Trickle Down: What Obama's Stimulus Plan Means For You

On Jan. 20, the focus was on the historic inauguration of Barack Obama as the 44th president of the United States. But with the swearing-in ceremony complete, solution providers should turn their attention to the proposed $825 billion economic stimulus package that could offer significant opportunities for VARs in these turbulent economic times.

The legislation, formally known as the "American Recovery and Reinvestment Act of 2009," is likely to undergo significant changes as it winds its way through Congress. But as written by the U.S. House Appropriations Committee last week, the bill proposes spending billions of dollars for installing health information technology, building wireless and broadband networks, rebuilding highway infrastructure and transit systems, developing renewable energy technology and upgrading school classrooms.

The IT industry hasn't been shy about offering advice for what the incoming Obama Administration should include in the stimulus package. In a Jan.13 op-ed piece in the Wall Street Journal, IBM CEO Sam Palmisano called on Obama to spend $30 billion in three key areas: smart power grids, health-care IT and broadband networking. Such a stimulus investment "could yield almost one million new jobs within one year," according to Palmisano.

The IBM chief's advice comes directly from an IBM study commissioned by Obama's transition team. Dennis Quan, director of IBM's Autonomic Computing Development group, said the computing giant's early exchanges with Obama's people have been fruitful. "I'd say it's definitely encouraging that we've had this dialog going on in the early stages of the administration," Quan said. "There's huge potential for real work to get done."

And huge potential for solution providers to get new business. VARs could benefit directly from the stimulus package through contracts to provide computers and networking gear to schools or installing electronic medical record systems in physician offices and hospitals. But VARs should also benefit from increased demand for IT products and services from state and local government, highway construction companies, alternative energy developers and other direct beneficiaries of the massive infusion of spending.

Take, for example, Boston Engineering, a solution provider that resells product development and product lifecycle management software from Parametric Technology. Vice President and Chief Operating Officer Mark Smithers said the company's business plan for this year is initially focused on robotics and medical device manufacturers. "But clean technology is in our face so much we can't ignore it," he said, referring to the explosion of growth among developers of "green" energy technology.

Boston Engineering is already supplying software and engineering services to Harvard University for a fuel cell technology research and development project and to A123 Systems, which is developing next-generation lithium ion batteries using nanotechnology. Smithers expects the stimulus plan to spur even more demand for Boston Engineer's software and services, given that it includes $4 billion for renewable energy research and advanced battery development.

Tribridge, a Microsoft gold partner, has positioned itself for growth in alternative energy technology development and other emerging markets that might get a boost from the stimulus package. The company just signed on as a reseller of Parametric Technology's software, anticipating that demand for product development tools will increase as funding for developing green energy technology and energy-efficient products ramps up, said Scott Caudle, director of Tribridge's Microsoft Dynamics ERP application business.

"We're seeing a lot of leads and opportunities there," he said. Expanding the company's software portfolio "is a way for us to accomplish growth in a downturn and focus on emerging markets." The Parametric software also gives Tribridge the opportunity to sell to companies developing advanced oil and gas exploration and drilling equipment, Caudle said.

Next: Massive spending on health-care IT offers opportunities for solution providers

IT solution providers in the health-care market might benefit the most from the stimulus bill. The measure proposes spending $20 billion on health-care information technology such as electronic medical records to lower the cost and improve the quality of health-care services. Adding momentum to the initiative, Obama, in a Jan. 8 speech at George Mason University, set a goal of computerizing the medical records of all Americans within five years.

"There's a huge, huge potential there," said Jack Smyth, president and CEO of Spring Medical Systems, a developer of electronic health record applications. "The money Obama has earmarked for electronic health records will be a boon for our industry."

Smyth cited a study that determined that only about 4 percent of all physician offices with 10 or fewer doctors have electronic medical records. "And the only way manufacturers of electronic health record applications are going to get to those small practices is through an effective VAR channel," he said. "That's where the VAR channel really comes into play." Spring Medical Systems has a partner program with some 240 VARs who account for about 80 percent of the company's sales.

But the devil is in the details of just how the health-care IT funding will pan out for VARs, said Wesley Gipe, president of Agil IT, a solution provider that implements and services electronic medical record systems and other health-care IT. "We're definitely hearing buzz about it, but the plans are pretty vague at this point," he said.

Gipe, for example, said it isn't clear from the legislation whether the funding will focus on implementing electronic health-care record-keeping applications in physician offices, hospitals and larger clinics, or some combination of the two. He also notes it isn't clear whether the initiative will favor software from specific vendors or mandate specific data format and communication standards. Such requirements could leave solution providers that bet on the wrong technologies out in the cold.

Agil IT, nevertheless, is positioning itself to be ready when the picture becomes clearer. The solution provider doesn't resell products from any one vendor, opting instead to provide services built around electronic medical record applications from numerous vendors, including General Electric, NextGen Healthcare Information Systems and Greenway Medical Technologies. The solution provider also has a marketing person who maintains relations with area hospitals and professional medical organizations.

Steve Hoover, manager of the Xerox Research Center, agreed with Palmisano on the three technology areas proposed by IBM as first-order priorities. But he added a fourth: Leveraging Web 2.0 communication tools to make government more transparent and information exchange between government agencies and citizens more efficient and dynamic.

Next: Education and infrastructure spending will create demand for IT projects

Solution providers in the education market will also likely play a major role in projects generated by the proposed $20 billion for modernizing school classrooms, including providing new computers and installing networks, and $1 billion for building computer and science labs. The stimulus bill also contains $6 billion in grants for building out broadband and wireless networks in geographic areas that lack adequate access to the Internet.

IBM's Quan agrees the IT channel stands to gain considerably from the proposed public sector technology improvements. "A very significant chunk of job growth in these scenarios goes to the channel, to system integrators. Implementation of these systems is going to require intense levels of work," he said. "With smart power grids, you're going to need management infrastructure in place to take advantage of this new realtime information about power utilization."

Other line items in the stimulus bill may indirectly benefit solution providers. Those include $6.7 billion for making federal government buildings more energy efficient, $30 billion for improving highway infrastructure and $9 billion for transit systems. Such spending could stimulate business for VARs that sell IT equipment and services to construction companies and contractors.

In addition to the $550 billion in new spending, the stimulus package also includes $275 billion in tax cuts and credits that could provide a boost for IT spending. The plan, for example, offers incentives for businesses to continue spending for capital equipment by speeding up depreciation deductions. One provision doubles the amount that small businesses can immediately write off for capital investments and purchasing new equipment.

IT executives, however, caution against simply thinking of new IT spending in terms of job creation and other forms of economic stimulus. "We shouldn't undertake projects simply for the sake of creating economic activity. Rather than just stimulate, we should transform," Palmisano wrote in his op-ed piece.

That's a sentiment echoed by Hoover at Xerox. While he said it's demonstrably true that direct spending by the government has a multiplier effect in terms of economic stimulus, such spending also should "create something that's an actual investment for the future."

"There has to be a balance. If you're going after having a stimulus effect, you've got to have programs that have an impact within a year. But you've also got to balance that with long-term payoffs," he said. He also said maintaining the country's high-tech leadership required a better approach in policy areas that indirectly affect the technology sector.

"There's a whole framework of policies that affect technology, including educational and immigration policies," Hoover said. "I just saw a study that says there are more parents that encourage their daughters to become actresses than engineers. There's something really wrong with that."