Presentation to ITAA Investor's Conference

Presentation to ITAA Investor's Conference

Breaking Through the "Small Business" Barrier Thursday, July 11, 2002 11 2002 Federal Sources Inc, a PRIMEDIA Company The Federal IT Market What You Need to Know James A. Kane Ph.D. July, 2002 22 2002 Federal Sources Inc, a PRIMEDIA Company Agenda Introduction to FSI/Federal Sources The New Federal Market Federal IT Budget Analysis and Spending Forecast Federal Business Basics and Examples Conclusions 33 2002 Federal Sources Inc, a PRIMEDIA Company FSI Helps You Succeed FSI Client Support Services Events Market Intelligence Subscription Services Generate leads Create partnership and

teaming opportunities Identify and capture new targets 44 2002 Federal Sources Inc, a PRIMEDIA Company Consulting Provide customized analyses and insights Networking and educational events Support clients with on-call research Market Intelligence - Internet Services FSI has the timely information that is critical to your success: Opportunities and Awards Stay on top of opportunities with keys contacts, awards and strategic information Profiles ( NEW! ) Government Agency - budgets, IT trends, major programs, spending patterns, key contractors, dominant contracting vehicles, key senior contacts all in one place Vendor - 500 IT contractors, major contracts, Points of Contact and more Personalized My FSI tailored to your market intelligence needs Simplify your searching with our advanced push email technology Control whats important with your customizable My FSI profile 55 2002 Federal Sources Inc, a PRIMEDIA Company Custom Consulting FSIs seasoned consultants strengthen

business development, marketing and sales initiatives: Discover and analyze market trends and technology drivers that are shaping the course of government IT business Attack the marketplace with realistic strategies and action plans targeted for your business goals Identify teaming, merger and acquisition opportunities Drive business growth for your organization utilizing FSIs market and business expertise 66 2002 Federal Sources Inc, a PRIMEDIA Company The Federal IT Market A Market You Cannot Afford to Ignore 77 2002 Federal Sources Inc, a PRIMEDIA Company Shattered Misconceptions The proposal process is way too long You cant make any money from the government Chasing one RFP can drain your marketing budget for the year I wouldnt even know where to

begin my Federal strategy I sell to a specific vertical market, not to the government Only local DC companies know about RFP release dates Government only buys from vendors in the DC Metro area Contractors are subject to intense audits As a small business, we cant afford to stretch into new markets The government requires a separate set of accounting books for contractors Now more than ever before, the Federal government is buying in a commercial-like manner

88 2002 Federal Sources Inc, a PRIMEDIA Company Legislation Has Made It Easier to Do Business 1966 1974 1990 Freedom of Information Act (FOIA) Privacy Act (PA) Chief Financial Officers (CFO) Act 1995 1996 1996 Paperwork Reduction Act Federal Acquisition Reform Act (FARA) Information Technology Mgmt Reform Act (ITMRA)

1993 1994 Government Federal Acquisition Performance and Streamlining Act Results Act (GPRA) (FASA) 1996 Federal Financial Management Improvement Act (FMFIA) 1998 Government Paperwork Elimination Act (GPEA) 1994 Government Management Reform Act 1998 Federal Activities Inventory Reform Act (FAIR) Legislation created an environment that is more commercial-like 99 2002 Federal Sources Inc, a PRIMEDIA Company Federal IT Budget Analysis and

Spending Forecast 10 10 2002 Federal Sources Inc, a PRIMEDIA Company IT Spending and Budget Trends DoD and Civilian Civilian percent shares are maintaining their 50%-50% share share Actual Actual spending spending exceeds exceeds budget budget estimates: estimates: 2001-02 2001-02 Budget: Budget: 1% 1% 2001-02 2001-02 Actual: Actual: 5.2% 5.2% $60 $50 $40 $B Compound Compound Annual

Annual Growth Growth Rates Rates (CAGR) (CAGR) for for the the period period shown: shown: Civilian Civilian == 6.5% 6.5% Defense Defense == 7.2% 7.2% Combined Combined == 6.8% 6.8% Civilian $30 $52.5 $23.0 $23.6 $26.4 $23.0 $24.8 $26.1 FY2001

FY2002 FY2003 $20 $10 $0 Source: FSI Analysis, OMB 11 11 $46.0 $48.4 DoD 2002 Federal Sources Inc, a PRIMEDIA Company $7 $6 $5 $4 $3 $2 $1 $0 2001 2002 DSS DHRA WHS

OSD DFAS NSA DLA TRICARE DISA Army Navy 2003 Air Force $B FY2003 DoD Agency IT Budgets Air Force, Navy and DISA have the most significant budget increases Source: FSI Analysis, OSD 12 12 2002 Federal Sources Inc, a PRIMEDIA Company FY2003 Civilian Agency IT Budgets $5 2001 $B $4

2002 $3 2003 $2 $1 EPA GSA Labor Education Interior SSA State Energy VA Commerce USDA Justice NASA DOT Treasury

HHS $0 HHS represents 20% of the civilian budget; top 5 agencies represent 59% Source: FSI Analysis, OMB 13 13 2002 Federal Sources Inc, a PRIMEDIA Company Federal Business Basics Not a quick hit market: sales cycle is longer, but there is a longer-term revenue stream 14 14 2002 Federal Sources Inc, a PRIMEDIA Company Model for Business Development Budget Priorities Market Drivers Upcoming RFPs Current Business Base Customers Verticals Platforms Installed Base Employees Expertise

