IT services for municipalities: providers, competition and innovation © Photo Credit: lassedesignen -

IT services for municipalities: providers, competition and innovation

What is the market structure of IT services for municipalities? This Research Brief analyzes the portfolio of municipal IT service providers and startups as well as their opportunities and challenges.

Digital transformation is a major challenge for the more than 11,000 municipalities in Germany. According to the Online Access Act, municipalities must offer digital administrative services by the end of 2022. However, implementation is lagging far behind. The Corona pandemic, climate protection and the energy crisis also increase cost and innovation pressure on local governments. Municipal IT service support local authorities in their digital transformation. Increasing mergers and cooperation between municipal IT service providers are creating larger companies, some of which serve municipalities of whole federal states. At the same time, there is a growing political initiative to strengthen the cooperation of innovative new companies (so-called GovTech start-ups) and public administration.

This Research Brief provides a market overview of 59 municipal IT service providers, their legal form, revenues and cooperation with municipalities. It also analyzes 163 GovTech startups and their offerings as well as their activities for municipalities. While municipal IT service providers can be commissioned as public companies by their municipal sponsors without a procurement process (in-house procurement), public procurement procedures are a major barrier for startups. Only few municipalities have already commissioned startups. The Research Brief presents four good examples where successful cooperation has led to more innovative solutions. It also analyzes trends in the market for IT services for municipalities and the opportunities and challenges faced by market players.