Bloomberg News

Jobs’s Consumer Focus Delayed Sales to Government

October 10, 2011

(Corrects Cunningham’s title in 21st paragraph )

Oct. 7 (Bloomberg) -- Under Steve Jobs, Apple Inc. sold billions of dollars worth of electronics without much help from the world’s biggest buyer, the U.S. government.

That’s because Apple and Jobs, who died Oct. 5, focused on “millions of individual consumer decisions as opposed to decisions made by a small number of people for a whole lot of employees,” said Don Kettl, dean of the school of public policy at University of Maryland-College Park. “They had much more of a retail than wholesale strategy.”

Government sales may be on the rise as federal workers push to use more of the computers, mobile phones and electronic devices made by the world’s most valuable technology company. Apple has also applied for a security clearance that could result in more tablets and smart phones finding their way into the Pentagon.

In the 12 months ending Sept. 30, 2010, the latest fiscal year for which complete data are available, the federal government spent $50.8 million on Apple products, either directly or through resellers and integrators, according to data compiled by Bloomberg Government. The company, based in Cupertino, California, reported $65.2 billion in revenue for its fiscal year that ended Sept. 25, 2010.

Dell Sales

By contrast, $1.9 billion of products made by Dell Inc., a technology company with roughly the same revenue as Apple last year, were bought by the government that year. Dell, of Round Rock, Texas, reported revenue of $61.5 billion in the 12 months ending Jan. 28, 2011.

Apple succeeded without much government business, said Stan Soloway, the president and CEO of the Professional Services Council, which lobbies on behalf of government contractors.

“Apple is emblematic of it, but certainly not the only example,” Soloway said. “Oracle, Cisco, what percentage of their work is public sector?”

Those companies “were pretty big long before they got into the government space,” Soloway said.

Steve Dowling, a spokesman for Apple, declined to comment yesterday on the company’s government sales.

Kettl says the distinction between Apple’s popularity with the consumer and federal markets, stems from a “fundamental mismatch” in orientation.

Tried to Sell

Apple revolutionized the computer, music and mobile-phone industries by designing products people “didn’t know they needed.” Government purchasing starts with U.S. agencies issuing detailed descriptions of products they want to buy, Kettl said.

Apple didn’t intentionally sidestep the federal market, said Regis McKenna, who first worked on marketing strategy with Jobs in 1977 and continued to assist the business through the mid 1990s. The Cupertino, California-based company tried to attract some government business early on, and didn’t have much luck, he said.

“Getting into the government generally requires a separate sales force,” McKenna said. “Someone who can run interference, deal with the complexities of going for federal contracts and dealing with the bid processes.”

Selling to the government can add costs as well if the government needs products tweaked to meet their specifications, McKenna said.

Something as basic as pricing may have been the reason the company hasn’t had much “traction” with the government, said Steve Kelman, who led the U.S. Office of Federal Procurement Policy under President Bill Clinton’s administration.

Too Costly?

“I know they were trying to get business,” Kelman said in an e-mail. “It is very possible that the simple answer was they were too expensive -- the government didn’t want to pay the price premium.”

In addition, the government may be slow to embrace Apple products because department office systems are based on other products that support workers have been trained to use, said Roger Waldron, the president of the Coalition for Government Procurement.

“The government is often a late adopter of technology,” said Waldron. “It’s different when you have consumers buying versus an entity. Obviously the commercial market is much more flexible, and can adopt to new technology much faster.”

For example, Research in Motion Ltd., based in Waterloo, Ontario, is the only smartphone maker whose products have received Pentagon security certification. The federal government bought $90.2 million worth of RIM products in the fiscal year ending Sept. 30, 2010, according to data compiled by Bloomberg Government.

Seeking Certification

Apple is seeking a security certification from the National Institute of Standards and Technology, the agency that provides technology recommendations to the entire federal government. The institute certified RIM’s tablet computer, known as the PlayBook, on July 21, making it the first tablet device cleared by the agency. A decision on Apple’s iPad is pending.

This summer, the U.S. Defense Department postponed a decision on whether the iPhone and iPad can be made secure enough to gain access to the Pentagon’s networks. The Pentagon is still trying to determine whether Apple products can meet the department’s security needs, said Lt. Col. April Cunningham, a Defense Department spokeswoman.

“We are under a lot of pressure to leverage capabilities of Apple and other new technologies available today, including the BlackBerry PlayBook,” she said today in an e-mail.

The Air Force is testing iPads for pilots’ navigation charts and manuals. The Navy purchased some iPads to store aircrew documents, and was testing Android and Windows 7 operating systems, Navy spokeswoman Amanda Greenberg told Bloomberg in June.

There are signs that Apple’s federal fortunes are changing with civilian agencies.

The U.S. Veterans Affairs Department plans to purchase 1,000 iPads and iPhones in response to requests from some employees. Potential users will have to explain the need for the device and turn in their existing phones and computers, according to information provided by Jo Schuda, a VA spokeswoman.

“Government employees want to bring their iPhones to work,” said the University of Maryland’s Kettl. “There is increasing demand by individual employees to use Apple products with government work because they like them and want them.”

--With assistance from Nishad Majmudar, Nick Taborek and Paul Murphy in Washington. Editors: Jon Morgan, Mark Rohner

To contact the reporter on this story: Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus