Fasten Your Seat BeltsThe next ripple of consolidation among local companies in the federal services information technology sector is not far away, thanks to TRW's recent buy of BDM International I

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Oracle's Network Computer Gamble

Donations have proven a useful tool to new entrants into high-tech marketplaces - something that has not gone unnoticed by officials at Oracle Corp. and its network computer brethren.

Oracle is distributing $100 million in cash and products to U.S. schools in an attempt to gain acceptance of its NC equipment in the marketplace - and senior executives are quietly trying to convince companies such as IBM, Sun Microsystems and others to chip in another $900 million to gain wider recognition for their NC technology.

Officials at these companies and others aligned with the NC family of technology, such as Novell Inc. and Netscape Communications Corp., say they have not yet joined in the promotion program.

But selling the first fax machine, video-cassette player or new operating system can be extremely difficult because of the so-called network effect. Why should anyone buy the new product if it does not work well with any other products out there?

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Fasten Your Seat Belts

The next ripple of consolidation among local companies in the federal services information technology sector is not far away, thanks to TRW's recent buy of BDM International Inc. for almost $1 billion.

One industry executive called the deal "a watershed event" likely to trigger more activity. Analysts agree, noting that the prices paid for BDM and Computer Data Systems Inc., Rockville, Md. show that the market is willing to pay a premium for federal IT companies.

The main drivers behind the industry consolidation is simple - cost reduction and value creation.

The wide variety of federal contract vehicles now in place makes larger sales forces a must. Smaller contractors are increasingly losing ground in procurement contests with their bigger counterparts.

Phil Odeen, president and chief executive officer of BDM, summed it up best. The federal government has changed the way it buys information technology services. As a result, Odeen says, the larger organizations will be the successful ones.

What's clear is that senior executives at federal IT service companies dotting the Beltway must move quickly and carefully to position their companies for this next wave of consolidation.



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