Voting Machine Monopoly?

It looks like the largest U.S. voting system company will acquire the second-largest, creating a potential monopolist controlling about three quarters of the market nationally, and 100% in some regions. I could explain why that might seem like a bad idea to many people, but the New York Times’ The Business of Voting Machines already said it better than I. Likewise, one of our election integrity colleagues, Rob Ritchie of FairVote has already explained some of the details and implications in the HuffPost’s Diebold’s End: Consolidation of Largest Voting Companies Shows Need to Reform Elections.

What I’d like to point out instead is how the pricing of the deal shows that there is in fact no real market for voting systems in the U.S. — not in the typical entrepreneurial sense of “healthy market” in which players with superior value can effectively compete. This deal basically shows that Dieboild’s Premier Election Systems, Inc. (PESI) is essentially worthless. The nominal price tag on the deal is $3 million, but ES&S is paying that small sum only on the condition that Diebold retain some PESI’s liabilities.

So here is a story that should convince you — if you were seriously thinking of becoming a new vendor of voting systems in the U.S. — not to bother. Diebold/PESI was new vendor, that now after 6 years of hard work, and obtaining about a quarter market share, finds that the company’s value is essentially nil, and further bedeviled by ongoing legal wrangles with its customers. And that new vendor started with the great opportunity of states awash in Federal funds from HAVA to buy new voting systems! Today, customer budgets are tighter, certification costs are higher, there are only handful of deals on the table for new revenue on new products, and ongoing customer contracts require continuing service and support for older products.

That story tells me the U.S. market for voting systems is essentially broken. It’s still true that in that dysfunctional market, there is a basic conflict between making money and serving the public interest in elections. But now we can see that in selling voting system products in the U.S., it isn’t even possible to make money! The largest remaining vendor may retain a healthy U.S. business, but I suspect it will be based on the strengthened ability to structure some profitable service and support contracts as the largest player — and in some cases the only player.

Lastly, why do I keep saying “U.S. market”? Because Diebold is staying in the elections business in Brazil, and ES&S has plenty of business overseas as well — mostly in countries that unlike the U.S., have elections run by the national government. Back here in the 50 states and thousands of elections boards, there is still plenty of work to do, to figure out how to effectively deliver the needed election and voting technology to the many government organizations that need it. What we do know now is that “the market” has not done so and likely will not in the future.

— EJS