Where did it all go wrong for the UK’s home-grown tech suppliers?

In this guest post, Karsten Smet, CEO at distribution company ACI Group, examines the parallels between the demise of the UK’s home-grown cloud providers and the challenges facing the country’s manufacturing sector

Whenever competition – particularly in the cloud industry – comes down to price, the winners will always be the ones with the deepest pockets. Case in point, during the last decade, we saw the UK Government and others ruminate with the idea that a UK technology-led sector was the future for Britain, but the presence of US cloud giants has increasingly led to challenges for UK businesses that were supported through the early days of initiatives like G-Cloud. Their success has slowly been tightening the noose on the UK’s public sector cloud providers, squeezing their funds dry.

This is not an exaggeration by any means. Recently, the UK’s third largest provider of cloud services to the public sector, ceased trading. UKCloud sadly went into liquidation at the end of October. The company is not the first victim of the cloud wars – and, unfortunately, is unlikely to be the last. While the tech sector has been at the centre of all this, the effects have been far-reaching. Now, other sectors such as manufacturing are getting caught in the crossfire.

Where there is success, there is also ruin

Using G-Cloud as an example; in 2016 to 2017 financial years, the top four G-Cloud hosting companies were UK businesses. This dominance is evidenced by the government’s published numbers as UK SMEs accounted for approximately 58% of the UK government cloud hosting market, which was worth a little over £100m at the time.

The Salford-based company, Datacentred, was one of the firms that made up that percentage. Yet in September 2017, Datacentred filed for administration after the company’s financial situation had become increasingly unstable. While there was no substantial evidence at the time, the company’s fall from grace was reportedly due to HMRC – one of its biggest customers – migrating to Amazon Web Services (‘AWS’).

In late 2019, a similar issue occurred with Eduserv, where investment into the UK’s public cloud hosting businesses simply dried up. Back then the company merged with Jisc, a not-for-profit that provides cloud services to higher education institutions, and the Eduserv brand was swallowed in the deal.

By last year, the size of the market had nearly tripled – but the UK SME share had declined to 18%. The picture is even worse for the current financial year, with the UK SME share coming in at 11%. It is reasonable to assume that most of those SMEs are reselling hyper-scale. Today, and partly due to competing measures like this, AWS enjoys 64% market share of the UK public sector cloud hosting market.

Unappealing investment

Despite the laudable aspirations of G-Cloud, mistakes have obviously been made. We must now direct our questions to the initial premise, which at the time almost excluded hyper-scale.  Why was a blended approach not considered? This would have easily enabled healthy competition between companies, creating the best of both worlds.

Instead, the government’s approach eventually led to a wholesale U-turn in its cloud hosting policy, which had heavily favoured UK SMEs – like UKCloud – and led to the dominance of US hyper-scale cloud providers. This resulted in the UK cloud hosting market becoming deeply unattractive to investors. Unlike the US cloud giants, who come armed with plenty of resources to offer compute power and storage at lower costs, our home-grown cloud companies are focused on delivering value back into the UK economy.

You only need look at what’s been achieved by UKCloud to see that value. For instance, they came first in the Sunday Times Tech Track 100 of the fastest-growing tech businesses in the UK and they won the Queen’s Award for Innovation in 2017. Eduserv even won a government-backed award in 2010 from Sitecore after working in combination with the Department for Business, Innovation & Skills to build a shared website platform.

UKCloud’s success in the public sector cloud market was also a government success story too. The company demonstrated first-hand how Lord Maude of Horsham’s enlightened policies and initiatives such as the SME agenda, Cloud First and G-Cloud could create opportunities for UK SMEs to access the public sector market to flourish and grow. In doing so, this underpinned the government’s early digital transformation and presented that there were alternatives to the ‘oligopoly’ by creating jobs and wealth in the UK.

In short, these are companies that have not only been trusted to manage high-level security workloads over the years, but they have been fundamental to the safe and efficient running of the DVLA, HMRC, the Home Office, the Ministry of Defence, the NHS and more. In reality though by providing a platform for growth without trying to ensure a world where companies could co-exist and collaborate, they essentially created a problem.

Where can we go from here?

The idiosyncrasies of G-Cloud, combined with government cloud policy that some would argue favours US hyperscale cloud providers, essentially means that for years UK hosting companies have been denied the opportunity to demonstrate their capability or competitiveness. So, what next?

Personally, I hope the government learns from this experience and redoubles its efforts to make it a better and fairer place for UK companies to do business with. They say history repeats itself – and there is already evidence that this is starting to happen.

There is a real bid to bring back industry manufacturing to the UK, but the government is failing to address the cost disparity of products that bear the ‘made in the UK’ mark versus cheaper alternatives made abroad. So why are we ignoring the obvious? Many raw materials still need to be sourced from outside the UK, elevating costs for our UK manufacturers, but that doesn’t mean we can’t co-exist and find a more inclusive solution.

Yet there is light at the end of the tunnel – and businesses like ACI Group are working with government bodies to get supply chain distribution back on its proverbial track. UK distributors are trying to provide a viable route to ensure the right raw materials are made available to UK businesses to bring industry manufacturing back.

There has to be a focus on combining what we can do within the UK with global partners who can support us. Much like there should have been a focus on how hyperscalers could co-exist with the SMEs on day dot, ensuring the future of tech-enabled services rather than their demise. It should never have been an ‘us’ or them decision, when we know collaboration is often the key to success.

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