CCS Spend Data update gives sales figures for the Digital Marketplace April – July 2019
Here we look at the data from the perspective of the suppliers and compare it to the same period last year
Sales are up – massively – £240m (40%) more sales than the reference period
But not everyone is participating, SMEs are showing a lot of inertia with 70% making no sales
CCS is managing demand very effectively
Can they improve the benefits of an effective marketplace, for government and citizen, by more intervention in supply?
Comments have been enabled: What specific activities or features would help SMEs up their marketing success rate?
G-Cloud Spend Data – September 2019 Update
In Part 1 we looked at the first 4-months of spend data of 2019/20 (April to July) and compared this to the same period in 2018/19. Taking the perspective of demand-side management we concluded that management of the Digital Marketplace was proving to be effective and fruitful.
In this part we are going to look at the same data as ‘sales’ data and assess the state of the marketplace from the perspective of the tech industry – the supply-side.
Summarised Sales Data – Supplier Data April-July 2019/2018
Which type of cloud service is capturing the government purse?
Professional Services (Cloud Support & Digital Outcomes and Specialists)
Professional Services remain the largest component of the digital marketplace with a spend of £622m up 42% from the previous period. SMEs hold their own in terms of growth (43%) although the amount spent with large enterprises at £393m in the recent 4-months is much higher than the £229m spent with SMEs. In a national and global economy worrying about recession or 1%-2% growth, 43% is truly remarkable.
Or it would be, were it not relegated to second place by the growth of software sales (89% over the older 4-month period). SME growth of sales by value (59%) to £62m is eclipsed by Large enterprise software sales in the latest 4-months growing 117% to £91m.
Hosting is now the poor cousin of the 3 main lots in the Digital Marketplace with £78m being recorded in the 4-months to July 2019. However, anomalies in the data make anything but general observations in this segment unreliable.
Take a walk on the Supply-Side
So far, the answer to the question ‘is G-Cloud working?’ seems fairly emphatically ‘yes’ with credit to CCS for expansion and management of demand and sustained sales-growth percentages that must be the envy of every other industry. But it’s when we start looking further into the supply-side issues that things get messy.
At inception 4,222 suppliers were listed on G-Cloud 11, but that was not live until the beginning of July 2019. So, for objective analysis we need to consider the base population of suppliers in the recent 4-month period to be the 3,505 vendors on G-Cloud 10. The sales data shows that 1,012 suppliers made sales on G-Cloud in this second 4-month period. Is that what we would expect of a healthy marketplace?
To eliminate seasonality or short-term issues, let us expand the data-set and look at the full 12 months to end July 2019. Here we see that 1,300 suppliers had achieved at least £1 of revenue on the framework. Albeit an improvement of 19% over the 1,089 suppliers achieving a sale in the same period 12-months before. It still means that 2,205 (63%) of suppliers on the framework had no sales at all in the 12-months to July 2019.
CCS have stopped publishing detailed organisation-size data on all suppliers on the catalogue, but have reported that over 90% of suppliers on the latest framework are SMEs. From the sales data, where CCS do indicate SME status, in the 12-months to July 2019, 348 Large enterprises made sales. Roughly, let’s assume that is the total population of Large suppliers leaving 3,157 as an approximation of the population of SMEs (90.07% of the total).
950 SME suppliers had a sale in the 12-months to July 2019, or conversely about 2,207 (70%) of SMEs had no sales.
Taking a figure of £100,000 of annual sales to be ‘sustainable’, supporting a dedicated salesperson and some marketing and fulfilment expense – only 557 (18%) of SMEs achieved this in the 12-months to July 2019.
Is this indicative of a healthy supplier community in the marketplace? With over 80% of businesses in the SME supplier community not achieving a sustainable level of trade, I suggest this is firmly at the other end of the success spectrum.
But it is a supply-side issue; demand is being well managed and increasing by extraordinary percentages.
The Cost of Failure
It is clear from analysis I have done (see earlier ‘Insight’ articles in this section) that the main reasons for failure are simple and remediable errors of judgement and marketing execution by suppliers.
For example, as at 2-September 2019 G-Cloud lists 30,052 services. Of these 10,773 (36%) have no Service Definition. This is indefensible from a marketing perspective and, unfortunately, it has more consequences than for just those suppliers perpetrating the gaffe. It is not the only marketing blunder, but visible and measurable and stubbornly changes little. It is but one of a small catalogue of fatal or damaging errors or omissions which leave a large number of suppliers unable to be selected or form a contract under the rules.
