One of the stated objectives of the UK Government G-Cloud programme is to remove ‘deal making’ and bespoke contractual terms from ICT procurement. The vision set out by former G-Cloud director Chris Chant was to provide an online CloudStore for the public sector to shop for commodity cloud services that are transparently priced. The aim was to eradicate unmerited differential pricing, stimulate competition and ultimately provide better value for the tax payer.
Price transparency – a culture shock for vendors?
For ICT suppliers who are more used to deal making and solution selling (see previous article), the move to commodity based pricing in the cloud is a real challenge. This apprehension was evident from the large number of clarification questions asked regarding CloudStore price transparency during the preparation of the first G-Cloud framework submissions in late 2011. It was amusing to see the reaction as vendors started to realise that their competitors, as well as their prospects, would be able to see and compare prices!
At that time we had a policy in place of treating all our public sector clients in an equitable manner but we had not gone as far as putting our pricing into the public domain. Like most businesses, we did not want to make it too easy for our competitors to under-bid us during formal procurements.
As envisioned by Chris Chant and his successors, the G-Cloud CloudStore has completely changed the procurement process, for buyers and sellers alike. To comply with EU tender fair competition regulations, the G-Cloud Framework Agreement clearly states that both parties are contractually obliged to abide by the prices published in the CloudStore:
“The pricing of Call-Off Agreements must be based on the prices stated in the Supplier’s Catalogue Entry.”
With this duty firmly in place, it’s a lot easier for vendors to take the leap and publish all their prices knowing that their competitors are no longer at liberty to negotiate and offer special deals. The CloudStore has certainly helped to overcome the impasse of “I’ll show you mine if you show me yours!” and the result, as expected, is greater price competition.
How to price pay-as-you-go computing?
When it comes to utility computing there are many pricing models that can apply. The simplest is to offer is a flat rate per unit, for example £5/user/month, across the board. This seems logical and is certainly easier to administer, but does it offer true value for money? Will all users derive equal value from the service? Are the vendor overheads really linear? What about volume discounting?
Having provided SaaS solutions for team collaboration and stakeholder consultation for over 10 years we have learnt the simplest models are not always the fairest.
Our approach from the very start, therefore, was to factor in an aggressive volume discounting scheme. The business rationale is that this actively encourages license growth by making it extremely cost-effective for our clients to add new users. Another reason we can afford to discount is that the service is so easy to support, for us and our clients, that adding new users is not really a resource overhead. This methodology certainly provides better value for money for our public sector clients, which we know they really appreciate.
To meet the G-Cloud Framework Agreement clause above we provided some example price points in our G-Cloud submission and also made a commitment to provide an online quotation calculator within our application, which we have now done. Our clients are now able to plan and budget for license upgrades without asking us to quote – but they quite rightly often check with us, to be on the safe side, before raising a new purchase order. The Framework Agreement helpfully states:
“Due to the elastic / consumption based nature of G-Cloud Services it is not possible in a static Order Form to exactly define the consumption of services over the duration of the Call-Off hence you should state the initial volumes of all services that are likely to be consumed under the Call-Off contract.”
So has the CloudStore succeeded?
The G-Cloud CloudStore has certainly changed the procurement dynamic. We’ve seen an increase in the number of calls we get from the public sector, based on the full disclosure of our CloudStore offerings. It removes the need for price discussions so the sales process is further along by the time we talk. The CloudStore is now also making much it easier for shoppers to filter and assess their long and short-list suppliers.
If I had a concern it would be that certain vendors, such as Huddle, have not embraced the cloud commodity price transparency concept and are still directing CloudStore shoppers to “Call for Pricing”. This is against the spirit of the G-Cloud programme and it breaches the vendors’ contractual obligation under the Framework Agreement, therefore any G-Cloud contracts they have signed may be unlawful. My advice to anyone shopping for pay-as-you-go commodity cloud services via the CloudStore is to consider the likely cost of expansion for you and your organisation. If this is not clearly shown then select another supplier.
With over 800+ vendors and 7000+ services on the CloudStore perhaps now is the time for the Government Procurement Service (GPS) and the Government Digital Service (GDS) to focus on quality, not just quantity.