The $24B Government Software Monopoly You've Never Heard Of

Today, I've got a company breakdown for you that's a bit different from the usual suspects we cover.

Ever wonder who builds the software that runs your local courthouse, city hall, or school district? If you're a nerd like me, the thought has crossed your mind. I've always been curious about who powers the software used by local agencies that I interact with. But I never have dug into it.

Well, it turns out there's a $24 billion company called Tyler Technologies that's quietly cornered this market. They're basically the Salesforce of government. Except their customers literally can't go out of business (well, maybe they can but that's a story for another day).

What caught my attention isn't just their size, but how they built their moat. While Oracle and Microsoft were chasing the broad enterprise market, Tyler went all-in on government. Classic counter-positioning play that's created switching costs so high that Cook County paid $250M+ for a Tyler project despite massive delays and still couldn't leave.

A note of caution on this company: I think AI will dramatically reduce the cost of building software. This could either be a major headwind or tailwind for Tyler. Personally, I'd go all-in with AI from both a feature standpoint and an internal cost-cutting standpoint. With the cost of building software going down, I'd make sure to share any cost-saving with my customers to ensure that it's a win-win.

On a related note, the term AI doesn't exist on Tyler's home page. I'm torn on whether or not this is a good thing...

Quick highlights:

• Started as a pipe manufacturer in 1966, pivoted to government software in 1998

• 85.7% recurring revenue with near-2% churn rate

• 50+ strategic acquisitions building their government expertise moat

• 4.0/5 competitive power score anchored by switching costs and counter-positioning

• 36,000+ municipalities served across all 50 states

The report covers their 43-acquisition growth strategy, why they have a 2% churn rate, and what entrepreneurs can swipe from their playbook. Plus some interesting bumps in the road including ransomware attacks and wrongful arrest lawsuits.

Worth a read if you're curious about niche market domination or just want to see how a pipe manufacturer became a government software powerhouse.

Talk tomorrow, Nick

P.S. - Their "Connected Communities" marketing campaign has been running for 7+ years. Sometimes the boring, consistent approach wins.

TL;DR

• Tyler Technologies specializes in public-sector software, with over 45,000 installations in local governments, courts, schools, and public safety.

• The company focuses on mission-critical systems, serving clients who prioritize reliability and offer long-term, steady payments.

• In 2024, Tyler reported $2.13 billion in revenue, an increase from $1.95 billion in 2023.

• Key lesson for entrepreneurs: serve essential (not trendy) markets, build high switching costs, and convert customer pain points into recurring revenue.

The 30,000-Foot View

Tyler Technologies operates as a vertical SaaS company focused exclusively on government and public sector clients. Their software handles everything from property tax collection and court case management to emergency dispatch and school administration.
The business model centers on long-term contracts with high switching costs—once a city implements Tyler's financial management system, ripping it out would be like performing open-heart surgery on municipal operations.

Revenue Mix:

• Recurring revenues from subscriptions and maintenance were $463.9 million, up 14.9%, and comprised 85.7% of total revenues

• SaaS revenues grew 23.0% to $173.4 million

• Transaction-based revenues grew 20.9% to $175.4 million

Key Stats:

• Market Cap: ~$25 billion

• Annual Revenue: $1.95B in 2023 (5.49% growth), increasing to $2.13B in 2024

• Annualized Recurring Revenue (ARR): $1.86 billion, up 14.9%

• Industry: Government Software / Public Sector Technology

• Employee Count: ~8,000+ employees

• Gross Margins: Mid-40's% (less than your typical SaaS company due to services)

Company History

• 1968: Founded in Dallas as a small software company serving local governments

• 1990s: Began aggressive acquisition strategy, buying up regional government software vendors

• 1999: IPO on NASDAQ, raising capital to accelerate acquisitions

• 2000s: Continued roll-up strategy, acquiring dozens of niche government software companies

• 2012: Launched cloud-first strategy, began transitioning customers from on-premise to SaaS

• 2016: Crossed $1 billion in revenue milestone

• 2019: SaaS arrangements comprised approximately 97% of the total new software contract value, up from approximately 89%—showing a successful cloud transition

• 2020–2024: Accelerated digital transformation during pandemic, expanded into new verticals like K–12 education technology

Show Me the Money

Stand-out financial features:

• 85.7% recurring revenue

• 23% SaaS growth

• Free cash flow of $216M

• ARR of $1.86B

• Consistently has more cash than debt

Financial Data

The N.O.O.B. Nine — Competitive Powers

Average Score: 4/5 - Strong competitive position anchored by counter-positioning, switching costs, and cornered resources.

