Falling in Gov

But before you jump into the e-gov ocean, take some time to survey the waters. The growth of the market can be attributed to some age-old image reasons and to some practical business reasons as well. Jeremy Sharrard, associate analyst with Forrester's Internet Policy and Regulation Group, observed political motivations from the evolutionary outset of e-government. "Governors and mayors wanted to be able to stand up and say 'We're offering services online so you don't have to wait in line.' There was some political capital to be gained there," says Sharrard, who points to a shift over the past few years to a strong emphasis on cost savings.

Gartner Group predicts that combined U.S. federal, state and local e-government spending will most likely exceed $6.2 billion by 2005. Hotbeds of activity are in Web site building, online citizen services, ASPs and systems integration.

EzGov.com was, at one point, a contemporary of GovWorks.com, but its Web site building service offerings proved much more resilient. The site took over as the market leader and as a good example of a company that survived on the strength of a well-considered business plan.

In a recessive economy, government money still stands as a beacon of reliable income. However, a report issued by the House Small Business Committee Democrats showed that federal buying from small businesses in 2000 was at its lowest since 1994. The small-business share of prime federal contract dollars has also declined to 22.3 percent from a high of 25.5 percent in 1996. The federal government may be the most visible playing field, but most opportunities for entrepreneurs are at the local and state levels.

The United States is brimming with localities-35,000 of them. Sheer number says there's an opportunity to take advantage of those either looking into or actually launching e-government initiatives. He also estimates that big companies like KPMG Consulting and EDS are only interested in the largest localities. That leaves thousands of underserved municipalities open for growing businesses to pursue. And that's why Nute's business is "MunicipalNet Inc.," not "FederalNet Inc."

This article was originally published in the March 2002 print edition of Entrepreneur with the headline: Falling in Gov.