This applications market sizing report examines the 2009 performance of the top 10 applications vendors in the government vertical, which includes federal, state and local government agencies as well as nonprofit organizations.
The market posted a modest increase in 2009 as government agencies pressed on with their automation plans in order to comply with a raft of new regulations including the disbursement of federal stimulus dollars. E-Government initiatives, coupled with system upgrades and replacements, helped sustain applications spending at a time when the public sector was still offloading their existing infrastructure to third- party software and services vendors in order to pare costs and streamline operations.
Top Line and Bottom Line
On the top line, the government vertical promises to be one of the most lucrative markets for applications vendors because of demographic shifts, which will result in massive retirement of experienced government workers especially in developed countries over the next few years. Automating workflow and the building of a robust data repository is expected to be one of the remedies to stem the potential loss of the tribal knowledge. The same applies to business and knowledge process outsourcing, which will accelerate along with the increased use of off-the-shelf applications as the standard approach to handle common procedures. That in turn could mean wholesale replacement of legacy applications that no longer meet such requirements as e-government, constituent relationship management and grants accounting.
Revenue management is another bright spot in the government vertical as federal and local agencies seek to get a better handle of their financial management system by eliminating waste and minimizing budget deficits through rigorous revenue collection.
The bottom line is that the government vertical, after years of steady growth, could get even bigger as public spending shows no signs of slowing down. The housing crisis and the subsequent financial system meltdown has resulted in bigger governments, requiring many public- sector entities to take on the role of a regulator, lender of the last resort, as well as bailout conductor, all of which would require continuous use of business and specific applications to complete those tasks.
The market for applications for the government vertical rose 3% in 2009 as public agencies and nonprofit organizations increased their applications spending to help them tackle some of the most pressing operational and social service requirements from tax collections to public safety management.
By and large these applications have become the bedrock of the society helping government agencies and their constituents navigate a maze of regulations, while delivering public services to the rich and poor alike through better data aggregation and dissemination.
Vendors that cater to the vertical have spruced up these applications continuously to meet the changing user requirements. SunGard, for example, is slated to release in 2010 a slew of new applications for financial, human resources, community development and computer-aided dispatch (CAD) systems as public safety suites, as well as a new national ePortal product.
Others have taken advantage of the recession to expand through acquisitions. In 2009 Tyler acquired Assessment Evaluation Services for tax and appraisal and Parker-Lowe & Associates for land and records, and distribution rights to computer-assisted mass appraisal software from Causeway Data Communications (CDC) Ltd. More recently it purchased WizNet for electronic filing for courts.
In 2010 CGI, the big systems integrator that also sells ERP applications to government agencies, offered $1 billion to acquire Stanley Inc., a provider of information technology services and solutions to U.S. defense, intelligence and federal civilian government agencies.
Such big purchases underscore the growing consolidation of the government vertical, which has seen the making of hundreds and perhaps thousands of applications vendors, consulting firms and systems integrators specializing in different segments and subverticals within the public sector space.
Not everyone is enamored with the acquisition approach. New World Systems, for instance, has been expanding into different segments of the government market solely on the basis of organic growth for nearly 30 years. Coincidentally it has scored high marks from its 750 customers representing 1,500 state and local government agencies.
Implications Of The Great Recession of 2008-2009
One of the lessons of the Great Recession is the new role that governments have taken on to head off a possible depression. The US government took an active role in rescuing failing corporate giants from Merrill Lynch to General Motors and the market breathed with a sign of relief.
The result has been a new wave of applications spending to ensure that the heftier role of the government in the private sector would produce the desired results. One of the beneficiaries was Oracle, which won a deal to sell Oracle Governance Risk Compliance Applications along with Oracle E-Business Suite to the National Institutes of Health, which is a part of US Department of Health and Human Services.
NIH planned to use the Oracle applications for a more robust financial management system to better manage ARRA(American Recovery & Reinvestment Act of 2009), including activities to improve accountability, transparency and reporting, and mitigating the risk of fraud, waste and abuse, of all federal funds including ARRA funds. Additionally Oracle has won similar deals with Social Security Administration and other projects all designed to safeguard that such government expenditures would be in full compliance.
