Digital Marketplace review of the year: 2018-19

Lindsay Smith dives into this year’s G-Cloud data. The number of SaaS SMEs hitting over £1million doubled in 2018/19! But almost 80% of them are yet to sell a thing.

Crown Commercial Service have published the Digital Marketplace Spend figures for the financial year 2018/19! This of course gives us a great insight into the state of the UK GovTech market which GlobalData estimate to be worth about £18bn for 2018/19. As G-Cloud & DOS spend for the financial year totalled £2bn it is a significant and rapidly growing segment of the digital economy.

Let’s see what the data tells us about the state of this important sector of the market and, indeed, the economy. At £2bn we can officially start measuring Digital Marketplace in terms of UK’s GDP, where according to my slide-rule it debuts in 2018/19 at a muscular 0.1%. Well, we all start somewhere…

G-Cloud & DOS Spend
Financial year 2018/19 – analysis by Lot and SME status

The growth of the Digital Marketplace over the previous year is an astonishing 46% while in the same period overall public sector ICT spend was not expected to increase and ‘growth’ in the economy as a whole is being cheered-on for loitering between 1%-2%.

Support – Lot 3

Support, the professional services component of the Digital Marketplace still dominates at just under 75% of spend in the financial year. We add DOS and G-Cloud support together here as there is a big overlap in the nature of services on the two frameworks. As G-Cloud support spend increased 9% year-on-year and DOS increased 128% it is probably fair to assume that some of the services are relocating to the more appropriate contract.

Within support the large enterprises dominate (as they do in hosting), part of the cause for this would appear to be departments ‘banking’ their un-used budgets with the big consulting firms. It’s an anti-competitive practice locking these departments into the higher rate-cards that the global players adopt, but understandably there are those who have had to delay spend over the year-end because of Brexit uncertainty and they don’t want to give the cash back to the treasury. The evidence for this is that support spend to Large enterprises in the last two months is 40% higher than the average for the preceding four. Hosting spend to Large enterprises is 50% higher in the last two months.

If some of the benefits of cloud enjoyed in the B2B world are ‘pay as you go’, ‘pay only for what you consume’ and ‘switch to lower tariffs when innovation provides’, maybe it’s a job for the National Audit Office to see if the waste is measurable and significant.

SMEs and The Fog of Battle

Recently much has been written about the demise of SME policy, (some of it by me). This is attributing the increase in proportion of spending to Large enterprises as policy failure -. Evidence for the prosecution is the share of Large enterprise spend rising year on year without exception.

However, on reflection, we should not consider the situation to be so black-and-white. While there are distractions from the SME policy and there are areas where the framework could be lubricated a little more to benefit SMEs, on the whole G-Cloud is a very SME-friendly framework. In any objective evaluation of the data-shift, we should attribute some of the relative loss of ground to

(a) the competitive shift in behaviour of the Large enterprises,

(b) SMEs difficulty in gearing up professional services staff as quickly as the major players

(c) SMEs (not all – some are very astute) being slow at learning how to effectively market B2G.

Notwithstanding the fall in relative share, the spend on professional services to SMEs has grown 26% year-on-year. That is a good market in which to play an active part.

Hosting – Lot 1

Hosting grew 57% over the previous financial year to £224 million. The larger part of growth is in the big accounts as Large enterprises increased their share of spend by 89% with the top 3 enterprises accounting for 70% of this non-SME spend.

Direct hosting spend to SMEs fell marginally against the prior year. The indirect spend (where a customer takes SaaS from a supplier which incorporates the hosting component) is not capable of segregation and analysis from the data collected in the returns.

Software – Lot 2

The performance of software suppliers, particularly SME software suppliers over the past financial year has been heroic. Total spend on software grew 60% while the spend on SME software suppliers grew 71% bringing the SME sector the closest yet to spending parity with Large enterprise software vendors.

This may be a signal, when looking at the effectiveness of SME policy, that the easier scalability of software deployment in contrast to professional services resources is indeed a factor restricting the spend of Lot 3 (support) and DOS to the SME sector.

Number and value

It is not only the value of software spend that is increasing but also the number of suppliers, particularly SME suppliers which are getting into the sales ‘magic circle’. SMEs with sales in 2018/19 increased to 450 from 346 (30%) in the previous year.  The distribution between sales performance continues its rise across all levels of spend.

The number of SMEs with sales over £1million doubled from 19 to 37 in 2018/19.

There were approximately 2,000 SME SaaS suppliers admitted to G-Cloud 10 in July 2018. 450 SMEs recorded some sales activity in the last financial year (the numbers aren’t perfectly comparable as some vendors with recorded sales under earlier framework contracts may no longer be on the Digital Marketplace – but the error will be small enough to ignore). This leaves almost 80% of SaaS SMEs without any sales on the G-Cloud framework.

The ‘haves’ and the ‘have nots’

As the above chart shows, more SMEs get on the sales ladder each year and once on the ladder they progress up the success ramp so we see double the number achieving the millionaire-club status. But almost 80% of SaaS SMEs have yet to trouble the scorer.

In-depth analysis of those 80% continues to show easily identifiable (and for the majority, easily remediable) obstacles to sales success. One of the most important messages to express is that a supplier can make quite substantial changes to their details on the Digital Marketplace in between iterations of the frameworks. In the majority of cases this will be sufficient to remove the impediments to making sales.

Each year and with each iteration more SaaS SMEs ‘get it’ and start moving up the sales ladder. To be a ‘have’ or a ‘have not’ is largely a question of choice made by the supplier – not, as most think, an external factor in the marketplace and beyond their control. SME policy is not failing, it’s SMEs who are failing to take advantage of the most SME-friendly public procurement environment we have.