Reasons I don’t trust oDesk, eLance or such marketplaces
Online labor marketplaces are those portals that allow individuals, firms to find qualified freelancers or agencies to get a job done, often remotely. oDesk, eLance etc. fall under this category. This segment has seen significant action both in terms of investment interest and growth numbers, especially of users.
In a limited sense of the word, these marketplaces are directories that aggregate freelancer workers (supply) and thereby make it easy for businesses (buyers) to discover and work with one or few of them. The directory is enhanced by reputation scores that the buyers assign to the sellers over a period of time. The best get more visible and the bottom pile eventually gets sidelined from the system.
But, has that happened? No. Will that happen? Mostly, No.
A good business is where the revenue and user goals fulfillment correlate positively[tweetherder]. In online marketplaces, revenue turns increase with the increase in transactions[/tweetherder]. ” Is your marketplace in the path of money?” is a very pertinent question that investors ask. The easiest answer is to be indeed in the path of money. Odesk charges a fraction of the revenue that the seller earns. eLance is not much different either. Most marketplaces have the same revenue model, give or take a few percentage points. [tweetherder]The incentives are mis-aligned in the favor of the house[/tweetherder], with this mode. Let’s see why!
1. Revenue = Volume * Realization per transaction. Since freelance projects have scale limitations, revenue growth almost entirely depends on volume growth. (An average project earns $100 for the online marketplaces). Volume growth happens by two ways: a) When existing buyers buy more often b) When new buyers come in because this is “the” destination to find freelancers. I am a big fan of what oDesk and eLance have pulled off here. They created demand by making it easy for new suppliers to get on board, as easily as possible. They increased the market size! However the cost of friction-free onboarding is borne by buyers. In a bid to increase volume, you’d have to set a low bar on supplier entry, qualification and feedback.
2. Vanity controls – To justify their ‘success fee’ model, online labor marketplaces have to prove that they are worth it, even after the matchmaking has happened. Enter “Screen Capture” variants used to prove to the buyer that the seller was indeed working (or not). It does not matter if an inspiration can happen in the toilet or not. What matters is whether that inspiration moment is captured in a screen capture. The idea helps to weed out extreme cases of abuse but also creates a sense of false comfort that work evidence = work well done. I’ve personally heard of cases where contractors and buyers have circumvented the system after a relationship has been built over time.
3. Shallow diligence – [tweetherder]Not every buyer’s goal is to enter an auction. [/tweetherder]They simply might want a job to be done well at an appropriate price. The pricing system in online work marketplaces, dissuade premium contractors, as they have to compete with a low cost contractor on a value proposition that remains abstract to the buyer, because he has no way to socialize and evaluate without bringing price to the equation.[tweetherder] The buyer has a problem of plenty, but scarcity of quality![/tweetherder]
4. Status quo – [tweetherder]Its typical to see 50% failure rates in outsourcing engagements[/tweetherder]. Part of it has to do with buyer education. [tweetherder]Not all buyers who have needs, also know how to evaluate[/tweetherder]. [tweetherder]With increased supply, we are accelerating a buyer’s path to failure[/tweetherder], if we don’t educate him/her well enough on understanding their own expectations better, rationalizing them and helping them de-mystify the abstract-ness involved in delivery models, pricing and price-value ratio. Marketplaces are in a position to play this role but they won’t, because they have got themselves to a place where most contractors would go workless, if the buyer upfront realizes what value he/she would get. Remember, transaction = revenue?
I love the marketplaces, for they have made it easy for many to find sustainable, independent source of income and have helped buyers with more options and a (perceived?) low cost. But they really have missed the bus, in terms of enhancing the market, in terms of metrics that really matter – Successful outcomes, Real Savings, Better Insights.