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IT Cartels in Government?


September 28, 2011

Doug Hadden, VP Products

Former American Federal Government CIO Vivek Kundra described waste in government IT as perpetuated by an I.T cartel. As he said in his New York Times opinion piece: “This powerful group of private contractors encourages reliance on inefficient software and hardware that is expensive to acquire and to maintain.” The industry was quick to respond. According to an article in Washington Technology: “Several federal IT executives were outraged by Kundra’s comments, but declined to speak publicly for fear of negative repercussions.”

The resistance to move to more efficient cloud services was the primary focus for Mr. Kundra’s comments. An analysis in Public Technology suggests that government moves to cloud computing may result in moving to a different ICT cartel. Gartner analyst Andrea di Maio suggests that IT cartels are here to stay: “For one “cartel” that goes (or reshuffles), another cartel sets in. For one silo that gets broken a new silo emerges.”

It’s about Open

On-premises, shared service, private cloud, public cloud – it’s very much about open. For all the benefits of any deployment strategy in government, there remains a problem: closed.

Closed software operates on a vertically integrated software stack. The software vendor tends to own most of that stack. There a significant incentives for software vendors to keep the stack proprietary and to control the value chain.

Incentives of Closed

Enterprise software firms are rewarded for introducing inefficiencies. This can be seen as a sophisticated IT form of rent-seeking. These are the incentives for these companies:

  • Use size to eliminate agile competition: leverage concepts such as spend and portfolio management to present notion that reducing the number of vendors would actually cost less
  • Use customization as hostage mechanism: ensure government customers have invested significant effort to customizing software and hence become reluctant to switch to more efficient methods
  • Use partner incentives to keep products complex: ensure that partners generate long-term revenue opportunities by not baking services out of products
  • Use FUD where possible: leverage “fear, uncertainty and doubt” about security, integration, scalability, total cost of ownership etc. even where open systems outperform closed
  • Adopt new models tactically: support cloud computing, open source middleware and integration standards where necessary and when it provides some advantage against other closed systems
  • Focus on the proprietary stack “shiny new objects” to add barriers to switching: incremental improvement of middleware components such as “in memory” or “massively parallel” databases that provide minimal additional value

Government adoption of inefficient shared services built on software not intended for the purpose shows the danger of closed systems. Cloud-deployed software may also be dangerous for governments.

The Open Solution

Why would a company like FreeBalance develop an open solution? This seems counter-intuitive in the software world. In the IPO craze of the late 90’s, it was all about “proprietary” technology. Dot coms re-invented the same things.

How did that work out?

Only a few dot coms survived.

Today, consumer-based social media companies grow thanks to open infrastructures.

The FreeBalance approach of an open platform including the support for open source components that gives government choices is different. And, it was a fundamental choice because:

  • As a social enterprise, the notion of holding customer hostage does not fit within our way of doing business. Rent-seeking approaches wastes money in developed countries – but this is far from benign in developing countries
  • We recognize that value is at the top of the stack – the application used. Our business model is to partner with government organizations to earn trust and innovate based on customer feedback.
  • Open always wins in the end. Why? More economies of scale, easier to adapt and integrate. Ability to change as technology changes.




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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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