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How the US tech giants opening UK datacentres shook up the public sector market


December 2021 marks 5 years since Amazon Net Providers (AWS) set its UK datacentre area reside, and in that point the US cloud big has seemingly turn out to be the general public sector’s go-to cloud supplier.

Among the largest contracts the agency has accrued up to now have occurred within the final couple of years. These embody one awarded in November 2020 and valued at £120m with the Residence Workplace, and one other value £94m struck with HM Income & Customs (HMRC) in March 2021, in line with information shared with Laptop Weekly by public sector analyst home Tussell.

However as AWS, and its US rival Microsoft, have each grown their authorities gross sales in recent times, their success has come to the detriment of some specialist UK suppliers, which have been arrange particularly to satisfy the cloud wants of the general public sector.

A lot of the public sector offers that AWS wins are secured by means of the G-Cloud procurement framework, which began life in 2012 with the goal of constructing it simpler for small and medium-sized enterprise (SME) cloud suppliers to win public sector offers, whereas loosening the stranglehold that huge tech had on authorities IT.

Its roll-out was overseen by former cupboard minister Lord Maude, who talked up its potential to cease the identical handful of huge tech suppliers being awarded IT contracts that have been too lengthy, too costly and infrequently represented good worth for cash.

This makes the truth that AWS is now the framework’s largest provider, and has been since 2018, such a notable improvement – if not a very shocking one.

Again within the spring of 2016, after each AWS and Microsoft had set out plans to open their first UK-based datacentre areas later within the yr, the analyst community warned that there can be a downturn in public sector IT offers being awarded to the smaller, home-grown cloud suppliers that punted their wares by means of G-Cloud.

This was based mostly on proof that some central authorities departments had intentionally pressed pause on their digital transformation plans till Microsoft’s and Amazon’s UK cloud infrastructures have been up and operating.

On that time, it’s value noting that when Microsoft’s datacentre went reside in September 2016, it did so with the Ministry of Defence as an anchor tenant. As much as that time, Microsoft had received a complete of £6.4m in public sector cloud spend by means of G-Cloud since becoming a member of the framework in early 2014.  

Digging into the federal government’s Digital Market gross sales information reveals that the corporate had zero spend by means of G-Cloud in the course of the third quarter of 2016, however – inside a yr of opening its datacentre – it had accrued a complete of £20.7m. Thus far, Microsoft has made £125.8m by means of the framework.

The same pattern is true of Amazon, though on a barely bigger scale. Earlier than AWS opened its UK datacentres, it had secured a fairly modest £2.93m in public sector cloud spend, whereas now, its operating whole of offers secured by means of G-Cloud stands at £277m.

In January 2017, by the way, the Government Digital Service (GDS) issued steering that declared public cloud companies as being secure to make use of for the “overwhelming majority of presidency data and companies”, besides in cases the place information sovereignty is a serious consideration.

The next month, the federal government printed an advisory be aware on-line that moved to make clear that its cloud-first coverage, which had been in place since 2013, meant public sector organisations must be prioritising using public cloud companies over group, hybrid and personal cloud choices.

“There are circumstances the place the opposite deployment fashions are applicable, however the main advantages for presidency come once we embrace the general public cloud,” the note said

According to analyst predictions, as Microsoft and Amazon have reaped the monetary rewards of their datacentre openings and the UK authorities’s championing of public cloud companies, their success has come at a value to a quantity UK-based cloud internet hosting suppliers.

SMEs hit laborious by US cloud giants

A number of high-profile G-Cloud SMEs have both disappeared from the market altogether or seen a marked downturn within the quantity of enterprise they safe by means of the framework since Microsoft and AWS arrange their server farms within the UK.

One of many earliest casualties of this pattern was Salford-based cloud companies supplier Datacentred, which secured a complete of £1.8m in spend by means of the framework between the 2015/16 and 2017/18 monetary years.

Most of this (£1.79m) got here by means of its dealings with authorities tax company HMRC, with the rest coming from a comparatively small contract with the Division for Work and Pensions (DWP).

The corporate filed for administration in September 2017 after receiving phrase that its largest buyer, HMRC, was planning emigrate its workloads off the Datacentred platform and into the AWS public cloud.

Whereas its pivot to AWS is cited as an element within the demise of Datacentred, the agency’s liquidity is thought to have been unsure for a while and is believed to have been a consider HMRC’s determination to leap ship, as previously detailed by Computer Weekly.

