Some technology companies may want to consider putting more effort into cultivating state and local government clients rather than federal ones. An Input analysis, presented at the 2006 MarketView event held in late March, suggests that growth in many federal technology areas will be more sluggish than in state and local settings.

Click here to enlarge chart.

Companies tempted to make such a move should proceed with caution, according to market consultants. The state and local market may seem less complicated than the federal government, and perhaps more accessible, but it is not necessarily an easy jump to make.

“The cost of sales is astronomical,” said Chip Mather, senior vice president of Acquisition Solutions. “It’s like 50 different countries. They all have their own rules, they all have their own cultures, they all have their own politics. They’ve already got the companies they prefer to do business with.”

The Bush administration’s budget proposal for fiscal 2007 requests $63.8 billion for information technology projects, a marginal increase from the $63.5 billion enacted for 2006, said James Krouse, Input’s director of market analysis. “Taking into account inflation, you could almost say this is a downturn,” he said.

Although the exact numbers will change as the budget moves through Congress in the coming months and the amount spent on IT will almost certainly be more than the initial request, fiscal 2007 is unlikely to be a banner year for the federal IT market, Krouse said. Based on the new analysis, Input also reduced its federal market forecast through fiscal 2010.

At MarketView 2005, Input projected the federal IT market in fiscal 2010 would total $91.4 billion. This year, the firm lowered the 2010 projection to $88.8 billion, followed by a rise to $93.4 billion in 2011. The projected compound annual growth rate (CAGR) is 4.4 percent, compared with the 5.5 percent Input predicted in 2005.

State and local governments, on the other hand, propelled by a different set of drivers, could grow more quickly, Krouse said. He projected a 7.5 percent growth rate through 2011 for those organizations, including a jump from $49.8 billion this year to $59.2 billion in fiscal 2008. By 2011, the figure is $71.5 billion.

A rival research firm, Datamonitor, offers a different view, projecting a CAGR of 5 percent in the federal sector but only 2.6 percent for state and local. Datamonitor’s projections cover fiscal 2005 through 2010 for federal and 2004 through 2009 for state and local.