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Outsource magazine: thought-leadership and outsourcing strategy | July 27, 2017

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At Your Service?

At Your Service?
Steve Bynghall

This article originally appeared in Outsource Magazine Issue #28 Summer 2012

 


 

Despite four years of global economic gloom and uncertainty, there are some businesses that have been experiencing exponential growth. One corner of the outsourcing landscape which has been enjoying considerable success is the group of web-based marketplaces which offer a variety of different services predominantly to smaller businesses.

These service marketplaces operate by providing a web-based platform to access the talents of a global army of freelancers and contractors. Generally this works by an individual or a business posting a job (“the employer”), freelancers and teams bidding for the work, and then one being selected by the employer to carry out the work. The sites provide value in a number of different ways including providing an online reputation system based on employer ratings of each provider, as well as a platform to help manage projects, payments and the like.  The service marketplace makes most of its profits by taking a small percentage of the earnings made on each project.

Explosive growth

All three of the main big international service marketplaces – oDesk, Freelancer.com and Elance – have almost been doubling in size each year. oDesk enjoyed $225m in overall fees in 2011, up from $115m in 2010. In 2009 this figure was approximately $60m. Meanwhile Elance claims that in 2011 “the number of businesses hiring on Elance and the number of online professionals working on Elance grew more than 120per cent.” Naturally this growth has drawn the attention of investors. In January 2012 Elance announced they had secured $16m in funding, with oDesk securing $15m in March.

Under this top tier are a layer of smaller marketplaces such as vWorker and Guru.com providing similar services, which have been around a number of years and which have quite well-developed services. There are also some platforms particularly well established in specific countries or sectors; for example PeoplePerHour.com is growing rapidly in the UK. Like the larger global platforms, in 2011 it grew significantly – from 120,000 users to 240,000.

Related business models

There are related business models which are also growing at a rapid pace. One example is competition platforms, in which providers enter a contest (such as designing a logo) organised by a potential employer business. This is particularly prevalent in the area of graphic design, where sites like 99designs.com have attracted attention and healthy levels of funding, receiving $35m in 2011 from Accel Partners.

A further development is a separate tier dealing with smaller personalised tasks and services focussed primarily on the individual. Players include TaskRabbit.com whose strapline is “Get just about anything done by safe, reliable, awesome people” and focusses on local markets in US cities, attracting $17.8m in Series B funding in December 2011. Yet another example is Coffee & Power, a start-up founded by Second Life’s Philip Rosedale. Whilst these task-based sites may primarily serve to facilitate commercial engagements, they are also helping to embed outsourcing services as a mainstream activity.

Future expansion

This trend in growth in these service marketplaces is showing no sign of slowing.  Ross Dawson, a Sydney-based business strategist, futurist and renowned crowdsourcing expert, believes that “service marketplaces will become fundamental platforms for the flow of global work, and will experience massive growth in years to come. The major marketplaces have solid, well-developed offerings that are ready for massive growth in both supply and demand for skilled services.”

Dawson predicts the pace of growth in the immediate future to continue to be exponential: “We can expect work performed on online service marketplaces to grow close to $10 billion annually by 2016, providing an increasing proportion of the population in developed as well as developing countries with either core or supplemental income.”

But what is fuelling this growth?  Together with the opportunity presented by the cloud, does it now show that outsourcing for individuals and smaller business has finally hit the mainstream?

Attractive for small businesses and entrepreneurs

Using sites like Elance was popularised in Timothy Ferris’ book The Four Hour Working Week.  While that limited time commitment seems like a highly unrealistic gimmick, the attractiveness of using service marketplaces for smaller businesses and start-ups is not difficult to fathom.  Entrepreneurs can now access often very niche skills on-demand, at low cost and very fast speed. This helps to fuel growth, but also innovation, giving businesses the ability to try out new initiatives at lower risk, and often to be quicker to market.

For US-based web entrepreneur Jerry McNamara, service marketplaces have proved vital to growing his businesses.

“Crowds can expand your competency nearly instantaneously and make you look like a genius,” McNamara says. “I’ve used crowds to fulfil a multitude of tasks that I either wasn’t good at or didn’t interest me. From a practical point, I’ve hired writers, photographers, programmers, graphic artists, link builders, customer service.”

Of course the need to have supremely low transactional costs may have been felt more acutely as the economy continues to stumble, but this seems unlikely to evaporate once it returns to health.

Matt Barrie, CEO of Freelancer.com, believes demand from entrepreneurs – particularly in the type of work relating to internet growth – is helping to drive the growth of service marketplaces.