Even so, when quizzed by MPs about its desertion of Datacentred throughout a Public Accounts Committee (PAC) assembly in October 2017, ex-HMRC CEO Jon Thompson stated switching to AWS had allowed the division to chop its cloud prices by 50% and had boosted its enterprise resiliency too.

“We’re growing the quantity of enterprise we do in relation to SMEs, however on this explicit case, an SME was not profitable,” stated Thompson.

Bristol-based, not-for-profit, public sector-focused IT supplier Eduserv is one other instance of an SME supplier whose enterprise seems to have suffered a downturn in demand within the wake of Microsoft’s and Amazon’s UK datacentres opening up in late 2016.

The Digital Market gross sales information reveals that the spend Eduserv secured by means of G-Cloud was broadly and steadily rising quarter-by-quarter from the second quarter of 2013-14, when it recorded a spend of simply £14,000, till hitting a quarterly peak of £2.5m throughout This autumn of the 2016-17 monetary yr.

From that time onwards, the quantity of spend it secured by means of G-Cloud declined quickly to zero by late 2019, which the corporate attributed to dampening demand for personal cloud companies.

In the beginning of 2018, Eduserv confirmed that it was planning to shutter its “loss-making” personal cloud-enabling datacentres in favour of focusing its enterprise on offering public cloud consulting, migration and managed companies to public sector shoppers.

By the top of that yr, the corporate confirmed it had agreed a merger with fellow not-for-profit know-how supplier Jisc, which might take impact from 1 January 2019 and would ultimately end result within the Eduserv model being retired.

However each these examples pale compared to the plight of public sector-focused infrastructure-as-a-service (IaaS) supplier UKCloud, which was – till 2017 – the third largest supplier of cloud companies to the general public sector, however has since slipped down the rankings to 14th.

The agency had seen the quantity of spend it secured by means of G-Cloud rise quarter-by-quarter till it hit a peak of £8.1m in the course of the first quarter of 2016/17, earlier than falling to £1.9m throughout Q3 of 2021/22.

UKCloud’s 2017 monetary report confirmed the agency put up a revenue of £4.4m throughout its G-Cloud peak, with the corporate accounts describing an organisation with confidence that it was properly positioned to proceed selecting up public sector shoppers and contracts with the identical zeal because it had in earlier years.

The next yr, nonetheless, UKCloud reported a downturn in revenue, income and buyer utilization, with its 2018 accounts attributing this to elevated competitors from the US cloud giants.

Throughout the 2018/19 monetary yr, the agency posted a lack of £2.5m earlier than falling deeper into the pink to the tune of £17.9m in the course of the 12 months to March 2020, with its 2019/20 accounts additionally revealing the agency was in want of a £30m funding to proceed buying and selling.

Pursuing new sources of funding

The UKCloud board appointed advisers in September 2020 to begin pursuing new sources of funding, the accounts confirmed, which the corporate acknowledged in its monetary report may be “tough or costly” to acquire.

Laptop Weekly understands the corporate’s 2019/20 accounts have been filed 9 months late in September 2021. Sources near UKCloud declare this late submitting was what prompted the Cupboard Workplace to begin probing the agency’s funds and start looking for clarification from departments and different public sector IT suppliers about how reliant they have been on its companies.

A number of impartial sources have since advised Laptop Weekly that the Cupboard Workplace has been advising public sector customers of UKCloud to begin looking for different hosts for his or her cloud workloads and functions, with at least one major government department urging suppliers since late October 2021 to jump ship.

Sources declare this plan of action is coming from a spot of concern in regards to the agency’s capacity to hold on buying and selling if a brand new investor is just not discovered quickly.

In a press release to Laptop Weekly on the time, the Cupboard Workplace stated it had an obligation to watch the well being of all its suppliers and that it “wouldn’t be applicable to touch upon hypothesis about one explicit firm”.

When requested by Laptop Weekly in November 2021 how its seek for an investor was progressing, UKCloud stated discussions have been at a “extremely superior” stage, with the corporate anticipating to shut a “important funding spherical” within the very close to future.

Though UKCloud didn’t go into element in regards to the dimension of this potential funding, sources throughout the firm stated its senior management crew had held an “all-hands” assembly in early August 2021, when it claimed a funding injection of “£40m to £80m” had been secured and was set to be introduced “imminently”.

Throughout that assembly, it was additionally introduced that 25 members of employees can be shedding their jobs due to the monetary stress the corporate was below, together with people working inside its advertising and marketing organisation, in addition to its healthcare-focused division, UKCloud Well being.

“Throughout that assembly, we have been advised that the corporate is anticipating this funding of between £40m and £80m and as quickly as that lands, all the letters about job losses will likely be rescinded and we’ll hold all of you on, which recommended it could be arriving very quickly,” stated a former worker who spoke to Laptop Weekly on situation of anonymity.

