June 19, 2019

Upwork is begging for competition

Gene Maryushenko @genemachine

For anyone not familiar with the freelance industry (probably not many of you), Upwork just announced they are increasing prices per connects for freelancers. They are also increasing paid tiers for freelancers who are not active on the platform but pay for occasional leads.

Not long ago, Upwork also introduced paid plans for people doing the hiring.

Everyone is hating on Upwork now, freelancers and businesses alike.

This is a huge opportunity and the timing is perfect for a savvy startup to come in and steal the rug from under Upwork. I imagine it would take a team of dedicated founders with savings, or raising money, but the cake is there to be eaten. I think @Vinrob is actually onto something with his design service. I imagine he is all over this on Twitter for design related work. But Upwork extends far beyond design.

The platform has treated freelancers like crap for a very long time. I can tell you every single thing that's wrong with it and so can thousands of people who use it.

Some people got so fed up, they started separate services like Crew, a design marketplace which sold to Dribbble.

The obvious take on this situation would be to take a look at all the industries serviced by Upwork, pick out a niche that's manageable and go for it.

You'd have the chicken egg problem of finding clients and finding freelancers, but I think the right individual or team individuals could pull it off.

Anyway, I don't know where I am going with this, other than to expose an obvious opportunity, ripe for picking.

  1. 8

    Hi there,

    I disagree with the statement "obvious opportunity" because two sided marketplaces are probably the hardest and most expensive problems to tackle. Their growth rates are even smaller than an average SaaS and takes a really, really, really, really, really long time for them to mature & become profitable.

    If you're thinking to start one however, I'd suggest you focus on a very small portion of a market, ie go as niche as you can.

    Disclaimer: I've been working in the industry for the past 8 years as member of the core product team of marketplace services.

    1. 1

      Something being difficult is not necessarily not an obvious opportunity. It's just difficult. I am pretty sure that the companies like Upwork (if not profitable for a long time) do so on purpose to attract market share before jacking up the prices and looking pretty good listed publicly. I mean, it's the strategy of so many large companies - operate unprofitable for as long as you can to capture as much market share as possible then pull all the monetization levers possible.

      I do agree completely with your point of niching down. I think the right team with connections and or enough incoming business can pull this off in some small niche.

      1. 1

        I'm not sure what Upwork's strategy is to be honest. All I know is that for example the "demand vs supply" issue is an expensive one to tackle which means that you need some kind of backing, most likely a VC. To make things more difficult you need to establish initial traction, some kind of brand awareness & trust between you and your clients.

        Another thing that's often neglected when people decide to start a marketplace is the unimaginable complexity of the product itself, which means you need a pretty good, business-oriented development team (which doesn't come cheap).

  2. 6

    I agree 100% with everything you wrote (I'm not hating just for the sake of it, here's my profile: https://www.upwork.com/freelancers/~0130ff470bd235f719). I've earned money on Upwork, I've been scammed and I also hired on Upwork. This is starting to look really like the unfair monopoly where freelancers are treated like shit. Additionally, they keep your money for too long in 'security' periods, connects are paid now - some of the projects cost 8 connects so when you're buying the biggest connect package (80) - it would allow you for applying to only 10 projects. There are problems with their exchange rates which are outrageous (the only way for non-us freelancer right now is to sign up for Transferwise which by the way is a f**** amazing service). On the other hand, the cost of Maintainance of a platform like Upwork is probably huge, never-ending disputes between freelancers and clients, scammers, etc. And they have traffic, multiple Forbes 500 companies using them as Plus / Enterprise clients.

  3. 5

    I'll say right up front, I think building a competitor in niche markets is a great idea and I really hope someone executes on it.

    While I agree that there is significant opportunity in that market, and I think Upwork has consolidated that space entirely too much (basically bought all the smaller guys in a couple waves a few years back), I'm not sure I can agree on every point.

    Everyone complains about being undercut, or being underpaid, but the response in both cases is to improve ones own filter. In any market it is on the freelancer to both improve proposals and pick better opportunities. I think the free or super cheap connections previously used actually incentivized the opposite, serving to obligate freelancers to use all points up with thrown together proposals for jobs they never should have proposed on to begin with. It made many proposals feel like spam and caused businesses to try to game the system just to get proof that a prospect could actually perform the work.

    I've had nothing but good experiences on Upwork both as a hirer in the past and as a freelancer, though I have a bit more patience than most. Further, I actually think the changes to payments will service as disincentive for shitty content and code mills to spam new proposals with responses. I also think increased prices for hirers will serve as a passive filter for bullshit artists trying to get something for nothing.

    I'm sure there are abuses, as there are in all markets, but I have a sneaking suspicion that this price increase will actually increase my success and proposal rate and I fully intend to continue to use the platform. Ultimately freelance is much like startup business in general, you have to be as picky about your clients as you should be about selecting your first customers. I have more credits than i could possibly use with my current client filtering method, and I'm perfectly happy not using them.