“Take the UK,” Barrie says. “Small business is the backbone of the economy. There are 4.5 million small businesses, responsible for 49 per cent of private sector turnover and they, by number, are 99 per cent of enterprises. However, they all need websites. They all need to get online. Every business today is an internet business in some way, shape or form.”

Barrie’s observations are corroborated by a survey of 1,300 small businesses published in February 2012 by PeoplePerHour.com. It found 80 per cent of respondents felt that “freelancing had become more common in the UK small business community over the past year.”

Larger enterprises

At the moment the significant majority of the work carried out through the major service marketplaces is commissioned by smaller businesses, but they do provide services to the larger enterprise, and this is an area likely to grow. In fact when we interviewed oDesk CEO Gary Swart for an Outsource feature last year he commented: “I still think we’re at the early stage of this market. I don’t think we’re at the knee of the curve of what’s to come, as larger companies ask ‘what about us?’  These large companies need to save costs and would like to have fewer bodies and less office space and less infrastructure for their employees. They will need a way to leverage a global talent pool in order to get work done.”

In fact oDesk has already found considerable success providing custom solutions to some very large global web-based companies. For these businesses oDesk has recruited, vetted and trained a specific talent pool of freelancers from all over the world, for jobs such as translation, moderating photos or writing content. The company has also provided the direct web-based interface between the business and the freelancer pool.

Having an on-demand dedicated pool from every timezone is attractive because it is cheap, flexible, fast and operates 24/7. As other businesses continue to rely more heavily on the web as a delivery channel for services or brand-building, there are likely to be further opportunities for customised enterprise solutions.

The pool keeps on growing

One of the major reasons for the growth of service marketplaces is that previously comparatively isolated parts of the world are now beginning to connect to the internet at a revolutionary pace. In 2011 Cisco predicted that by 2015 40 per cent of the world’s population – some 3 billion people – will be connected to the internet.

For Matt Barrie this represents huge potential: “There are 2 billion people online. There are 7 billion people in the world. Seventy per cent of the world’s population have not connected yet but they’re connecting right now. So as the other 5 billion connect, I think it’s going to be more and more in the mainstream consciousness that the rest of the world is going online.”

Barrie has also seen how top earning freelancers now become employees themselves, often hiring freelancers who are just starting out: “We’re making a documentary at the moment where we are interviewing freelancers from around the world.  The number one thing they all say is ‘I want to hire another person.’”

The Chinese market

Another market which has the potential to open up is China. Here, in fact, service marketplaces with some similarities to Freelancer.com have developed separately over the past few years. Known as “Witkey” sites (an abbreviation for the “key of wisdom”) in late 2010 a conference suggested that there are over 20 million registered providers.  The Chinese market leader is Zhubajie.com, which claims to have over 6.5 million users worldwide, a huge amount which dwarfs other rivals.

Interestingly, after venture capital firm IDG Capital Partners invested what’s been described as “tens of millions of dollars”, they opened an English-language version of the site called Witmart.com firmly aimed at US-based small businesses. Whilst it remains to be seen how well this does, as more and more Chinese providers learn English, it seems likely they will become dominant forces in this market, both as providers and, potentially, as employers.

Platform maturity and technology

Another major reason for the growth of service marketplaces is that it’s just much easier to manage distributed work. This is partly through investments that the main marketplaces have brought themselves. The process of hiring somebody through to paying a contractor can be managed through each of the sites, and because of the maturity of these platforms (many are over a decade old), their offerings are now well-developed and generally very easy to use.

An important part of this is the online reputation system each of the platforms have in order to help the hiring process, but there have also been various enhancements which reduce risk such as the development of recognised tests on each platform reflecting different expertise, on-boarding and registration processes for freelancers which help to filter out fraudsters, and arbitration services to settle disputes.

Another major reason for growth is that technology is making it far easier to collaborate across borders. Some of this technology, such as Skype or Google Docs, can be used completely free and as its usage increases people are becoming more comfortable with the idea of working together virtually. The platforms themselves have also added various tools such as dashboards, instant messaging and even video conferencing.

Is this the future of work?

It’s still too early to assess what the influence of service marketplaces will be on the general future of work, but overall it appears that they are becoming a core way that small business and start-ups outsource, and every year this creeps more and more into the mainstream. The pace of growth is showing no signs of stalling, the technology and platforms make it easier to manage work, and risk continues to be reduced.

Hopefully these marketplaces can, in their own way, fuel entrepreneurs and small businesses in both developed and developing markets, and contribute by nudging the global economy back to better health.

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