“The senior management crew was requested for clarification on when it could be arriving, and we simply saved being advised it could be ‘imminent’, however we are able to’t provide you with a concrete date. Discover intervals got here and went, and there was nonetheless no signal of the funding.”

When requested by Laptop Weekly for an additional replace on how its investor search is progressing, the corporate stated it’s “within the last phases” of confirming a “substantial funding” that can help its “bold progress plans” in 2022.

“UKCloud continues to offer clients with its main sovereign multicloud providing and speed up digital transformation throughout the general public sector,” the corporate stated in a press release.

UKCloud vs the US cloud giants

Rob Anderson, principal analyst for the general public sector at market watcher GlobalData, stated lack of sources is likely one of the primary causes that SME cloud-hosting companies like UKCloud have been hit so laborious by the US cloud giants organising store within the UK.  

“The US cloud giants have armies of employees offering ‘ft on the road’ speaking to a number of authorities businesses, in addition to having centered authorities relations executives whose jobs are simply to foyer and affect coverage and shopping for choices,” stated Anderson.

On prime of this, the economies of scale at which companies like Microsoft and Amazon function means they will provide compute energy and storage at a a lot decrease price per unit than the opposite companies providing cloud internet hosting by means of the G-Cloud framework.

“The deeper pockets of AWS and Microsoft means there’s extra analysis and improvement funding, main in flip to them with the ability to provide extra companies layered on prime of the internet hosting, thereby facilitating less complicated and faster cloud deployment and software program improvement,” stated Anderson.

The opening of Microsoft’s and Amazon’s UK-based server farms additionally unlocked cloud spend inside public sector organisations that have been beforehand frightened of counting on cloud suppliers that must retailer their information outdoors the UK.  

“These datacentre builds have been actively inspired by Liam Maxwell when he was government chief technology officer,” stated Anderson. 

Maxwell left authorities in November 2018 to take up a public sector-focused directorship at AWS, however back in 2015, he said the government had been working for “three years” to get AWS and Microsoft to put money into the UK as a result of it has all the time wished an “efficient region-scale datacentre construction” that includes the “main gamers” of the cloud world.

“It’s received nice implications for enterprise, native authorities and for tons of people that have all the time discovered the difficulty of information sovereignty and information location to be troubling,” Maxwell stated on the time.

However what Maxwell, maybe, didn’t account for was the affect that inviting the “main gamers” of the cloud world had in dampening demand for the companies of the UK’s home-grown cloud suppliers, stated Anderson.

“What’s occurred because the likes of Amazon and Microsoft have swung into motion is that the smaller suppliers centered on internet hosting are having their last breath squeezed out of them,” he added.

A dwindling want for sovereign cloud companies

The distinctive promoting level of UKCloud is that it was arrange particularly to supply “sovereign cloud” infrastructure companies to public sector organisations, however as soon as the hyperscalers arrange their very own UK datacentre areas, this turned a far much less vital level of aggressive distinction.

That’s in line with Aaron Sales space, founding father of cloud consultancy Embue, who served as head of cloud on the UK Residence Workplace for 2 years till April 2021.

The division had been one of many prime three patrons of UKCloud’s companies, having signed a £7.3m contract with it in October 2015 and one other value £9.1m in July 2018, which led to July 2021.

In accordance with Sales space, a lot of the Residence Workplace’s use of UKCloud centred on the division’s immigration platform know-how space.

“UKCloud has banked on information sovereignty to be its primary driver for enterprise progress however, when wanting on the different hyperscalers, the vast majority of information can keep throughout the UK,” Sales space advised Laptop Weekly.

“Clearly, this doesn’t take into consideration the US Patriot Act, however then once more, if all the things is encrypted at relaxation, that shouldn’t be a difficulty.”

One potential weak level on the information sovereignty entrance for the hyperscalers issues account data, identification entry administration and billing information, as a result of it’s tough to make sure that this doesn’t depart the UK, Sales space conceded.

“That’s such a small factor of the general danger profile, although, and the argument has moved on internally,” he stated. “No one [in the public sector] is saying no to the hyperscalers simply due to this situation.”

That sentiment is shared by a number of former UKCloud workers, who spoke to Laptop Weekly on situation of anonymity, describing its sovereign cloud companies as a a lot simpler promote to the general public sector within the days earlier than the hyperscalers moved into the UK.

