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Marketplaces for Freelancers – The Future of Work?
Marketplaces for freelancers
and freelance projects are an example of the many new business models on the
web. The chances for survival of many B2B marketplaces are discussed controversially
today. However, freelancer-marketplaces still have a good image in terms of
future prospects. Freelancing is widely seen as the model for work in 21st
century. Accordingly, the industry is enthusiastic.
For a more down-to-earth
analysis, this article will describe how the business model works. Than we
discuss, what these marketplaces really can offer their members – buyers and
sellers of services. Finally, we have a look at the future of (freelance) work.
The Business Model
Like all digital marketplaces,
freelance exchanges bring together buyers and sellers of goods. Here, the good
is the capacity for work, arranged in different areas of expertise.
Freelancers offer their
experience, expertise and time, without entering the traditional exclusive
relationship to one employer. Buyers place projects they cannot perform
themselves or do not want to perform themselves. Often, these projects are
tasks that are of one-off type for the buyer (e.g. development of a business
plan or a web-design). Other buyers invite for tender for tasks they want to
assign to freelancers on an ongoing basis. Typical tasks are writing of
articles for newsletters, ezines, etc.
Alternatively, many
marketplaces allow buyers to select freelancers from their pool and to approach
them directly. Freelancers are assigned an area where they can post their
profile, resume, references and portfolios to present themselves to potential
buyers.
Most marketplaces are operated
by a third party, not by some sort of organization of buyers or sellers of
services. The operator offers the transaction platform and sets general rules
for doing business (e.g. what information to provide when posting a project).
Normally marketplaces also offer some additional functions that provide more service
or security for players. Examples are payment functions, rating functions for
service providers and sometimes even buyers, help and mediation functions or
community features.
This mix of functions makes
the marketplace a valuable tool for buyers and sellers to find suitable
business partners. Ideally, marketplaces attract many buyers and sellers;
hence, there is no need to do an individual research for possible partners.
Standardized processes ensure that projects and bids are easily comparable. Easy-to-use
functions support all stages of the business.
Most freelance marketplaces
make their revenue from a fee, normally a percentage for the value of the
contract / agreed price. Depending on the particular business model, the buyer
or the seller has to bear this fee. Usually, the fee is 5 % to 10 % of the
agreed price for the project. For some marketplaces, interests should be
another source of revenue. They require the buyer to deposit the price for the
project on a trustee account as soon as he selects a service provider for a
project. After completion of the project, the marketplace deposits this money
on the service provider’s account. This procedure does not only guarantee
security of payment for both parties, it also brings larger amounts of money on
the marketplaces accounts for an exactly known period. It should be possible to
generate some interest earnings from this.
Brave new World?
The model is promising. It
offers a solution for two social and commercial trends:
· Many people wish to be independent and flexible in their professional career and
· Many businesses need flexible (human) resources.
However, freelancer
marketplaces have to cope with the same economic rules that have always been
valid in the old economy and that become valid in the new economy as well: Only
the best will survive. This is a truth for suppliers of services, buyers of
services and intermediaries – the marketplaces. Here are some things that will
make the difference.
Suppliers of services /
Freelancers: Competition is fierce with a tendency to become even harder. On highly
frequented marketplaces, interesting projects can attract 100 and more bidders.
10 to 30 bidders for a project are normality. Only projects that are not
attractive or require specialized skills and knowledge will gain the attention
of less than 10 bidders. Among the bidders, you will find a great variety of
service providers. There are freelancers with great rankings from former buyers
who take higher prices for excellent service, and there are freelancers that
operate with very low dumping prices. This can have two reasons: Online
marketplaces are truly global places. So there are people from areas with low
cost of living like India or Eastern Europe. They can operate at considerably lower
prices that someone from the United States or Western Europe. This is nothing
more than an outcome of globalization. Nevertheless, there are also such people
that obviously do not have an idea about the real value of their working time.
Alternatively, they seriously underestimate how long it takes to complete a
project in high quality.
Of course, somebody from a
country with low cost of living or somebody who makes a bit of additional money
besides his regular job will be able to bid with lower prices. However, this
should not result in a price war that can be seen on some projects.
This leads to the following
problems: Quality and timely work are a must. A poor feedback is visible for
all other buyers of services and will be a serious disadvantage to get future
projects. Moreover, a poorly finished project bears the risk that the buyer is
disappointed and will never ever use a freelancer again. On the other hand,
high quality takes time. Even if somebody really can work for 5 $ an hour, he
will not be able to finish a complex research project for 25 $, hence within 5
hours. Either he is a victim of self-exploitation or he will deliver poor
quality. Sellers and buyers should keep these things in mind when thinking
about pricing.
