Yet, a couple of hardy survivors have gained a foothold in a sector dominated by the big systems integrators, including IBM, KPMG, Accenture, and Lockheed Martin, which get the lion's share of government information-technology spending. While shrinking state tax receipts will make the next few years tough for the remaining small e-gov players, they've found an approach that seems to work -- tailoring Netizen-friendly software for state and local governments.
Such a business model differs markedly from that of GovWorks. It operated its own Web site, through which individuals could pay parking tickets and the like online for a fee. The strategy failed to win much business, though, from either state and local officials or consumers. "Governments wanted their own brand [on the Internet], and citizens didn't want to pay more for doing services online," says Rishi Sood, an e-government specialist with Gartner Dataquest.
"SELF-FUNDING." Indeed, that's just what happened with GovWorks, which was bought by First Data Corp., renamed govOne Solutions, and now offers tax e-payment products and services to governments, financial institutions, and businesses.
By contrast, NIC Inc. builds and manages official Web sites for 17 states, from Rhode Island to Hawaii, and eight local governments. NIC's technology lets truckers in Idaho pay fuel taxes over the Net and nurses in Alabama renew their professional licenses, all with a few mouse clicks. Rather than charging consumers, NIC gets paid by the government client, and its revenues are based on the transactions the sites attract. "Our self-funding model lets governments deliver political wins at no cost to [consumers]," says Chris Neff, NIC's director of integrated marketing.
In fiscal 2001, the 11-year-old company generated $39.2 million in revenues. Yet NIC hasn't turned a profit, in part because of a failed move into selling e-government software. A decision to refocus on its portal-outsourcing business prompted NIC's board to bring in co-founder and chairman Jeffery S. Fraser in May to replace CEO James Dodd.
"KEY INFRASTRUCTURE." Rival EzGov Inc. focuses on selling a flexible software platform that it tailors to the specific needs of its government customers -- a roster that stretches from California's Riverside County to Britain's Inland Revenue (its equivalent of the IRS). Like NIC, EzGov has had to tweak its business model. It used to emphasize its own Web site, where citizens could renew driver's licenses and obtain building permits, with governments picking up the tab in the form of per-transaction fees paid to the Atlanta-based company. But EzGov is now trying to woo governments to buy its software to set up their own portals rather than operate its own.
"The [fee-per] transaction model has not caught on the way a lot of people hoped," says EzGov CEO Ed Trimble. "Governments realize that e-gov systems are key infrastructure, and [that they are] assets to build on and control." Trimble says EzGov is in the black, but he declines to divulge revenues or profits.
Although state and local governments are its mainstay, EzGov has set its sights on Uncle Sam. The federal government still has its wallet open while the economic downturn has caused most states to cut back on info-tech spending. President Bush has made e-government services a top management priority, and the Office of Management & Budget is overseeing 25 special e-gov initiatives. Instead of battling with the big fish, Trimble is counting on EzGov's partnerships with established players, such as IBM and EDS, to help it get a toehold.
G2B, G2G. Whether these upstarts can prosper where so many of their peers have failed depends partly on whether they can diversify into government-to-business and government-to-government applications. Experts say these areas hold more promise for cost savings than services for citizens. Just as critical, though, will be the companies' ability to prove that their technology provides a big bang for the government buck.
"With a downturn in the economy, service providers will be under pressure to show higher productivity and ease of use," says David McLure, vice-president for e-government at the Council for Excellence in Government in Washington, D.C. Otherwise, the e-gov upstarts could become stars for yet another documentary about dot-com demise. By Amy Borrus in Washington