Published on the 11/05/2023 | Written by Heather Wright

The money is flowing… largely offshore…

A major public sector budget blowout in Australia has put the focus back on public sector SaaS spend across Australia and New Zealand – and just how much of that spend is going offshore.

Salesforce’s contract for the National Disability Insurance Scheme’s new CRM system reportedly more than doubled to AU$76 million, with Salesforce contracts jumping from an average of $10 million a year to $25 million, InnovationAus reports.

But NDIS isn’t alone in spending up big on SaaS. Just as the pandemic accelerated cloud adoption for businesses post-pandemic, so too government agencies across Australia and New Zealand are embracing SaaS.

“43 percent of public sector organisations say they will shift to SaaS solutions by 2024 – twice the market average.”

Across Australia and New Zealand, IDC says public sector organisations are more rapidly migrating to SaaS solutions than the wider business sector.

Louise Francis, country manager and research director for IDC Australia and New Zealand, told iStart an IDC 2022 cloud survey showed 25 percent of public sector organisations planned to replace specific apps with SaaS solutions, versus 19 percent for A/NZ businesses.

That desire was particularly strong in the ERP space where 43 percent of government and healthcare organisations say they will shift to SaaS solutions by 2024 – twice the market average. And when it comes to net new applications in 2023, 18 percent of government organisations interviewed for the survey said those apps will be SaaS.

While A/NZ specifics are hard to come by – in New Zealand both the Ministry of Business, Innovation and Employment (MBIE) and Department of Internal Affairs ran for cover when asked to speak about SaaS use locally – local revenues for companies including Salesforce paint a picture of strong spend.

In more positive news for local providers, TechnologyOne, Australia’s largest ERP SaaS company and a key player in the local government space, logged its thirteenth consecutive year of record profit, record revenues and record SaaS fees last year. It reported SaaS annual recurring revenue of $274.2 million with 20 ‘major’ local government deals – with an AU$63.9 million total contract value – closed in Australia and New Zealand in FY22. Total revenue was $369.4 million with after tax profit of $88.8 million.

But TechnologyOne is one of few local companies reaping the benefits of the public sector’s SaaS appetite, with global frontrunners securing the bulk of deals.

While New Zealand’s 2022 budget allocated $11.2 million to grow the local SaaS community, with an eye on it becoming New Zealand’s biggest exporter by 2030, when it comes to government spend, much of it is going offshore.

SAP replaced MBIEs payroll software in New Zealand, Australia’s Department of Defence and Department of Employment and Workplace Relations both signed big deals last year for Microsoft software and cloud services – some $160 million all up for one of the most expensive licensing refreshes seen in recent years.

Microsoft’s offerings are also popular with New Zealand’s public sector. So much so that earlier this year Stephen Clarke, former New Zealand chief archivist, cautioned about the impact of the ‘evergreen and constantly evolving nature’ of SaaS offerings, such as Microsoft 365, warning that they require oversight and vigilance to ensure system configurations remain relevant and effective.

TechnologyOne, for its part, took New Zealand’s Parliamentary Service live a major transition of key systems to a TechnologyOne SaaS environment last year, following in the footsteps of MBIE in moving to a SaaS environment based on TechnologyOne’s All of Government Cloud framework.

Nine other organisations were also signed up.

International players are also expected to take centre stage in any revamp tied to the Three Waters reforms in New Zealand, and potential health sector work.

The controversial Three Waters reforms, now rebranded as ‘Affordable Water’ came with a potential $300 million to $500 million spend on new ICT systems – with ERP a key component – in its earlier iteration.

But the existing 67 water utilities, which under the new plan will be scrapped for 10 regionally owned and led public water entities, run a range of systems. The largest, Watercare, is in the Infor camp, while Christchurch City Council is an SAP shop.

Wellington is part of the local government shared services using TechnologyOne.

Former Te Whatu Ora/Health NZ chair Rob Campbell noted last year a desire for greater visibility of cloud spending across the health sector.

Te Whatu Ora and Te Aka Whai Ora/the Maori Health Authority went to market last year for finops systems which would provide cloud cost reporting, billing and further down the track, expenditure optimisation.

In Australia research from Local Government Professionals Australia and TechnologyOne shows the number of Australian councils with a defined SaaS migration strategy almost tripled from 13 percent in 2021, to 37 percent in 2022.

Most, however, are still in the early stages of executing their digital transformation strategies, suggesting potentially robust SaaS growth in the next two years.

Jonathan Throssell, Local Governments Australia president, says the digital acceleration prompted by the pandemic has seen customer expectations and community demand evolve to digital first.

“Now that digital services are becoming the norm, councils are looking to capitalise on the momentum and digitise even more of their operations,” Throssell says.

Wollongong City Council, is highlighted in the report for its use of SaaS use to improve business intelligence, focus on service delivery and mobilise its workforce.

It has deployed a SaaS ERP solution and connected functions previously siloed throughout its IT systems.

In New Zealand, Gisborne District Council was one of the 20 ‘major’ deals signed by TechnologyOne last year.

Last May, James Baty, Gisborne District Council director of internal partnerships, noted that the move to SaaS was ‘a major step’.

“It reduces the need for us to buy and maintain computer data centre hardware. It also allows us to better automate workflows, reduce manual data entry and double handling. It means a more efficient and effective operation.”

Planning for legislative changes in environmental management was also part of consideration.

“We’re about to see the biggest change in environmental and planning in 30 years,” Baty said of the Resource Management Act reforms. “We need to have confidence our technology systems will be able to adapt today, tomorrow and in the future.”