In the long term, only those freelancers will survive and successfully
establish their competitive position, who can offer good services for a
reasonable price. The hope for the big money, however, will come true for very
few of them.
Buyers of services: The whole
industry of freelancing is still emerging; hence, many buyers are “newbies” as
well. Typical mistakes are:
· Unclear or misleading descriptions of projects – nobody is able to make a realistic bid if he can only guess what he is required to do. Accordingly, the buyer will have problems to find a suitable partner.
· Wrong ideas about the price
range – despite the price competition – every service has its price. Despite
that, it happens that projects are withdrawn because all bids are far above the
expected price. Sometimes a freelancer uses the public board to explain what
scope of services is possible for a given price range and what not.
Obviously some buyers do not have an idea about the real value of the services
they require or they have the intention to make their advantage from the
inexperience of some service providers.
· Late decisions or no decisions at all: Normally buyers set an end date of bidding period and a date of delivery for their project. However, many of them do not award the project to a bidder within an appropriate period after the end of bidding. This makes it impossible for the freelancer to meet the deadline for delivery. Moreover, it makes it more difficult for the bidder to assign his time to different projects.
Marketplaces: Like all businesses, freelance marketplaces have to differentiate themselves from competition in order to gain the attention of customers (here: buyers and service providers). The problem is that the general business model and the level of fees offer limited scope for differentiation. Hence, the efforts focus on issues like handling, transparency and additional functions. Here are some existing variations of these features:
Handling |
Search for projects: · Lists of projects in different categories · Search functions for different search terms · Database-based matching of service providers profile with project requirements |
Registration: · Online forms · Formal application and qualification process with qualification tests · Voluntary or compulsory development of profiles and portfolios |
|
Transparency |
Transparency of existing bids: · No information about existing bids · Information about bid value (sometimes also rating of the bidder) · Complete information about all details of existing bids (including user name of bidder, rating, profile, value of bid, text of bid) |
Information about other service providers: · No information · Number of registered service providers, sometimes by category · Profiles, portfolios and ratings are publicly open |
|
Additional functions |
Examples: · Voluntary or compulsory payment function · Verification of credentials, references etc. · Community / public discussion board · Selection of freelance-related “how-to” articles · Sufficient space to upload examples of work · Different regional sections / languages |
Figure: Examples of different expressions of handling, transparency and additional functions from the freelancers view
The judgment of these
different types of marketplaces is subject to each player’s preferences.
However, it is obvious that those marketplaces with a high transparency and
with easy handling attract most buyers and sellers. Even today, there are
active places with lots of projects and there are exchanges with less than 10
open projects.
This leads to the most
important prerequisite for success: to reach the critical mass of customers in
terms of buyers and sellers of services. A marketplace with little traffic will
not attract more buyers and sellers in future because there is little choice of
potential business partners for them.
Hence, we can expect the same
consolidation process for the industry of freelance marketplaces that other
industries have experienced before. This consolidation will not only cover
marketplaces, but also buyers and sellers who do business there. The survivors
of this shakeout will be reliable service providers and buyers of services, and
those marketplaces that offer the best platform for transaction in the
perception of buyers and sellers.
The following rule might
give some orientation in this industry: Potential buyers and potential sellers
should have a look at various marketplaces. Thus, they can compare the
different functions and processes, and they can have a look at existing
projects. This provides an idea about the behavior of players at this place and
the price level. With this information, it is possible to select one or more
marketplaces that best meet the individual needs and preferences.
Is freelancing the future?
Doubtless, we see the
beginning of a development that will reinforce in the years to come. Since
demand and supply for one-off projects will increase, there are good future
prospects for freelance exchanges and marketplaces.
However, this is not the
beginning of a “breakdown of big companies” whose employees resign to become
freelancers, as a newspaper wrote recently. Even if the future will require
more flexibility, there will always be some core functions that need to be
performed by own staff. To hire freelancers is an other form or outsourcing –
and it comes with the typical problems of outsourcing, e.g. legal problems with
contracts and payments, quality supervision, and the handling of recourses.
These issues are much easier to deal with for own employees.
On the other hand, life as a
freelancer is not an attractive alternative for every employee. The advantages
like independence and flexibility in time and place have been discussed often.
Nevertheless, not everybody can cope with the ongoing pressure to market
himself and to acquire new projects.
An important future trend is
the loose cooperation between freelancers in networks and virtual teams. This
reduces the risk of isolation that many home-workers fear, and it provides the
chance to take over larger projects. According to the requirements of a
particular project, freelancers can form teams with different areas of
expertise for the period of the project.
© Dagmar Recklies, February
2001
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