Memorable Marketing

Tyler Technologies takes a refreshingly anti-flashy approach to marketing—they sell boring software to bureaucrats, and they know it.
Their positioning centers on "Connected Communities" and mission-critical reliability rather than innovation theater.
Primary channels include government trade publications, municipal conferences, and good old-fashioned relationship selling through existing customer networks.

Campaign Snapshots:

"Connected Communities Vision" (2020–present)

• Core idea: Tyler software connects all aspects of government operations

• Primary channels: Government trade shows, municipal conferences, case studies

• Why it worked: Spoke directly to post-pandemic digitization needs and interdepartmental efficiency

• Result: Accelerated cloud adoption and cross-selling success

Customer Success Story Campaign (2018–ongoing)

• Core idea: Let satisfied customers do the selling through detailed case studies

• Primary channels: Webinars, trade publications, peer-to-peer referrals

• Why it worked: Government buyers trust other government buyers more than vendor sales pitches

• Result: Shortened sales cycles and improved close rates in competitive situations

"45,000 Installations" Social Proof (2019–present)

• Core idea: Market dominance through sheer customer volume

• Primary channels: Sales presentations, website, conference booths

• Why it worked: Government buyers prefer "safe" choices with proven track records

• Result: Reduced customer acquisition costs and faster procurement approvals

Tactical Takeaways:

• Lead with customer volume over features – "45,000 customers can't be wrong" beats "revolutionary AI-powered solution"

• Turn customers into case studies – Government buyers want to hear from peers, not sales reps

• Own the boring positioning – Don't try to make tax software sexy; make it reliable and proven

• Focus on relationship channels – Trade shows and industry events matter more than digital ads in B2B niches

• Use procurement fear – Position switching costs and implementation risks as reasons to choose the market leader

AI Uses & Opportunities

Current AI Use:
Tyler has been relatively cautious in implementing AI, focusing on practical applications such as automated document processing in court systems and predictive analytics for resource planning.
They're using machine learning for fraud detection in financial systems and natural language processing for citizen service chatbots.

Future AI Opportunities:

• Cost Reduction:
  Automate routine customer support through AI chatbots trained on government-specific queries, potentially reducing support staff needs by 30–40%

• Product Enhancement:
  Build AI-powered budget forecasting tools that analyze historical spending patterns and demographic trends to help cities plan more accurately

• New Revenue Streams:
  Offer AI-driven citizen engagement platforms that use natural language processing to categorize and route citizen complaints and requests automatically

• Operational AI:
  Use predictive maintenance algorithms to identify when government systems need updates or are likely to experience issues, creating proactive support revenue

Bumps in the Road

Legal Challenges:

• Multiple wrongful arrest lawsuits across states allege Tyler's Odyssey court system caused constitutional violations

• Tennessee's Shelby County paid $4.9M settlement for wrongful detentions

• $3M employment settlement in 2021 over excessive overtime requirements

Security Incidents:

• September 2020 ransomware attack with Tyler paying undisclosed ransom

• March 2024 LockBit breach exposed client data including SSNs

• Former employees report concerning security practices

Implementation Disasters:

• Cook County's $250M nightmare: Originally $75M contracts swelled to over $250M with 5-year delays and multiple project manager turnover

• Similar terminations in Village of Key Biscayne and City of Hollywood due to functionality issues

Operational Challenges:

• Customer service problems and integration difficulties following 43 acquisitions

• Heavy dependence on government contracts creates vulnerability to budget cuts

• Rising competition from Oracle, Microsoft, and newer GovTech startups

Your Swipe File

• Go Ultra-Niche Early: Tyler's exclusive government focus created competitive advantages that broad enterprise vendors couldn't match without strategic trade-offs. Find your niche where bigger players can't or won't fully commit.

• Build Switching Costs Into Your Product: Government customers face massive barriers to leaving Tyler due to integrated, mission-critical systems. Design your solution to become more valuable and harder to replace over time.

• Acquire Strategically for Capabilities: Tyler's 43 acquisitions weren't random—each added specific government expertise or complementary technology. Use M&A to build competitive moats, not just scale.

• Master the Long Sales Cycle: Tyler's 12-18 month government sales cycles require relationship-based selling and account-based marketing. Invest in building trust and demonstrating deep industry knowledge rather than rushing to close.

• Create Community Around Your Product: Tyler Connect's 6,500+ annual attendees generate stronger relationships than traditional sales calls. Build events and programs that make customers feel part of something bigger than a vendor relationship.