Monday, January 18, 2016

The Billion Pound G-Cloud

Sometime in the next few weeks, spend through the G-Cloud framework will cross £1 billion.  Yep, a cool billion.  A billion here and a billion there and pretty soon you're talking real money.

Does that mean G-Cloud has been successful?  Has it achieved what it was set up for? Has it broken the mould?  I guess we could say this is a story in four lots.

Well, that depends:

1) The Trend

Let's start with this chart showing the monthly spend since inception.

It shows 400 fold growth since day one, but spend looks pretty flat over the last year or so, despite that peak 3 months ago. Given that this framework had a standing start, for both customers and suppliers, it looks pretty good.  It took time for potential customers (and suppliers) to get their heads round it.  Some still haven't. And perhaps that's why things seem to have stalled?

Total spend to date is a little over £903m.  At roughly £40m a month (based on the November figures), £1bn should be reached before the end of February, maybe sooner. And then the bollard budget might swing into action and we'll see a year end boost (contrary to the principles of pay as you go cloud services though that would be).

Government no longer publishes total IT spend figures but, in the past, it's been estimated to be somewhere between £10bn and £16bn per year.  G-Cloud's annual spend, then, is a tiny part of that overall spend.  G-Cloud fans have, though, suggested that £1 spent on G-Cloud is equivalent to £10 or even £50 spent the old way - that may be the case for hosting costs, it certainly isn't the case for Lot 4 costs (though I am quite sure there has been some reduction in rates simply from the real innovation that G-Cloud brought - transparency on prices).

2) The Overall Composition

Up until 18 months ago, I used to publish regular analysis showing where G-Cloud spend was going.  The headline observation then was that some 80% was being spent in Lot 4 - Specialist Cloud Services, or perhaps Specialist Counsultancy Services.  To date, of our £903m, some £715m, or 79%, has been spent through Lot 4 (the red bars on the chart above).  That's a lot of cloud consultancy.

(post updated 19th Jan 2016 with the above graph to show more clearly the percentage that is spent on Lot 4).

With all that spent on cloud consultancy, surely we would see an increase in spend in the other lots?  Lot 4 was created to give customers a vehicle to buy expertise that would explain to them how to migrate from their stale, high capital, high cost legacy services to sleek, shiny, pay as you go cloud services.

Well, maybe.  Spend on IaaS (the blue bars), or Lot 1, is hovering around £4m-£5m a month, though has increased substantially from the early days.  Let's call it £60m/year at the current run rate (we're at £47m now) - if it hits that number it will be double the spend last year, good growth for sure, and that IaaS spend has helped created some new businesses from scratch.  But they probably aren't coining it just yet.

Perhaps the Crown Hosting Service has, ummm, stolen the crown and taken all of the easy business.  Government apparently spends £1.6bn per year on hosting, with £700m of that on facilities and infrastructure, and the CHS was predicted to save some £530m of that once it was running (that looks to be a save through the end of 2017/18 rather than an annual save).  But CHS is not designed for cloud hosting, it's designed for legacy systems - call it the Marie Celeste, or the Ship of the Doomed.  You send your legacy apps there and never have to move them again - though, ideally, you migrate them to cloud at some point. We had a similar idea to CHS back in 2002, called True North, it ended badly.

A more positive way to look at this is that Government's hosting costs would have increased if G-Cloud wasn't there - so the £47m spent this year would actually have been £470m or £2.5bn if the money had been spent the old way.  There is no way of knowing of course - it could be that much of this money is being spent on servers that are idling because people spin them up but don't spin them down, it could be that more projects are underway at the same than previously possible because the cost of hosting is so much lower.

But really, G-Cloud is all about Lot 4.  A persistent and consistent 80% of the monthly spend is going on people, not on servers, software or platforms.  PaaS may well be People As A Service as far as Lot 4 is concerned.

3) Lot 4 Specifically

Let's narrow Lot 4 down to this year only, so that we are not looking at old data.  We have £356m of spend to look at, 80% of which is made by central government.  There's a roughly 50/50 split between small and large companies - though I suspect one or two previously small companies have now become very much larger since G-Cloud arrived (though on these revenues, they have not yet become "large").

If we knew which projects that spend had been committed to - we would soon know what kind of cloud work government was doing if we could see that, right?

Sadly, £160m is recorded as against "Project Null".  Let's hope it's successful, there's a lot of cash riding on it not becoming void too.

Here are the Top 10 Lot 4 spenders (for this calendar year to date only):

 And the Top 10 suppliers:

Cloud companies?  Well, possibly.  Or perhaps, more likely, companies with available (and, obviously, agile) resource for development projects that might, or might not, be deployed to the cloud.  It's also possible that all of these companies are breaking down the legacy systems into components that can be deployed into the cloud starting as soon as this new financial year; we will soon see if that's the case.

To help understand what is most likely, here's another way of looking at the same data.  This plots the length of an engagement (along the X-axis) against the total spend (Y-axis) and shows a dot with the customer and supplier name.

A cloud-related contract under G-Cloud might be expected to be short and sharp - a few months, perhaps, to understand the need, develop the strategy and then ready it for implementation.  With G-Cloud contracts lasting a maximum of two years, you might expect to see no relationship last longer than twenty four months.

But there are some big contracts here that appear to have been running for far longer than twenty four months.  And, whilst it's very clear that G-Cloud has enabled far greater access to SME capability than any previous framework, there are some old familiar names here.

4) Conclusions

G-Cloud without Lot 4 would look far less impressive, even if the spend it is replacing was 10x higher.  It's clear that we need:

- Transparency. What is the Lot 4 spend going to?

- Telegraphing of need.  What will government entities come to market for over the next 6-12 months?

-  Targets.  The old target was that 50% of new IT spend would be on cloud.  Little has been said about that in a long time.  Little has, in fact, been said about plans.  What are the new targets?

Most of those points are not new - I've said them before, for instance in a previous post about G-Cloud as a Hobby and also here about how to take G-Cloud Further Forward.

In short, Lot 4 needs to be looked at hard - and government needs to get serious about the opportunity that this framework (which broke new ground at inception but has been allowed to fester somewhat) presents for restructuring how IT is delivered.


I'm indebted, as ever, to Dan Harrison for taking the raw G-Cloud data and producing these far simpler to follow graphs and tables.  I maintain that GDS should long ago have hired him to do their data analysis.  I'm all for open data, but without presentation, the consequences of the data go unremarked.