Observations on the freelance crowdsourcing market

The news came out on December 18, 2013; Elance and Odesk, the two leading freelance job sites would merge to level up with the Amazons of the world.

elance_odesk

When I was building the match-making business plan for Mobile Brain Bank in 2011, these were the two companies that I emulated. We wanted to build a company that would copy the easy web functionalities of Elance, and the loyal talent community of Odesk. Mobile Brain Bank was to offer trusted mobile developer companies for businesses looking to develop one or more mobile apps.

Elance and Odesk have about 8 million freelancers combined. Mobile Brain Bank reaches about 3000 developer companies with a couple of hundred registered and active. We are not about quantity but quality. While Elance and Odesk freelancers are rated by customers and peers, the Mobile Brain Bank model relies on a combination of customer ratings, plus our staff personally checking the background of every company submitting a realistic bid. This is less scalable but more customer friendly.

Based on comments on the numerous stories around the merger, we were on the right track. The number one concern raised by users was the amount and quality of freelancers on these sites.

  • “Seeing 60 people bid on one project renders you just a number and you might once again be overlooked by the client  – never mind your excellent reviews.”[1]
  • “Comments like “Most people looking to hire on these sites aren’t interested in quality” and “Really wish oDesk had carried on by itself.” abounded and countless others ranging from stories about bad quality overseas labour to being ripped off or being paid badly.”[1]
  • “…anything-goes approach in which oDesk eschews a minimum rate — with some freelancers offering to work for as low as $1/hour or $0.50/hour — and a model that favors the client at the expense of the freelancer. Ultimately, the most frequently-expressed concern seemed to be that, were the marketplaces ever to merge, oDesk freelancers would undercut pricing and dilute the quality.”[2]

If customers have doubted the value of freelancers, so have freelancers doubted the value of customers found through these two sites. The 8 million freelancers shared a billing pool of 750 million dollars in 2013. That’s less than a hundred dollars per freelancer. It’s very relevant to question the win-win value proposal here.

Mobile Brain Bank uses a lot of resources to find projects that are of real value to both the developers and for Mobile Brain Bank. Elance was founded in 1998, and has collected $94.8 million in investments during five rounds. Odesk, founded in 2005, has received $44 million in four rounds.

When raising capital for Mobile Brain Bank I had the privilege to discuss with two VC firms who had invested in both companies. A banker always keeps a straight face, but my takeaway from those conversations was that the investors were not too overjoyed with the performance of these portfolio companies.

According to the merger news, Odesk and Elance have $750 million in “billings” combined. Elance has announced that they accumulated $200 million in billings in 2012, so that leaves the younger Odesk $550 million. “Billings” mean payments from customers to freelancers which are routed through Odesk and Elance. Their own revenue is the fee collected from these transactions. Elance charges 8.75% which makes their revenue roughly $17.5 million. Odesk’s fee is 10%, $55 million.

If you think that you have a 15 year old company who has received $94.8 million in capital, making $17.5 million in revenue, would you call it a success? What about an 8 year old company generating $55 million in revenue on $44 million investment? Odesk maybe, Elance … maybe not.

I’m beginning to understand why these same Venture Capital firms were not too excited about investing in Mobile Brain Bank in 2011 and 2012.

So, what does this all mean?

The two years in this business, I’ve learned that you cannot offer others talent that you would not hire yourself. The new Elance/Odesk conglomerate will need to solve their dilemma of 8 million people offering work for less than $1 per hour, making less than $100 per year.

I’ve also learned that in order to have the best talent to stick around, you need to offer them high quality projects. High quality projects will not land on your website, you need to make an effort to find them. Finding the best projects will require marketing resources, and if you plan to create a scalable business, those resources require deep pockets.

For Mobile Brain Bank this will mean that we are going to introduce a new business model. Instead of asking for businesses to pay for finding them the best developer, we are going to ask for developers to pay for finding them the best customer.

This comes in a natural turn of events. Our original bidding site was developed on a platform built by Hammerkit Ltd. After their bankruptcy last summer, we are re-building our site in a new environment. You will see results of this work in spring 2014.

Mobile Brain Bank will continue to be in the business of matching businesses and mobile developers. We look forward to welcoming the new Elance/Odesk merger, and working with everyone in the industry to make most of online for job opportunities.

Happy 2014 to you all.

– Petra

 

[1] http://www.bloomberg.com/news/2013-12-18/elance-and-odesk-merge-to-form-bigger-service-for-freelancers.html
[2] http://techcrunch.com/2013/12/22/everything-you-wanted-to-know-about-the-giant-elance-odesk-merger-ensuing-backlash-but-were-afraid-to-ask/

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