Partners Contracts F I L T E R Target Agencies and Opportunities What is your companys strategy? Where can you best solve customer problems? What are the competitive threats? 15 15 2002 Federal Sources Inc, a PRIMEDIA Company Representative FSI Budget Analysis Example - Department of Justice 2003 IT Budget Combined Combined DME DME & & SS SS represents represents 90% 90% of of IT IT budget budget $2,093

Development, Enhancement, Modernization (DME) 43% $2,051 $1,873 FY2003 Budget Architecture 4% Grants Mgmt 0.5% Infrastructure 56% Mission Area 40% Source: FSI Analysis, OMB 16 16 2002 Federal Sources Inc, a PRIMEDIA Company $350 $300 $250 $200 $150 $100 $50 $0 $306 $179

$135 $88 $121 Others $M IT Spending by Mission Area Financial Management FY2002 Projected Keep America Safe FY2001 Actual Steady State (SS) 57% Prevent and Reduce Crime and Violence $2,200 $2,100 $2,000 $1,900 $1,800 $1,700

Administer Immigration & Naturalization Laws $M IT Budgets, FY2001-2003 Representative Market Driver Summary: Example - Department of Justice A major reorganization aimed at making counterterrorism the departments top priority Development of interoperable systems that facilitate the timely and secure sharing of investigative information (IDENT and IAFIS) Enterprise Architecture Data sharing/data mining INS and FBI Computer and telecom security and access control; Information assurance; PKI Increased application of biometrics, video teleconferencing and wireless communications

Sources: Department of Justice Strategic Plan FY 2001-2006 and DOJ FY 2001 Performance Report and FY 2002 Revised Final, FY 2003 Performance Plan. 17 17 2002 Federal Sources Inc, a PRIMEDIA Company Representative FSI Opportunity Tracking Example - Department of Justice 18 18 Title Bureau Est. Value ($000) Est. RFP Automated Debt Collection Justice $35,164 Nov., 2004 ITSS III Justice $475,000 Nov., 2004

BOPNET Bureau of Prisons $50,000 Feb., 2003 STARS III INS $2,503,220 Nov., 2002 INS Entry Exit System INS $50,000 Aug., 2002 FBI IT Support Program III FBI $125,000 Nov., 2003 2002 Federal Sources Inc, a PRIMEDIA Company Homeland Security

Political Realities and Drivers Budget Significant federal monies challenge is to track them IT is a key component of many initiatives Customers Focus on lead agencies and key vertical markets Dont ignore State and Local $3.0B 2002 by FSI, a PRIMEDIA Company $2.5B $2.6B $2.5B $2.0B Federal HLS IT Spending Competing priorities and initiatives more than ever with proposed new cabinet office High-stakes risks and tradeoffs $1.4B $1.5B $1.0B $0.6B $0.7B

$0.5B $0.0B GFY2000 GFY2001 GFY2002 GFY 2003 GFY2004 FY00-04 Request Est CAGR Federal IT Flowdown to S&L $0.1B $0.1B $0.1B $1.1B $1.1B 113% Federal IT Component $0.5B $0.7B $1.3B $1.5B $1.5B 29%

Total Federal HLS IT $0.6B $0.7B $1.4B $2.5B $2.6B IT Spending Related to HLS Order your FSI Homeland Security Guide TODAY 19 19 2002 Federal Sources Inc, a PRIMEDIA Company Business Development Checklist Compelling Event Deadline associated? Consequences for failing? Business Need & Fit Change necessary? We can help? Funding Is there specific funding allocated? What else is competing for the funding? 20 20 2002 Federal Sources Inc, a PRIMEDIA Company

Competitive Position vs. past buying by customer? vs. past competitors? Decision Makers Identified? Whats our position? Internal Champion Do we have a true advocate? Are they involved in this decision? Do they have influence on the decision makers? Hottest Opportunities for IT Companies In Addition to Continued Growth in E-government, Outsourcing and Information Assurance, There will be Strong Demand for the Following: 21 21 Enterprise Solutions Knowledge Management Content Management Web Enablement Portals Server Consolidation

Data Mining Data Storage Continuity of Operations Wireless 2002 Federal Sources Inc, a PRIMEDIA Company Many New Entrants; Few Big Winners More New Entrants, But at a Slower Rate Too attractive a market to ignore e.g., HLS wannabes Many companies fail to properly assess the market To Do It Right Patience and Perseverance Theres no substitute for research and analysis Understand customer problems, and then present solutions Foster relationships with the agencies Build partnerships with key industry players Did It Wrong Lots of Lessons Learned Unwillingness to invest: understanding; people; BD process Peddle technology or product to end customer No local presence near the customer 22 22 2002 Federal Sources Inc, a PRIMEDIA Company Elements of Success Research Customers mission and initiatives

Specific customer needs What, how and from whom the Customer buys Market Penetration Tailor marketing strategy to the customer Match company capabilities to customer needs Highlight past performance and successes Complete, accurate, well-prepared proposals On-the-Job Communicate, Communicate, Communicate Highest quality performance Build a partnership 02/03/20 23 2002 Federal Sources Inc, a PRIMEDIA Company Thank You James A. Kane, Ph.D. President & CEO 8400 Westpark Drive McLean, Virginia 22102 (703) 610-8700 [email protected] 24 24 2002 Federal Sources Inc, a PRIMEDIA Company

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