Federal IT Market Heats Up for Business-to-Gov't DMersA recent issue of Federal Computer Week came poly-bagged with the CDW Government & Education catalog inside. CDW also has been doing space advertising in both Federal Computer Week and Government Computer News this year, and it recently negotiated its first GSA Schedule -- a government contract open to all federal executive branch employees.
Over the past four years, business-to-government (BTG) direct marketers have noticed dramatic increases in their government sales, especially to the federal government. This is occurring regardless of whether it is targeting government or not. Apparently, CDW noticed this trend early and has set out to capitalize on the market. And the company is not alone.
The reason is simple. On the federal side, since late 1993, the procurement regulations have changed, allowing DMers -- especially catalogers -- to enter on the under $2,500, low-end sale as open market vendors. Driven by the small purchase credit-card program, the "open market" (open market being any sale not involving a government
contract) purchasing by federal employees has grown at a 30 percent clip for each of the past three years.
The main reason for the growth is direct marketers have the ability to deliver products at a competitive price much faster than traditional government resellers. Where federal employees used to wait weeks or months for the delivery of software, they now can receive many hi-tech products overnight, certainly within a week. In many instances, the waiting period used to be more than six months, and the product received was no longer the most recent version.
With legislation pending to raise the micropurchase level from $2,500 to $10,000, the overall expenditure on the credit card may surpass all estimates for FY 1999 and beyond. And this is just at the federal level. Government Technology Reseller editor Steve Towns said that California spent more than $100 million with its credit-card program and that many other state and local governments are using credit cards as
At the same time, the growth of the GSA Schedule has been 35 percent a year over the same period, but the growth has been driven almost exclusively by Dell (No. 1 on GSA), Gateway (No. 2) and Micron (No. 4) -- the only three government contractors with real direct marketing savvy (now, of course, we add CDW to that elite group). If you take out the first three, GSA Schedule has lost ground since the rules changed in 1993. And Dell, Gateway and Micron also sell products on the open market. Only certain preconfigured computers are sold via their respective GSA schedules.
The opportunity for BTG DM is tremendous, and it continues to grow. In FY 1997 (Oct. '96 to Sept. '97) the government used the credit cards 11 million time for $4.95 billion. By the end of FY 1998, this should reach 17 million purchases and $8 billion. Computer software has been the No. 1 seller on the government Visa card since day one, with office supplies (by SIC) being in the top four.
Chad Slater, a list broker at Direct Media with extensive experience in the government market, has seen a surge in hi-tech and other BTB mailers asking for government lists over the past 36 months. Many of these, he said, turn into continuations and rollouts, with the mailers asking for new government list recommendations.
Similarly, Jason Simon of Simon Direct launched a card deck, Government Direct, targeting 50,000 federal credit-card users last fall. Several hi-tech vendors participated in each of the three decks mailed to date. The participants include hardware, software,
peripherals, technical training vendors and many other BTB mailers. Simon indicated that for a new deck in a new market, he is extremely happy with its venture into the government market.
At the Acxiom/DMI Co-op last month, several hi-tech, business and office supply mailers said they had recently hired people with government experience to help with this unexpected growth. Attendance at the government session of the co-op was twice what it was the previous year.
Recent consolidation in the catalog industry also allows for some nongovernment marketing organizations to use the government expertise of their new acquisitions. Both Staples and Office Depot (recently almost one company anyway!) each purchased business supply catalogers with government experience, which could help both expand in
the market. And, last year, CompUSA purchased PC Compleat. Although CompUSA has extensive in-house government expertise, it lacked the direct marketing experience that PC Compleat brings.
Recently, while I was Web-browsing several government sites, whom should I see with an agency-wide buying agreement but CompUSA. Its logo (and direct link) were on the government agency Web site. And while we're (briefly) on the Web, Dell, Gateway, Micron, CDW and the other successful players in the government arena all have secure, transactional Web sites. The government is a voracious Web buyer.
While there are market nuances and ethical guidelines that BTG DMers must be aware of, all BTB firms must understand that government (federal, state and local) represents 25 percent of the GNP. Regardless of what you sell, you probably already have government customers. As the most voracious consumers of business products and services, government buyers are on most, if not all, BTB lists. The list owners often don't even know they're there.
The question is, do you want to spend a little time understanding how you can become a preferred provider and grow this market or would you prefer to sit back and let CDW own the niche?
Mark Amtower is president of Amtower & Co. Federal Direct, Ashton, MD, a consultancy. His e-mail address is email@example.com.