Digital Marketplace: The Growth Accelerator for SMEs
Now that suppliers are working on their G-Cloud 11 applications, Strategic Adviser Lindsay Smith looks at the data and explains the massive opportunity for SMEs.
Crown Commercial Service (CCS) have now published the spend data from MISO returns up to the end of February 2019. The last month of their data is always a bit short, due to late returns, and there may be some errors which get adjusted later. But adjusting the figures for an understatement of approximately £10m (my guess) shows we are in for a record-breaking quarter of Gov-Tech spend across the board for the 2018/19 financial year.
In the last 4 years just over 11% of the annual spend (on G-Cloud and DOS) has arisen in the month of March. Using this to estimate the likely outcome for the year 2018/19 predicts a colossal £2.3bn for the year and £260m of that being spent in the last month. If Brexit has influenced some departments to hold-back more budget than usual in the year – the figure could be even higher.
In context, that means spend on Cloud technology on these frameworks grew 46% in the last year and more than doubled by comparison with the previous year.
Winners and losers
There really aren’t many losers. The exception being the direct spend to SME hosting suppliers where spending is about 15% down on the peak 2016/17. What we can not estimate is how much of the growing spend on SaaS includes an indirect proportion going to these infrastructure providers.
The highest growth sector is SaaS which in the 12-months to January 2019 accounted for 14.1% of the total spend on G-Cloud and DOS. This is up from 12.9% in the previous year. Professional Services (Lot 3) still dwarf the other two lots, accounting for 74.6% of total spending (2017/18: 76.5%).
G-Cloud and DOS spend
12 months to January 2019 – SME analysis by Lot
Combining G-Cloud and DOS (because professional services are unpredictably divided between the two frameworks) for the 12 months of reliable data to January 2019 and comparing that with the same period the year before shows some interesting movements.
SME software sales have risen 64% over the previous 12-month period. This is remarkable in a year of continuing austerity and where the economy as a whole is growing at 1-2%.
SME professional services have grown 24% year-on-year. This too is a great result and would be, in any other place and time a signal of outstanding success. The SME performance is however eclipsed by the 54% growth in the professional services fees of the large enterprises in the service sector.
There are probably multiple factors influencing this behaviour pattern favouring the large professional services firms. ‘Nobody ever got fired for buying IBM’ is a factor – as is the ability to attract, train, deploy and manage a large, skilled workforce. SMEs typically don’t have the elasticity of resources to meet what is a massive demand for people. Managing multiple SMEs on the buying side must also create a layer of complexity and risk.
The large professional service firm offers a very broad palette of skills and services. If a department has hoarded its budget for development of Brexit-delivering systems, without knowing what, if and when they will be needed. Banking that surplus budget with a large firm with agreement to call-off the services when required is a consequence (and perhaps an expensive and anti-competitive consequence) of our outdated public accounts process.
Digital Marketplace: The Growth Accelerator for SMEs
How to grow a software business profitably is a massive test of management and stress on organisation, people and resources. Once a successful product is stable in its domestic market, the traditional route for growth was overseas. Growing software and services businesses in this way has been my specialism for 30-years. A B2B technology vendor would look to the anglophone B2B markets before looking at public sector because that used to be too hard, now all this has changed with the Digital Marketplace. As proven by the growth rates for SMEs of 24-64% seen above.
The investment required to go and build a presence in a foreign market kills profitability, often for years. Hiring experienced sales and support staff is a nightmare: why, if they are any good, would in-country sales staff take the risk of an unheard of, small UK player? The alternative to hiring locally is to send our best domestic resources – and lose their contribution in the UK while they learn that things are done very differently in a new territory. That new marketplace is awash with local, established competition who all know the market better than we do.
This is where the Digital Marketplace represents a massive opportunity for a B2B supplier. Because there is very little investment in overheads, the difference to the bottom line of building a public sector G-Cloud line-of-business is disproportionately value-enhancing.
Go for it with ‘eyes open’
But, just like opening a foreign territory, it is wrong to think we can simply lift & shift our marketing and sales techniques without modification. This is still widely misunderstood. In that period to January 2019 a total of about 400 SaaS SMEs recorded a sale (the smallest was £100 and the largest over £7million). But this is only 20% of the SMEs with a SaaS product on the Digital Marketplace.
Work I have done with Advice Cloud shows that these successful suppliers have largely won their success by adapting their marketing approach to suit the unique features and characteristics of the public sector market and in particular, the Digital Marketplace. For the 80% with no sales, there are 3-ways of responding to this situation. 1. Do nothing; 2. Do something and learn by trial and error what works and what doesn’t; 3. Work with a team who know what to do and can transfer their experience into your organisation.