While several rival Internet services have launched in the past two years and been successful as middlemen for federal government purchasers, none have gotten an endorsement from a government agency until now.
The Defense Information Systems Agency, which is the purchaser of electronic commerce solutions for the Defense Department, signed a five-year cooperative research and development agreement with FedCenter in September. Under the pact, DISA gets first dibs in suggesting ways to improve and enhance the online service. In return, DISA will supply hardware, software and telecommunications equipment to Digital Commerce Corp., the Reston, Va.-based parent company of FedCenter.
"This agreement puts us in front of every government agency," said Richard Graveley, executive vice president and founder of Digital Commerce. "Other agencies (aside from DoD) are encouraged to take part in this development."
DISA officials could not be reached for comment on the agreement but Graveley said DISA is interested in online procurement solutions because they save time and cut costs.
Once the online service evolves, plans call for DISA to offer training to all government employees on electronic commerce solutions, according to FedCenter officials. Graveley said this aspect of the pact offers the company the best possible market exposure he could imagine.
Proponents of online procurement sites laud them for bringing comparison shopping to the federal government - a key to competitive pricing. The GSA has its own online ordering service, named Advantage. And other services, such as GovCon Inc. in Rockville, Md., and eFed, which was launched recently by Electric Press in Reston, Va., are vying for the same audience.
All of the services are doing well, by Internet standards. FedCenter claims 30,000 subscribers and 50,000 hits a day to its site. GovCon, also started two years ago, claims 75,000 subscribers, 3 million hits a month and profitability.
Bob Dornan, senior vice president of Federal Sources Inc. in McLean, Va., said that such sites are doing so well because both users and vendors in the procurement industry are computer savvy and comfortable with the idea of electronic commerce.
"There's a big market out there," said Dheeraj Khera, president of GovCon. "It's not surprising people are making money at this."
According to Graveley, the federal government made 30 million purchases last year. Even though it is unknown how many of those purchases were made electronically, there are federal mandates in place that will require all such purchases to be made electronically by the year 2000, he said.
Khera agrees with Graveley that the key to success in online government procurement is buddying with the federal agencies. GovCon has not landed any such research and development agreements but is currently negotiating other types of deals with other agencies, Khera said. He declined to elaborate.
FedCenter has the early advantage, according to Graveley. "This is the first [such] agreement DISA has done," he said. "It creates the first true partnership with the federal government by a company like ours."
Although GSA Advantage has its own government endorsement of sorts (after all, it is run by a government organization), it cannot offer the value-added services of its competitors. It cannot rate products or offer comparative analysis on products because it is operating with taxpayer dollars.
Digital Commerce Corp. bought FedCenter in March 1996 for $3.5 million, only shortly after it was launched by founder David Beers (who still serves as president of the service and vice president of government affairs for the company). The company has plans for other electronic commerce pursuits - art and collectibles for starters - but first wants to strengthen its position in the federal market.
Two months ago, the company brought in Tony Bansal as its new president and chief operating officer. Formerly chief information officer of ICF Kaiser International Inc. in Fairfax, Va., Bansal comes with a strong understanding of larger organizations, said Graveley.
Although he declined to discuss Digital Commerce's financial position, Graveley said the company's revenue has grown 500 percent in the past year and that an initial public offering is slated for the third quarter of next year. He added that the company should close on a $15 million capital infusion in January.
With the DISA agreement and the strong interest in the Fed-Center service, Digital Commerce will increase its staff from 20 to 120 in the next six months, Graveley said.