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This is a special „Off Center Observation‰ Issue on the end of FY 2003

VAR WARS

INTRODUCTION

As we enter busy season, many will be tuned in to see how the players fare in the most public of rankings - the GSA Schedule. Many I work with know that I work regularly outside the IT arena, but I use the IT arena to determine the best strategies and tactics for market penetration. I have built my flagship seminar, Government Marketing Best Practices, largely from watching and participating in these (and other) trenches. A major lesson learned is this is a market of incremental growth.

These comments are meant to be no more than my "off center" observations on what has happened, what is happening, and possibly what will happen.

BACKGROUND

Over the past several years, many lessons have been visible, if not learned, in the government market.

A huge brand name, upon entering the market, will not necessarily create an impact. The market is not sitting idly by waiting for you to happen.

Witness, Exxon Office Systems, or GE Capital IT Federal Solutions.

Exxon Office Systems entered the market in the 1980s.

The apparent Exxon plan was to enter the market and let their brand carry significant weight, the Exxon name being a magnet for business. What they did not plan was the market, in this case, Federal IT buyers, not wanting to purchase technology from a gas station.

Then we have the case of General Electric, a brand that signifies nothing, as they sell everything. GE Capital IT Federal Solutions (or as I preferred to call them: gee-sit-fizz), bought Ameridata, a relatively large player in the market. The immediate problem was that it was not long before this when Ameridata purchased Bohdan.

In the 1980s Bohdan was recognized as the legitimate #2 VAR, after GTSI, and had significant name recognition. Along comes Ameridata and swallows the smaller fish and changes the name. Then along comes GE and naturally assumes the GE name will carry so much inherent value that it can not resist changing the name.

The result: GE leaves the market a short time later with virtually no return on investment.

Then, in the dot-bomb era, we had those who employed the "field of dreams" brand theory: if you build it, they will buy. PlanetGov (the renegades from BTG who publicly refused to work for Dendy Young and GTSI), tried to create the first mega-vortal for the Federal market. I heard the business plan was three 3-ring binders, which is one of the signs of the apocalypse. The concept apparently was to aggregate all information pertinent to the existence of any Federal employee, make it available in a single web site, then also sell them everything under the sun. They hired lots of talented people, including Mike Causey, the Washington Post columnist who wrote about Federal employee issues. Massive fanfare followed, but not much more.

They announced their intent, and held the kick-off at the Reagan Center before the web site was fully operational. And it never seemed to get any better. PlanetGov remains a player, but not in a huge way: they ranked 49th overall in GSA Schedule 70 sales in FY 2002.

Then we have the case of the "house". MicroWarehouse, run by Dewey maxim-provers, "those who don't learn from history are doomed to repeat it)" decided to make a huge splash at FOSE. The one thing MicroWarehouse did succeed at FOSE was making all their competitors think of ways to destroy the "house". Here's a thought: let's do something that unifies all of our competitors.

In my view, big splash does not translate into big sales. Fanfare is fanfare, nothing more, with all the sound and fury signifying nothing.

TODAY

Which brings us to the opening of busy season, the feeding frenzy of the Federal market, which will last until midnight on September 30, 2003.

The key VARs in this war are GTSI (#9 last year), CDWG (#16), ASAP (#24), Gov Connection (#40), Westwood Computer (#42), PlanetGov (#49), GMR (#50), and World Wide Tech (#95).

The criteria for these is general recognition as a GSA provider of a wide variety of IT products. For my purposes, I will include PC Mall and MicroWarehouse, both second tier PC catalogers, but both making serious efforts at Federal growth. I know Insight is supposed to be making a play here, but I see little overt evidence of it, aside from buying Comark.

Most understand that growth in this market is incremental. There are no immediate stars, as the dot-bomb age proved to many. This is a market of long, hard work, and then more of the same.

I conducted a visibility study for this using FCW because it is easier to use than Government Computer News and I didn&Mac226;t need both. I added FirstGov.gov because it searches government web sites, giving a better feel for Federal mindshare. My premise is that if you have visibility in the press and throughout government web sites, you have something that has probably translated into marketshare.

Name recognition-wise, GTSI will be hard to beat. Since 1983, they have been dedicated to selling to the Feds, and the Feds know this, know their name, and trust the source. Like them or not, they are formidable. In this FY alone they have 13 editorial references in Federal Computer Week (FCW), and more than 1,000 hits at FirstGov.gov.

Over the past six years, CDWG has made a serious effort at growing their government business, and they have succeeded. FCW has 12 FY 2002 references; and there are 76 references at FirstGov.gov.

ASAP Software has been in the government market for years with basically the same management team, itself pretty rare. Part of the Burhmann Company (which also owns Corporate Express, among others), ASAP had zeros FCW references but over 1,000 at FirstGov.gov.

A few years back PC Connection, a top tier PC cataloger, purchased a small integrator and renamed it GovConnection. GovConnection had zero FCW; but 199 hits with FirstGov.gov.

Westwood Computer is an 8(a) graduate that has also been in the market for many years. They had zero FCW hits, but 141 with FirstGov.gov.

PlanetGov used to be called IntelliSys Technology and renamed itself for the dot-bomb era (diluting the brand?). It had 2 FCW references and 140 hits with FirstGov.gov

Another 8(a) graduate, Government Micro Resources pulled zero from FCW and 146 hits from FirstGov.gov.

World Wide Tech is yet another graduate of the small business program, and had 1hit with FCW and also 146 from FirstGov.gov.

Veteran PC cataloger PC Mall has 17 FCW hits, but only 69 with FirstGov.gov.

MicroWarehouse has 3 FCW hits and 69 with FirstGov.gov.

You can see the companies with longer standing in the market get more press and have more references at government sites. This translates into both mindshare and marketshare.

CONCLUSION

Each of these companies has a slightly different marketing mix, but generally speaking, several have catalogs targeting key Feds (GTSI, CDWG, ASAP, GovConnection, PC Mall and MicroWarehouse), most also do trade shows and other events, have above average web sites, and engage in some space advertising. Some are more sophisticated in their contract offerings, having several vehicles from which the government can buy, while others rely on the GSA Schedule and open market sales to create growth.

For VARs interested only in product (not "solution") sales, this is a good model, using the GSA to open the door, then selling more open market where the margins are better.

None of these companies, though, can act like Dell, and cut margin to grow business. They are all operating on thin margins as it is, and cannot play this way.

Companies selling management, or investors, on the idea of quick growth in this market are selling smoke. There is enough marketshare for several players, but there is not marketshare available simply by blowing your own horn loudly. If you want to knock off GTSI, be prepared for a long, hard fight, with no guaranteed outcome.

This year has also been complicated by the continuing resolution, and we anticipate a heavier than usual busy season as a result.

Will the rankings change? Possibly. CDWG has moved up nicely. GTSI has regained a "top ten" slot. ASAP and GovConnection are steady players, unlikely to move or be moved. Is there more room at the top? Probably not.

Will the rankings change radically? No. This is not a market where that occurs.

The "house" that roared my well be in the back forty at the end of the FY with a little moon sliver on the door.

In any case, we will be reporting on these companies throughout the end of FY 2003. So consider this Chapter One of the FY 2003 VAR War saga.

The Amtower B2G Market Report is published and copyrighted by Amtower & Company. It combines our former newsletters into a single, bi-weekly newsletter for companies targeting the government marketplace. Contact us at Amtower & Company, PO Box 339, Ashton, MD 20861-0339 (301-924-0058). This material is copyrighted and may not be duplicated, reprinted or otherwise replicated without written permission of the publisher. EMAIL subscriptions are free by request: sign up at www.FederalDirect.net.

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