Online markets appear to be catching on as a cure for spread-out, inefficient, duplicative buying by federal agencies. They also may hold an answer for the extreme variation in prices paid across and among departments. The question is whether government will go the traditional route of terminal uniqueness and attempt to build its own markets or simply adopt one or more of the commercial online shopping hubs already stealing market share from brick-and-mortar stores all over the world.
The latest indications of potential Amazonization of government come in newly introduced Defense acquisition reform legislation and a venture capital investment by Health and Human Services Department Secretary Tom Price.
Chairman of the House Armed Services Committee and Texas Republican Mac Thornberry introduced his 2017 Defense Acquisition Streamlining and Transparency Act May 18. Its first section calls on the Pentagon to “procure commercial products through online marketplaces for purposes of expediting procurement and ensuring reasonable pricing of commercial products,” and to do so through one or more contracts with commercial providers. It goes so far as to stipulate that the online markets DoD adopts be “used widely in the private sector, including in business-to-business e-commerce.”
“If you’re buying office supplies, you ought to be able to go on Amazon and do it,” Thornberry said.
“Because we are tapping into an existing commercial marketplace we can leverage all the features of this mini free market. Inherent in this commercial marketplace is market research … also competition is built in. It’s its own mini free market, so prices are reasonable. The market is clear. The prices are the appropriate, best, most reasonable price for the item,” said a House Armed Services Committee aide during a May 17 meeting with reporters.
Amazon is just one of the many online marketplaces for office and industrial goods, but it is surging ahead in the market. Others include Grainger, and office supply giants such as Staples and Office Depot , as well as Walmart, which bought Amazon competitor Jet.com. The Defense Department itself runs DoD EMall, but unlike the commercial online marketplaces, it is a closed garden–defense organizations are the only buyers. Observers have called the online market provision a broadside against the General Services Administration’s multiple-award schedules contracts.
Amazon is seeing remarkable success with its own work-focused e-mall, Amazon Business. It launched in April 2015, and within a year had $1 billion in revenue and 400,000 registrations—an annual rate of growth of 20% month over month, according to Daniel Smith, general manager of worldwide education for the company. In January 2017, U.S. Communities, a buying cooperative for more than 55,000 public-sector agencies, signed a five-year contract with Amazon Business for ten product categories: Office Supplies; Classroom, School, Art Supplies and Materials; Home Kitchen, Food and Grocery; Books; Musical Instruments; Audio Visual and Electronics; Higher Education Scientific Equipment and Lab Supplies; Clothing; Animal Supplies Equipment and Food; and Miscellaneous. Spending under the deal is expected to be $500 million.
Not to be left behind, the Health and Human Services Department also is dipping a toe in the swirl of online shopping. Their entrant is an internal, venture-funded startup to create an online marketplace to be used by laboratories across HHS. The marketplace was one of five projects to receive growth-stage funding from the HHS Secretary’s Ventures Fund, designed to support the ideas of employees for initiatives to dramatically improve the department.
