Part 1 dealt with data to October 2018
CCS are now releasing data monthly, so this update is to November 2018
Overall significant growth year-on-year (45%)
Professional services account for 75% of spend – why?
SMEs not doing so well, hosting particularly weak
80% of SME SaaS vendors haven’t recorded a sale in last 12 months
Mixed Signals from Updated Digital Marketplace Spend Data
CCS have published updates to Spend Data for G-Cloud, DOS and Digital Services. Up to December 2018 [click link]. The review that follows looks at the 12-month period or periods ending November1.
The Big Picture
Looking at the 12 months to November 2018, spending on G-Cloud and DOS combined2 grew to £1.7 billion, a colossal increase of 45% year-on-year and now accounting for roughly 10% of the UK public sector tech spend.
When GDP as a whole is estimated to be growing at between 1-2%, public sector tech seems to be a good place to be. Where is all that spend going?
DOS and ‘Cloud Support’ (a loose term that covers a variety of professional services) account for 75% of spend on the 2-frameworks in the last 12 months, a stable figure as it’s roughly the same proportion (76%) of the spend over their lifetime. Hosting was 11.6% of the last 12-months spending and SaaS growing slightly to 13.3%.
Aren’t there some things in these numbers that don’t add-up?
I know when numbers go very big, the brain gets numb and the obvious questions don’t get asked.
- Why does public sector (largely Central Government) annually spend 3-times more on cloud support than on SaaS and hosting combined?
And remember, this is just the spend going through the digital marketplace, we also have offices full of people servicing our public sector digital needs, armies of outsourcers doing IT support off the payroll (IT outsourcing £5bn in 2016/17). Then there are the Public Sector Resourcing and other off-headcount supplies of people… Why is so much being spent on people to make IT work and so little (comparatively) on the IT?
The story used to be that the services being consumed in such volumes were training and upskilling Central Government to take-on the Cloud First and Digital Transformation mantle. It looks more like substituting £2,000/day consultants for £300/day employees – but let’s just hope someone is looking at the way our taxes are being spent. Spend Control, does that exist anymore?
- Why do some public sector organisations, DfE for example, seem to pay up-front for cloud services, which have a benefit of pay-as-you-use? The madness of public sector budgeting, accounting and procurement seem to be stuck in the 17th Century, how can you expect to fully harness the benefits of cloud and digital transformation when expense saved from moving to a subscription model are thrown away? If you do what you’ve always done: you’ll get what you always got.
SME Hosting in decline
The SME share of hosting fell from a historical 13% share of total SME-spend to 8% in the 12-months to November 2018. It seems clear that public sector is switching some large accounts to the larger infrastructure providers with the Home Office, Department for Education and HMRC seeming to lead this trend.
DWP, have spent some £6 million with SME hosting companies over the life of G-Cloud but in November 2018, it seems, a £56 million anomaly arose. Disclosed in December 2018 spend update as all arising in November 2018 there was a spend of £56m on hosting with Entserv (UK) [part of the $25bn CSC/HPE behemoth DXC]. In the January 2019 spend update, this has been allocated back over roughly a year and a half – presumably a hiatus over the bookkeeping on merging the businesses must have inadvertently held up MISO reporting of this gigantic amount. I hope CCS had a staff party to celebrate their commission coming in just before Christmas, how neat!
On the face of it, SaaS suppliers are doing pretty well. Spend to SME SaaS suppliers increased 46% in the 12-months to November 2018 to get over the £100-million mark for the first time. Large SaaS suppliers bettered that with a 56% growth to £127-million.
Part of the reason for higher spending to large SaaS vendors seems to lie in that 17th Century accounting embarassment. Large SaaS suppliers are better positioned to mop-up surplus cash at the end of the fiscal year, as can be seen in the March ‘spike’ in the chart on the left. This can not be a shrewd way to spend money. Time it was reviewed to see if it is wasteful and revised.
The digital marketplace remains one of the bastions of SME policy (manifesto pledge: 33% of central government spend to SMEs).
Overall spend (G-Cloud + DOS) in the 12-months to November 2018 to SMEs was 36%, the previous 12-months the proportion to SMEs was 43%. Disappointing. The 12-months prior to that, to November 2016, the proportion to SMEs was 47%. That looks like a trend, in the direction of the oligopoly and away from SMEs.
One of the laughable conjuring tricks exposed by Steve Parks was the imputation of an estimate of what large suppliers probably spend with SMEs. The nation’s brightest mandarins deciding that when they spend £100 on a global-name’s SaaS package, they need to reflect £12 spent at the local florist or taxi-rank as part of government’s pledge to put £1 in every £3 in the pocket of SMEs.
These otherwise diligent public servants forgot to account for:
- Roughly 15% of SaaS spend goes to suppliers who are resellers – they take a wafer-thin margin and pass the rest back mostly to a large enterprise
- SMEs may host on global platforms, use globally marketed applications. If they impute an indirect SME spend in spend to large enterprises, why isn’t the reverse also estimated?
- Even our benighted florist who takes the £12 may pay rent to a global shopping centre landlord…
So, some proportion of the SME spend isn’t, if we adopt the tortured logic that says some part of the Enterprise spend is.
Total spend to SMEs by Central Government fell in 2016/17 from 24% to 22.5%., even after they cooked the figures with this ‘indirect’ adjustment Direct spend fell from 11% to 10.5%. [Link] If £1 in £3 to SMEs is a policy, then it’s a failing policy. I have seen some verbiage re-casting £1 in £3 as an aspiration. Rhymes with garbiage, the way I spell it!
Back to G-Cloud SME SaaS Suppliers
Spend on SME SaaS of over £100-million in 12-months is good news… but not for many. There are 1,992 SME suppliers on G-Cloud offering Software products. But only 359 of them sold any software in the 12-months under review. That’s 18%. Over 80% of SaaS SME vendors haven’t sold software.
Enterprise SaaS vendors have a completely different experience on G-Cloud, with 85% having recorded SaaS sales in the 12-months to November 2018.
Marketing SaaS to government as an SME is a different proposition and it takes a different approach. Take a look at How-to-Win and get in touch. I’ll take a look at your proposition and tell you if there are some quick changes you can make to get your SaaS offering in better shape. I’m happy to do this, without charge or obligation…
1. The last month of data (December) has significant omissions from late MISO returns by suppliers. It gives a disturbingly misleading picture of affairs to include a low-ball figure at the end of a time series of data, hence its exclusion.
2. G-Cloud and DOS together form my bellwether as they account for the vast majority of spend under the 4-frameworks and a significant volume of a type of spend (services and development) has been transferred from G-Cloud to DOS since 2012, and I suspect it may be moved back from DOS to a more dynamic G-Cloud in the future.