Cost reduction was another marker of the lingering effects of the recession. While some government agencies chose to scale back their applications investment, others initiated projects to experiment new ways to reduce their operating expenses through virtualization and cloud-based services.
Scott County in Minnesota, for example, has started migrating its Lawson ERP applications to the Amazon environment for disaster recovery purposes. The move is expected to help the county government reduce their support burden.
Similarly, Derwent Shared Services, a health authority in the UK, was able to merge eight organizations with different ERP applications into a standard ERP system from Unit4 within three months and the whole project was on time and on budget.
The net is that many of these labor-saving practices from automating expense reporting to workforce management for effective scheduling and workforce analytics proceeded as expected because of their tangible benefits and proven results.
Such examples underscore the fact that government agencies, similar to any commercial entity, have been under pressure to weather the recession with diminished resources. But with careful planning, judicious use of technologies that help meet their operating and business process improvement requirements, these government users have made great strides in lockstep with their counterparts in the private sector.
State and local government agencies are likely to offer considerable opportunities as they rebuild their communities through intelligent technologies ranging from mass notifications to smart grid technologies. One scenario calls for the feeding of Web services and relevant data to a portal paving the way for citizens to hop from their cars, bicycles and others means of getting around short distance to the public transportation systems, creating a home to grid network to mitigate environmental impact.
Federal agencies, on the other hand, are likely to spend time rationalizing the applications and technologies that they have invested for the past few years. New big apps projects are likely to be far and few in between. Already there are signs that the U.S. government has imposed a freeze on $3 billion worth of IT projects, while reevaluating others that could affect billions of dollars of additional spending.
Around the world, applications implementations will gravitate toward countries such as China and India and in fast-growing cities from Hyderabad to Lagos where infrastructure spending has barely kept up with population growth.
In addition to using core financial, HR, procurement applications to help better run their operations, government agencies in these places are expected to invest in mission-critical applications for disease control and public safety systems. Mobility could become one of the lowest common denominator behind such systems for helping citizenry access public services and emergency help. Integration may well be the key to successful implementations with large systems integrators such as Mahindra Satyam already building for the Indian government public safety systems similar to the 911 service in the United States.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 10 applications vendors in the government vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
|Vendor||2009 Share(%)||2009 Applications Revenues From Government ($M)||2008 Applications Revenues From Government ($M)|
|New World Systems||1.27%||45||41|
Vendors To Watch
In 2010 Blackbaud will be a vendor to watch as it emerges as the leading applications developer for nonprofit organizations, following a series of acquisitions and rapid expansion designed to help customers better run their operations regardless of their size, location and fund-raising method.
With 22,000 customers, Blackbaud could become the confidence indicator of the government vertical because nonprofit organizations tend to take longer to recover given the fact that most of their benefactors would not resume their pledge levels until the overall economy is stabilized. Any sign that Blackbaud has achieved sustainable growth could trigger a full-blown market recovery.
The trend to watch is the acquisition strategy of expansion-minded vendors such as Constellation, Oracle, SunGard, Tyler, all of which could be reigniting their buying spree by picking up software assets in subverticals as well as the international markets where the profile of a global application vendor for the government vertical has yet to be etched in stone.
On the upside, the government vertical is becoming less crowded following an avalanche of M&A activities. The remaining vendors are likely to enjoy reliable recurring revenue streams plus extensive product portfolios that generate substantial cross-sell and upsell opportunities as system upgrade and replacement projects gather momentum.
On the downside the public backlash against big governments and ill-conceived public spending to prop up the sagging economy through higher taxes and ballooning budget deficits could make any government CIO think twice about investing in elaborate IT projects that yield little near-term returns.
Another deterrent is the sometimes conflicting priorities of government users, policy makers and elected officials who often pit IT projects into a politically charged discussion that erodes public support.
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Government Market Report 2009-2014