“9 years in the past when the enterprise began, it was, fairly frankly, like capturing fish in a barrel,” the supply stated. “It was: if you wish to put workloads and functions within the cloud, go to UKCloud as a result of they have been the one present on the town.”

One other ex-employee, who had visibility throughout each the central government-focused UKCloud in addition to UKCloud Well being whereas on the agency, backed this view. “At the moment, you wouldn’t want to choose up the telephone to promote UKCloud to anybody – prospects got here to us,” stated the ex-employee.

Among the many early adopters of UKCloud was GDS, which printed a weblog put up in September 2012 saying the agency – then referred to as Skyscape Cloud Services – as its first cloud-hosting supplier.

Tussell’s contract information means that the final contract GDS signed with UKCloud was awarded in March 2018 and was value £1.3m, however the division is now famend for being a heavy AWS person.

GDS signed a £20m, two-year cloud-hosting take care of Amazon earlier this yr, for instance, which is the biggest and longest contract it has signed with the agency up to now.

Additionally, the GDS Way web site, which is a useful resource that techies working for GDS and the Cupboard Workplace can use to search out out what instruments and companies they need to use when finishing up work for the departments, states that AWS is the popular cloud-hosting surroundings.

Different departments are additionally recognized to have wound down their reliance on UKCloud in recent times, however – along with present shoppers leaping ship – the agency has additionally missed out on contracts for which its senior management crew declare UKCloud ought to have been a shoo-in.

UKCloud CEO and co-founder Simon Hansford has repeatedly raised issues by means of the press and on social media about home-grown SME cloud suppliers getting ignored when public sector organisations are awarding IT contracts.

The latest such assertion occurred in response to the information a couple of contract that AWS secured with the intelligence company GCHQ earlier this yr, which the Monetary Occasions unearthed particulars about in October 2021.

Due to the character of the shopper concerned, particulars of the contract have been by no means supposed to be made public, however it’s understood that it centres on AWS offering a extremely safe cloud surroundings to GCHQ that may also be utilized by its sister organisations, MI5 and MI6, with scope to open up this functionality to different authorities departments throughout joint operations.

In response, Hansford despatched out a press release to the press outlining his issues that “this deal represents one other lurch away from supporting the UK’s personal cloud business”.

Missed alternative

He added: “Granting this contract to a international entity represents a missed alternative to foster a nationwide functionality and the UK desperately wants the safety, job creation and strategic significance of a sovereign cloud capable of host our nation’s most delicate information.”

Hansford’s motivation for talking out might maybe be traced again to the truth that the agency has previously invested £25m in building a cloud platform, known as UKCloudX, which is designed particularly to host extremely delicate information and workloads for public sector organisations throughout the defence business.

Within the Financial Times report, it acknowledged that GCHQ initially wished to fee a UK cloud supplier to host its information, however was unable to supply one with the required scale or capabilities.

“If AWS need to carry a brand new service to market, they’ll throw 4 million quid at it and a whole lot of individuals on the drawback and ship it by subsequent Tuesday,” a supply with information of UKCloudX advised Laptop Weekly. “UKCloud couldn’t compete with that, nor ought to they be attempting to.”

As an alternative of attempting to compete with the hyperscalers, the corporate ought to have been searching for methods to align and associate with them to win offers as soon as the tempo of gross sales it was selecting up by means of G-Cloud began to sluggish, the supply added.

On this level, Laptop Weekly is conscious of at the least two abortive makes an attempt made to pivot UKCloud’s enterprise in direction of forming alliances with the hyperscalers to open up alternatives for its companies to be built-in with these supplied by the foremost public cloud suppliers.

The concept was that UKCloud’s sovereign cloud capabilities would supply the likes of Microsoft and Amazon with a devoted “authorities cloud” surroundings to retailer delicate information on behalf of their shoppers.

A supply with information of the undertaking stated: “There was a deal on the desk from Microsoft that we took months placing collectively, the place UKCloud would have basically been a ‘UK gov cloud’ offshoot for the Microsoft Azure public cloud platform, and it was a very good match because we had already begun implementing Azure Stack at UKCloud by that time.

“Microsoft was trying to align with somebody to ship this, as a result of they weren’t going to come back and construct their very own authorities cloud within the UK.”

A comfortable launch roundtable for the endeavour came about at Microsoft’s 2017 Future Decoded tech showcase occasion in London, with representatives from each UKCloud and Microsoft taking part, however the proposed know-how tie-up between the 2 companies by no means got here to fruition, a number of sources confirmed to Laptop Weekly.

“We negotiated a place which I feel would have secured UKCloud’s future and would have secured a singular place for the corporate on this nation, but it surely by no means received off the bottom,” stated the supply.

