The main value that e-commerce sites offer us is their ability to match supply with demand through keyword searches.
Airbnb matches home-owners with travellers; Uber connects taxi drivers with passengers; eBay and OLX do the same with sellers and buyers. Amazon makes a significant portion of its revenue by acting as matchmaker. Retailers around the world sell directly on its marketplace, with Amazon’s role being limited to consummating the sale.
In the B2B world too, the internet has proven to be a near-perfect platform for matchmaking because it can seamlessly connect service providers with customers, anonymously, using search as a tool. As early as 1998, a Harvard Business Review article titled “ The Dawn of the E-Lance Economy ” predicted that the internet could be used to match skilled freelancers — graphic artists, computer programmers, video editors, writers — with companies, organisations and even individuals who need that odd job done. Inspired by this article, a company named Elance was launched in 1999.
Enter Upwork
A relatively new entrant to this world is Upwork, launched in 2015, which now operates the Elance site. The company claims to employ advanced decision algorithms to perform the matchmaking — something it says has made it grow into a leading site in the industry, generating over $1 billion in freelance income each year.
Suppose you’re a writer and want to make some extra money on the side. You complete an Upwork profile and make your resume as appealing as it can be. A customer halfway around the world is looking for someone to write a blog for the next two weeks because their main blog writer is on vacation. The customer contacts you on Upwork and, if both parties agree on all terms (deliverables, timeline, fee), the work starts.
The customer hiring you pays Upwork your fee, and Upwork pays you after deducting a 20 per cent commission for bringing the two parties together. The main complaint against Upwork is that this fee is extremely high; especially for one-time, fixed-price projects. On a $60 writing assignment to write a 1,000 word blog, you would hate to part with $12 to Upwork.
If you win repeat work from the same customer, Upwork lowers its commission on a sliding scale to no lower than 5 per cent. The floor commission of 5 per cent is effective once your lifetime earnings with a particular company reaches $10,000, and is low enough to prevent you from cutting out Upwork altogether and dealing with the company directly.
But the reality for most freelancers is that the $10,000 threshold is just too hard to reach — there’s just not enough volume of work out there with a single customer — so freelancers have to get used to paying the next higher commission band — 10 per cent — on most work. This is pretty steep.
Upwork also collects a 2.75 per cent processing fee from the company that hires you. In return, Upwork does all the book-keeping, such as keeping track of the number of hours you work, calculating the fees, preparing the tax forms (in advanced countries like the US), and the like, so the company hiring the freelancer is not burdened with the paperwork.
Providing a service
This is what is fascinating with matchmaking sites. They do not own a product line or hire service professionals; they don’t own hotel rooms or cars; they don’t own warehouses or product inventory; but they add value to the internet economy because they do the work that no one else wants to do or, in some cases, can do: build the technological sophistication to develop a platform which runs like clockwork, around the globe. Add to this the fact that it has to handle rules and regulations in different countries, create user interfaces that work across multiple platforms and look substantially similar so people can easily adapt. All of these are extremely complex challenges.
Uber has nearly 12,000 employees to keep its platform running round the clock, every day of the year. But what is impressive is Uber’s scale. The cab-hailing service has nearly 2 million drivers working as independent contractors in 633 cities globally. The ratio of employees per contractor (1:167) is quite lopsided. This, coupled with the fact that Uber does not own its fleet, has led to local governments challenging Uber’s status as a taxi company.
But, wait. Is Uber a taxi company? Or is it a technology company? The company says it best: It is a global technology taxi company. Try that classification of companies in the Forbes 2000 Global list.
It is this confusion about what these matchmaking companies really are that has driven old-style cabals crazy.
Bullying lobbies
Powerful and entrenched taxicab unions have lobbied against Uber in every continent. Entire countries — Italy, Hungary — have banned Uber outright. London cancelled its licence for Uber to operate as a taxi company last September. Uber is banned in Austin, Vancouver and Barcelona, although a court ruling is pending in Barcelona.
To protect the hotel lobby and landlords, New York passed a law which allows local governments in the state to fine hosts up to $7,500 even if they are just caught listing a property on a rental platform such as Airbnb. Postmates, a logistics company that operates a network of independent contract couriers who deliver goods locally, was sued in San Francisco Superior Court in November alleging that its drivers must be classified as employees so that they can get labour protections, such as sick time and pension benefits.
Upwork’s reach is too wide and impact too limited — after all, how many freelancers do you know? — for it to attract any lawsuits in the near future. Also the freelance community is not currently protected by any big lobbying group. Upwork, therefore, shows a lot of promise to improve its offering, grow, and attract more freelancers and companies to its platform. But in a trust business, Upwork can only be successful if it is seen as being not too greedy, and begins to share more of its revenues with the freelancers who are its backbone.
In other words, it will rise or fall on the strength of the overall value it brings. This is music to anyone who believes in the laissez faire nature of the internet.