E-gov vendor portals go belly-up

E-gov vendor portals go belly-up

Companies take lessons learned and regroup; some return to past strategies

BY NICK WAKEMAN | SPECIAL TO GCN

Only a year ago, the vendor community sizzled with dot-com heat, as online vendors popped up to take advantage of the growing electronic-government movement. Fueled by easy venture capital, entrepreneurs talked about revolutionizing the way government does business.

'There was just a cacophony of voices saying, 'Grow big fast,' ' said Kaleil Isaza Tuzman, chief executive and co-founder of GovWorks Inc. of New York.

How times have changed.

Like their counterparts in the commercial world, many e-government companies have fallen victim to shriveled venture capital markets, poor business models, customers that just didn't show up'or some combination of all three.

GovWorks and FedBid.com of Germantown, Md., are shutting down operations and selling assets because of problems with funding, company executives said.

Others, such as PlanetGov.com of Chantilly, Va., have laid off workers and revamped their Web strategies as funding ran out.

'People got skittish,' said Phillip Fuster, chief executive officer and co-founder of FedBid.com. His site shut down in December when it failed to secure a second round of funding. Fuster said he is negotiating with three companies to buy the assets of his online procurement site.

Ran out of time

GovWorks filed for bankruptcy early last month when it was unable to obtain another round of funding, and there was not enough time to secure more money to continue operations, Tuzman said.

The company will sell its GovPay transaction business to eOne Global LP of Menlo Park, Calif., and American Management Systems Inc. of Fairfax, Va., for $2.5 million. A bankruptcy auction was scheduled for Feb. 1.


FedBid should have focused marketing efforts on power users, ex-VP Harold Gracey says.
FedBid and GovWorks have plenty of company. Of the more than 70 e-government companies that he follows, Thomas Meagher, an industry watcher at BB&T Capital Markets of Richmond, Va., said he expects more than half might be gone a year from now.

'Money was cheap two years ago. Now VCs are putting very little into new ventures,' Meagher said.

The troubles among e-government companies mirror what is going on in the broader commercial market. At least 210 electronic-commerce companies closed during 2000, with most of the closings coming during the fourth quarter of the year, according to Webmergers Inc., a San Francisco research firm.

Yet many executives remain true believers in e-government.

'The whole e-commerce model in the government is a terrific model,' said Harold Gracey, former chief information officer at the Veterans Affairs Department.

He retired from the government after 30 years of service to join FedBid last June as its vice president of government affairs. He left the company last month when it was apparent the site would not go back online.

The FedBid site was launched last summer with the idea of giving government credit card buyers a place to pool their buying power and participate in reverse auctions where prices would be driven down. Investors ponied up $5 million.

From a technical standpoint, everything worked as it was supposed to, Gracey said. 'FedBid's technology was as good as anyone's. The software worked,' he said.

Fuster and Gracey said that although the company's software worked, its initial target audience of credit card buyers was off the mark.

Credit card users, who typically make only one or two buys a month, were slow to use the site and didn't bring enough volume of business to make the site viable.

'One thing I would have done differently would be to focus on power users,' Fuster said.

GovWorks, which was founded in 1998 to deliver government services to citizens online, also changed its business model last year, shifting away from the transaction-based consumer model to a model based on selling software for procurement, transactions and other online services. That shift could have come sooner, Tuzman said.

GovWorks, which raised $60 million in three rounds of funding, at its peak employed 250 people.

About face

In a return to its traditional strategy, PlanetGov has shifted away from being an e-government portal and back to a traditional reseller of information technology products and services, as it was under its former name, Intellisys Technology Corp.

The company jumped into the e-government business in May when it launched its site with a $5 million investment from Blue Water Capital of McLean, Va.

At the time, company president Steve Baldwin said the site would be the America Online for government and military professionals, providing daily news updates and free e-mail and Internet services. It hired longtime Washington Post federal employment reporter Mike Causey to attract government workers to sign up. But PlanetGov's vision faltered when the company couldn't get more funding.

'What we decided to do is to refocus on our core IT business,' Baldwin said. PlanetGov laid off 45 people in December, including 18 of the 20 editorial staff members hired to provide content for the site.

Causey and his articles are still being used to drive traffic to PlanetGov's IT business, Baldwin said.

The company's IT business is expected to gross $250 million this year, and without the drain of trying to be a government AOL, the company should be profitable, Baldwin said.

Nick Wakeman is a senior editor at Washington Technology, a Post Newsweek Tech Media Group publication.

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