As for why that was, the people concerned in these initiatives all cited the senior management crew’s “disdain for” and “unfavorable preoccupation with” the US cloud giants, significantly the place AWS was involved.  

“They’re so caught up in that ‘anti-AWS sentiment’ that they haven’t moved with the market or gone the place the know-how is, and this fame develops [around them] that they received’t have interaction and work properly with others or make makes an attempt to associate with the suitable folks,” one supply stated.

As beforehand talked about, UKCloud’s Hansford has repeatedly spoken out within the nationwide press over his issues about how a lot authorities enterprise is being handed to Microsoft and Amazon, together with an article in The Times back in November 2017 in which he claimed the situation could end up costing taxpayers “many millions of pounds”.

In early November 2021, Hansford was quoted within the Telegraph calling for competitors regulators to begin scrutinising the “growing dominance” {that a} “single international supplier” has available on the market, in a narrative about issues being raised about ministerial departments turning into over-reliant on AWS within the wake of the GCHQ deal.

In a follow-up put up, selling the Telegraph article on his personal LinkedIn page, Hansford lambasted the federal government for failing to observe “different main nations” which can be investing in constructing a “nationwide functionality to help their very own business” earlier than happening to assert: “The UK shall by no means be capable to really derive most worth from the ability of information with out this.”

Laptop Weekly has additionally seen copies of briefing notes UKCloud despatched to GDS and the Cupboard Workplace, calling on the federal government to do extra to loosen the grip AWS has on the general public sector by revising its public cloud-first coverage in order that it champions a multicloud deployment mannequin.

The be aware additionally suggests imposing limits in order that “no division spends greater than 30% of its cloud spend with a single supplier”.

Laptop Weekly put to UKCloud the claims that its preoccupation with the US cloud giants is proving detrimental to its enterprise, however the firm didn’t immediately reply to the query.

“UKCloud’s coverage is to not touch upon our clients or feedback by former workers,” the corporate stated in a press release. “The federal government should seize the chance to foster a nationwide functionality and assist construct a vibrant home cloud sector that may ship the promised high-wage, high-skilled jobs of the long run.”

Residence-grown market has taken a pummeling

Whereas it’s truthful to say that the UK’s home-grown cloud-hosting market has taken a pummeling since AWS and Microsoft moved in on their territory, each companies are supporting the expansion of a home cloud market in different methods, stated GlobalData’s Anderson.

“Microsoft’s channel mannequin, and to a lesser extent AWS’s, has spawned a number of software-as-a-service suppliers by giving them comparatively low-cost infrastructure to develop and host their very own options for presidency,” he stated. “This has led to an enormous improve within the variety of home-grown software suppliers gaining income and market share within the sector.”

In accordance with figures shared by AWS, it claims that greater than 150 G-Cloud-listed know-how suppliers have secured £1.3bn in authorities contracts whereas utilizing its companies.

“Authorities departments utilizing AWS are usually not solely having fun with price financial savings of as much as 60%, however are additionally supporting an unlimited ecosystem of smaller corporations throughout the UK that supply services and products that complement and assist clients take full benefit of AWS,” stated AWS in a press release to Laptop Weekly.

“Amazon recognises that its standing as a provider to the general public sector is a privilege which has to repeatedly be re-earned by means of the standard of our companies and the worth for cash that we carry for UK taxpayers. We all know they are going to solely stay clients for so long as we’re capable of ship on each of these issues.”

As issues stand, UKCloud remains to be attempting to finalise the funding wanted to maintain it going, and it stays to be seen what affect the Cupboard Workplace warning public sector customers to not use its companies can have on the agency as this funding stays in limbo.

Regardless of the end result is for UKCloud, Invoice Mew, who beforehand labored for the agency as strategist and evangelist, stated there nonetheless a transparent demand for a UK-based sovereign cloud service supplier.

“US cloud entities are all topic to the Cloud Act within the US, which places the information of UK residents prone to mass surveillance,” he stated.

“In some unspecified time in the future, it would must be recognised that in sure areas, information privateness actually issues and there are datasets that the federal government holds, like prison information, well being information, the monetary information at HMRC, the place UK residents wouldn’t be joyful realizing that information [when stored in a US giant’s cloud] is just not protected against mass surveillance.”

Mew added: “Within the highest ranges of presidency, it’s recognised that the UK may have its personal cloud, and we might even see them really searching for somebody to offer that or perhaps they’ll construct it themselves. The farce right here is that UKCloud existed all together with that precise functionality.” 





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