GovHost to Go National With Reseller Program

By Lisa Terry, Contributing Writer

VC3 Inc., a small integrator serving the public and private sectors, is seeking to expand its GovHost.com e-government division's reach nationwide through the Feb. 15 debut of a new reseller program.

The Columbia, S.C., company is targeting government customers outside its base in the Carolinas and Georgia with its second reseller deal, signed this month with the ITropolis division of New Age Technologies Inc., Louisville, Ky. That company is a $7 million technology solutions, consulting and staffing provider to business and local government.

ITropolis will serve a 10-state region in the Midwest and Mid-Atlantic. VC3 also targets portions of the West Coast and Florida through its first partner, Berryman & Henigar Inc. of San Diego, which it secured last year.

Through its GovHost.com division, VC3 provides Web hosting to small and midsized cities and offers e-government modules in 14 areas, including permit applications, utility bill presentment and government business applications.

The company is seeking to sign four to six systems integrators this year and ultimately garner 15 to 30 partners with its new program, offering nonexclusive geographical territories.

"In the past, we've worked with government consulting companies as well," said Scott Spears, VC3 director of channel marketing and the partner program. "We're not getting totally away from those folks, but we have more synergy with systems integrators."

The integrators can provide the back-end services, including deployment of network and desktop infrastructure, that are typically required before GovHost implementation. System integration revenue from a typical installation can be four times that reaped from GovHost, he said.

As an application service provider (ASP) of e-government services, VC3 faces a competitive national marketplace. The space is replete with traditional developers with deeper pockets, dot-com upstarts flush with venture capital, point-solution providers, Web design firms and other regional developers, said Tom Davies, senior vice president at Current Analysis Inc., a Sterling, Va., competitive analysis firm.

A number of application developers who aim at larger government entities are debuting ASP versions for small to midsize municipalities, which are VC3's market. Despite different business and financial models, "they're all competing for the same dollar," Davies said.

By contrast, VC3, a privately held, $4 million to $5 million, 7-year-old systems integrator that launched GovHost in April 2000, has funded the new enterprise through integration revenue and one round of angel funding. The firm is seeking a limited venture capital investment.

The company is seeking to capitalize on the growing interest of governments in delivering services to citizens and businesses online.

According to high-tech analysis firm Forrester Research Inc., Cambridge, Mass., by 2006, federal, state and local governments will take in $602 billion, or 15 percent, of collections via the Internet, up from $23.9 billion this year. Forrester predicts most of the 14,000 e-government applications online by 2006 will come from the nation's 35,000 cities and towns.

GovHost has about 12 local government customers so far. It provides customized Web sites for its city customers and generates revenue through subscription fees.

The firm's closest rivals include Netgov.com Inc., a Chicago developer pursuing municipal e-gov ASP business as well as the electronic court filing and case management market. Netgov, an 18-month-old enterprise that formed its current iteration in June 2000, received $23 million in second-round funding at that time, and an undisclosed amount of third-round investment in January 2001.

Another competitor, EzGov Inc. of Atlanta, garnered $28 million in its March 2000 second round. Carta Inc., Sacramento, Calif., and National Information Consortium Inc., Overland Park, Kan., are also active in the space.

The market has already seen casualties: GovWorks Inc. of New York declared bankruptcy Jan. 9. Many observers said GovWorks officials emphasized marketing over technology development and suffered from inexperience in the public sector, which led them to believe that governments would simply hand control of their Web presence and data to an outsider.

"Even after they realized their huge mistake, the perception was out there," said Jeremy Sharrard, associate analyst with Forrester's Internet Policy and Regulation Group, regarding GovWorks' troubles.

Not everyone is sold on the timing of VC3's national market entry. Before the reseller program announcement, Forrester's Sharrard praised the company's strategy of amassing a local power center and building slowly on that. "It's hard to get word-of-mouth in individual areas" with a scattershot array of installations in far-flung municipalities, he said.

The challenge of going national "has always been the cost of doing business and reaching those governments economically, getting yourselves established as a reputable company and gaining a foothold in a niche that's defensible," said Current Analysis' Davies.

"I think they have to do it," said Chris Tolley, vice president and chief operating officer of ITropolis. "If you rely solely on serving a multistate area with a limited direct sales force, I'm not sure you can hit the revenue goals you want." Tolley called VC3 a sleeper company with solid technology that is just beginning to package and market itself, as opposed to competitors that are "great marketing organizations where the technology is lagging."

Market research suggests the market is maturing slowly, ramping up gradually over the next 18 months and curving more sharply upward in the 18-month to 24-month time frame, said Sandy Reeser, VC3 chief operations officer. Given the time needed to get value-added resellers up to speed and a sales cycle that can span up to nine months, moving now was key.

To reach the widely spread local government market, Netgov uses nine direct sales representatives and is seeking relationships with state and municipal leagues, which aggregate services for member governments, said John Esley, chief sales officer and general counsel for Netgov.

VC3's reseller strategy is designed to take advantage of their partners' pre-existing relationships with local governments, or help them attract new clients.

"E-gov is a door-opener," says ITropolis' Tolley. "It may not be the first product we actually sell to a city, but it's an important element to the relationship."

The ideal reseller is a $4 million to $5 million systems integrator with about 40 employees, five years of integration experience and a two- to three-state geographic reach ? much like VC3 itself, Spears said.

A productive reseller will complete about 10 sales a year, drawing $150,000 in GovHost revenue and $1.4 million to $1.5 million in revenue from other services to those customers. There also is a recurring revenue opportunity.