Buyers are frustrated by the high volume of these ‘zombie accounts’ on G-Cloud which clog the buying process with products which will be eliminated because there is insufficient information to fully evaluate them. This is a disincentive to play the game by the rules and so buyers resort to alternatives. Some prefer a full tender procedure (where buyers can be confident that the supplier will provide, at some cost, all the information they need). Others let bias dominate the procurement (e.g. to an incumbent supplier or a well known ‘brand’) or use alternative frameworks or channels which have smaller numbers of suppliers and products.
Anecdotal evidence indicates that high volumes of searches commenced on G-Cloud are abandoned. Is this a sign of buyer frustration at the low quality of supplier content? Conversations I have had with some buyers say that it is an issue – but this is far from forensic proof. G-Cloud, for all participants, would benefit from research and evaluation of cause and consequence of the ‘missing buyers’.
The cost of failure is not just borne by the dumb suppliers. It leads to higher costs, sub-optimal solutions, a multiplicity of frameworks and procurement channels (a costly burden for SMEs) and it smooths the path of least resistance leading to the oligopoly; bad news for the SME sector.
Is G-Cloud Working?
To return to the original question, the answer, taking into consideration our review of the state of demand and supply in the marketplace is ‘Yes-but’. We need to qualify our opinion. G-Cloud is working for most Large enterprise vendors and 20% to 30% of SMEs who ‘get it’. This number is slowly growing: in the 4-months to July 2019, a cohort of 99 suppliers (73 SMEs) across all lots recorded sales for the first time. At this rate 300 or so ‘newbies’ will join the sales magic circle over the life of this iteration of the framework. But as 700 net new suppliers joined G-Cloud 11, the non-performing proportion – this 70% who are there, but selling nothing – will probably stay the same or even grow, unless positive action is taken.
There is no doubt that CCS are achieving amazing success in the efforts being put into the demand side of the market, but:
Who is responsible for improving the performance of the supply-side?
Free market proponents (I am usually one) might point to the mechanism of the market itself. ‘No one’ is responsible; supply success is Darwinian, survival is only one of several normal outcomes. But evolution takes a long time and our public sector and economy could benefit from a smarter marketplace.
The resources going into the demand-side are producing good results. Is it not time to put more resource into managing the improvement of the supply-side? If we want the benefits of a frictionless market for public sector economy, efficiency and productivity these observations seem to suggest it would be a rewarding investment.
What form of assistance?
First, some market research into the buyer’s and user-customer experience. Objective data to inform choices better than some of the more anecdotal observations presented here. If the conclusions are borne out this will show the benefit to the marketplace from greater SME supplier engagement, education and support – e.g. buyer case studies on how solutions are found and what are the causes of elimination or frustration. This blog on work done by CCS & Behavioural Insights discusses the benefit of this type of approach.
There is also a place for greater ‘policing’ and quality assurance of the ‘zombie accounts’ and gaming of the system which together clog and frustrate the market.
TechUK, CCS, GDS and several buyer organisations are already doing good work in this direction, but it is difficult to see the necessary step-change in behaviour without more orchestrated activity and resource. CCS have the benefit of the transaction fee on the strongly enhanced throughput on the Digital Marketplace which we saw in Part-1 is running at over £2bn a year, up from £1bn in 24-months (an increase in CCS income from management charges of £7.5m). If they have the overall objective of creating this frictionless marketplace, let’s add to the work they already do in beefing-up the quality of supply – particularly in the large, failing 70%-SME segment. It isn’t their natural constituency, their customers are the buying organisations of the wider public sector, but ultimately this will benefit them and in due course both citizen and economy.
And anyway, isn’t there something delightfully ‘Sherwood Forest’ about ‘taxes’ on the high sales of the oligopoly funding the growth and innovation of our hard-working SME sector?
Time to string your bow, Robin?
I’ve had a few comments suggesting the type of assistance which may better support SMEs in their efforts to improve marketing and sales performance on the Digital Marketplace. I’m opening comments for this or other feedback.
Please take a moment to register to post a commnet, it doesn’t take long and i hope to cut out spam and (seriously) off-topic junk.