More E-Tailers Are Vying for Governments’ Business

EFederal.com was born on the Fourth of July, with a premise as American as apple pie: selling products to Uncle Sam.

As local, state and federal agencies enter the ranks of online shoppers, the Aliso Viejo firm has joined a crop of Internet companies springing up to supply them with everything from staples to software.

The business-to-government sector lacks the mass appeal of its best-known predecessors, business-to-consumer and business-to-business. But as failures mount and stock prices fall in those arenas, so-called B2G companies are gaining momentum as sort of the T-bills of electronic commerce, analysts said.

Business-to-government companies target fewer buyers that have enormous purchasing power and more dependable shopping lists, EFederal Chief Executive Brad Allen said. Best of all, governments spend more than $500 billion annually (minus B-2 stealth bombers and other commodities not found on store shelves) and almost never go out of business.

“The sales cycle is longer, but the government pays its bills,” said Thomas Meagher, an analyst at BB&T; Capital Markets in Richmond, Va. “There’s a predictability to the space.”

B2G’s growth spurt might even have a happy side effect for taxpayers. Competition among would-be vendors, combined with quicker, paperless buying, might yield bargains, boosters say.

Skeptics, however, say the trend might turn out to be more hype than help.

Stringent bidding rules, technological limitations and cautious attitudes might discourage governments from using upstart e-tailers such as EFederal, said Steve Hamill, project manager for two nonprofit agencies that run a buying co-op for about 5,000 jurisdictions, including Los Angeles County.

“If you think electronic purchasing is a solution right now, it’s not,” Hamill said. “There’s still more promise than substance so far.”

The public sector has moved more slowly into online buying than businesses or individual consumers for several reasons, analysts said. Y2K-bug fixes drained government agencies’ technology budgets for several years. Even now, just 35% of local agencies operate their own interactive Web sites, Hamill said.

But B2G’s prospects got a jolt of energy in December from a Clinton administration memo that urged a massive transition to so-called e-government and set a deadline for moving all federal procurement online by 2003.

The administration also plans to launch Pay.gov this fall, a system that will allow citizens to pay the government electronically for a variety of items, from camping fees to regulatory fines.

“They had been trailing, but now they’re moving out very quickly,” Meagher said. “Governments realized they needed to be online like everyone else.”

More sophisticated government bodies have done some online buying for years, extending their contracts with such bricks-and-mortar vendors as Office Depot, Gateway, Dell Computer and IBM into cyberspace.

For resellers such as EFederal, which stock a variety of product types in their Web stores, the goal is to grab a slice of the $18 billion government spends each year on smaller purchases that don’t require bids, Allen said.

Backed by $2 million from Buy.com Inc. founder Scott Blum’s new incubator, EFederal offers 105,000 items in two categories: computer products and office supplies. The company’s Web site also provides a road map to ever-more complex government procurement regulations, complete with printable forms.

Its revenue will come principally from markups, Allen said.

EFederal, which has 11 employees, is Allen’s second Internet venture after more than a decade in investment banking. He sold the first, online golf shop Buygolf.com, to Buy.com late last year.

At least initially, Allen said, EFederal will stay narrowly focused in its product roster.

Rivals such as IGov.com offer a broader selection. Others, including National Information Consortium Inc. and Digital Commerce Corp., both based in Virginia, also sell software systems that can put government services such as tax filing or driver’s license renewal online.

For all the B2G newcomers, however, the big battle will not be branching out, but breaking in, said Christopher Baum, vice president-electronic government at Gartner Group Inc., a computer industry research firm.

Government agencies are heavily scrutinized for their use of public funds and may be reluctant to take a chance on start-ups, he said.

Hamill’s co-ops, for example, are negotiating to install systems that allow member agencies to make online purchases--but only from vendors with whom they already have contracts won through competitive bids.

“It’s a relationship buy,” Baum said. “You can’t go out there, put a few Web pages up and expect to get millions of hits.”