great model," said Karl Williams, a project manager for transportation systems for Lockheed Martin IMS Corp., regarding the self-funded approach. But Williams doubted whether these newer vendors will be able to "step up to the bar" to handle the more complicated demands of many state and local governments.One of the vendors, govWorks Inc. of New York, hopes to gain a place in this booming market by relying on transaction fees to fund its services, but with a different twist: govWorks will not necessarily have a direct contract or agreement with the governments of the citizens it serves.For many of its services, the company will act simply as a transmission agent through which citizens can pay for bills and services, such as parking and moving violations, estate taxes, business licenses and various permits.While govWorks hopes citizens will be attracted to its Web site by the ease of its services, the company also will provide incentives, such as discounts and free magazine subscriptions, to entice people to use its site rather than deal directly with the government. "Most of what people do with government is transact money and information. The Internet was made for that," said Tom Herman, chief technology officer of govWorks. The company's Web site, www.govworks.com, is set to debut Dec. 12 with initial applications in nearly 2,800 cities accounting for more than 80 percent of the U.S. population. Neither govWorks nor ezgov.com would disclose their revenue streams, but both expect rapid growth. Ezgov.com, for example, has 60 employees and is planning on three times that number a year from now, said Mundy.Enter the National Information Consortium Inc. of Overland Park, Kan., a relative granddaddy to ezgov.com and govWorks. The company reported revenue of $40.5 million through the third quarter of 1999.The company, which began providing online services to Kansas in 1992, has since signed up nine other state and local government customers, including Arkansas, Georgia, Utah and Virginia. In each of these locations, NIC has established a local subsidiary that provides the portal site and service applications at no cost to the government.The NIC subsidiaries fund their projects through transaction fees, usually paid by businesses to obtain government information, such as motor vehicle records used by insurance companies and financial information used by banks.In much the same way that governments regulate utilities, the NIC subsidiaries are overseen by public oversight boards that determine how resources are allocated and which online projects go forward. The revenue generated by transaction fees is used to pay for online applications that provide free services to citizens and businesses. "The state sets all the priorities, policies and fees," said Joseph Nemelka, executive vice president for market development. In addition, state agencies are not required to use NIC and can select other vendors to implement new projects. "The portal and the data belong to the state," he said.A recent survey of states by the National Electronic Commerce Coordinating Council found that of 22 responding states, eight had self-funded models. Hawaii and Pennsylvania recently issued requests for proposals for companies to build portal sites and services, while Hawaii specifically asked for a self-funded system, said Nemelka. Arizona reportedly is considering a self-funded model as well.While these models are attractive to states hard-strapped for cash, not everyone is convinced that this approach is appropriate for state and local governments. One is Richard Varn, chief information officer for Iowa, who questions whether state governments should even be charging transaction fees. "People already pay taxes for these services, so why should they be charged again?" he said.Varn also contended that rather than rely on a single vendor, a state should find the best company to provide individual pieces of its online services. Consequently, Iowa has engaged NIC to provide portal work and a few applications, but Varn is also bringing in other vendors such as IBM, which is installing a professional licensing system similar to the one the company built for Maryland."The chances of finding a one-solution-fits-all are zero," said Varn.Officials from other states have suggested that if online systems can generate revenue through the sale of public information or services, then governments themselves should build the systems and capture the revenue for taxpayers. The widespread adoption of transaction-based applications could be slowed while government officials debate such questions.Another problem with the self-funded models is that many applications will not generate enough transactions to pay for the systems, said Todd Ramsey, general manager of IBM's global government industry unit. Many citizens do not want to pay fees, and with many applications, there are too few potential buyers.Officials with Lockheed Martin of Bethesda, Md., also caution that many state operations are extremely complex and do not lend themselves to easy Internet solutions. In Texas, for example, the state renews 15.5 million vehicles each year, but the renewals are processed by the state's more than 250 counties, which makes for a complicated cash collection, cash distribution and audit trail, said Williams from the company's IMS division."The transaction model can work for certain applications and where the government is committed to making it work," said Ramsey, pointing to a self-funded vehicle registration system that IBM installed in Arizona. But he said that in the rush to adopt self-funding applications, state and local governments may get far fewer applications than they desire.However, officials with ezgov.com and the other companies disagree. Mundy, for example, said that ezgov.com will require only a 5 percent user rate to be self-sustaining, and that experience shows a consumer online adoption rate of 20 percent to 30 percent.NIC officials point to their successes in Kansas and other states. NIC has implemented hundreds of applications online in Kansas, such as hunting and fishing licenses and motor vehicle records, according to Don Heiman, the state's chief information technology officer.In Utah, where NIC has just begun its portal work, that state already has several applications up and running and six to seven more in the pipeline, said David Moon, the state's CIO."I'm seeing applications coming online in one week or two weeks," said Moon.Lockheed Martin, which specializes in high-volume payment processes, such as collecting parking fines and child support payments, is aiming to provide e-government solutions that integrate Web applications and allow information sharing throughout the enterprise, said Williams.IBM last week announced that it would establish a worldwide network of innovation centers to help companies and governments move to the next generation of e-business. A good part of IBM's strategy will be finding the right business models for building Web sites and services for its customers."We're looking for new models," said Ramsey. "We're not saying that they're all faulty."Market analysts said this is the right approach. "There is plenty of room under the e-commerce tent for different models," said Thomas Davies, senior vice president for Internet services at Federal Sources Inc., McLean, Va. "It is way too early in the e-commerce lifecycle for any company to be myopic about what will work and what will not." XXXSPLITXXX-