    From a more abstract product perspective, an attempt at producing higher quality posts and higher quality responses with a simple change to a pricing model feels like a solid move on their part.

  4. 3

    I just started hiring on PeoplePerHour a couple of weeks ago, and so far it's superior to Upwork in every way. I'd encourage anyone with a project to give it a try.

    I have no affiliation other than being a satisfied customer

  5. 3

    Thanks for the mention!

    UpWork / Fiverr are still the leaders in the market. They have the network effects kicking in and are able to attract large pools of freelancers and customers.

    However, I read both Upwork/Fiverr IPO prospectusand also used both services myself extensively.

    They've got big issues to solve: Customer retention, customer acquisition (like most companies) but most importantly overall profitability as most marketplace businesses.

    Here's my take on this:

    There is going to be a verticalization of such services.

    While they're able to attract huge amount of customers and have their huge backend of freelancers as they're biggest assets there there are problems that can be solved better (and thus lead to a better customer experience) by vertical solution.

    Here a few ways I think Upwork/Fiverr can be attacked:

    1. Finding and retaining freelancers (think about : Remoteok.io, or done-for-you productized services where you do not have to find the freelancer/task)
    2. Working with freelancers (think of communication tools, and any other SaaS)
    3. Task-specific marketplaces / services (example: A done-for-you video subtitle service with money back guarantee or ManyPixels which focuses solely on graphic design service)
    4. Different business models (per task, per subscription, staffing...)
    5. Regulated business models (Taxes, lawyer, ...)

    I could talk about this for hours!

    I believe there are a lot of opportunities happening in that space and service is one of the areas which is still very low tech. I would also recommend watching Fabrice Grinda video on this where he talks about the verticalisation of Upwork: https://fabricegrinda.com/fireside-chat-about-building-marketplaces-with-jason-goldlist-at-techtoronto/

    Hope that was helpful!

    ---

    ✨Shameless plug -- I run a highly moderated, very tight-knit group that discusses the future of digital services / productized services: We're a 900+ strong community (including a few who sold their productized services) helping each other start successful productized services

    https://www.facebook.com/groups/192719694795609/

  6. 2

    As a freelancer in Upwork, I actually celebrate the increases in price per connect. It filters all the candidates that spam and send copy and paste proposal.

    It’s a win-win situation for both parties in my opinion. It gets rid of low quality freelancers leaving room for people that provide quality work, while making things easier for people that hire, without having to browse hundreds of low quality proposals.

    Having said this, I would love a similar platform but for high rated projects. For example, projects that start at $1000, meaning you wouldn’t accept any job posting with a budget lower than that.

    But again, charging per connects is a clever idea to improve the platform in my opinion (and experience).

  7. 1

    I'd say this is definitely true for certain niches. One being social media, there are a lot of influencers and themed account owners looking for an option to price their unique services

  8. 1

    It's vital to remember that if you're getting your jobs from these sites, you're already far enough down the food chain that there isn't much money to be made from freelancing. By this point you're a commodity.

    For any freelancer, I'd recommend you take the DoubleYourFreelancing approach (or read patio11's writings) and move up market. Plenty of SaaS companies have professional services teams that are essentially in-house consultants, and these groups charge $250+ per hour. Independent consultants can and should pursue these types of clients if they want to maximize income.

    1. 1

      Sure this works for top tier professionals but there is a huge segment of freelancers who are not top tier and a huge segment of businesses, startups who are scrappy and need something for less. Demand will produce supply. Despite consulting being a natural progression path from freelancing, there exists a need for a marketplace like upwork.

  9. 1

    I've got a ton of ideas on this, who's working on this? Let's connect

  10. 1

    Funny your are talking about that, because I used upwork in the past (I spent few k$), I used even odesk (because they merge with elance).
    Anyway, so they introduced years that the client needs to pay a %, but it was fine, and yesterday, I posted a job, and I noticed that I can invite only 3 freelancers, otherwise, I need to pay !!
    It means that as client, I need to pay to invite freelance to answer to the job, sounds crazy no ?

    1. 1

      It's insane. Try PeoplePerHour. I jumped ship recently and it's great.

  11. 1

    Elance was the best before being merged with oDesk. Now it's a waste land known as UpWork.

  12. 1

    I never liked Upwork and freelancing platforms in general.

    There are lots of competitors in niche markets. Productivized services mainly for graphic design and copywriting, but even for web development and social media marketing.

    I recently (this month) built two separate solutions in what I believe are underserved niches: video making and sales&pr outsourcing (lead generation, email list building, personalized outreach to journalists and investors).

    I'll keep you abreast of the progress.

    Ps. Ironically, I just started using freelancing platforms (upwork too) to get customers. I never tried before, any suggestion?

  13. 1

    I've always had the same thought and now that you put this out there I might just make this my next venture. I see so many ways we could improve this flow and I'd love to scope it down to just the programming niche since that's what I know. Let me know if anyone here would like to work with me on this. This would be an awesome challenge to tackle

  14. 1

    Working on it. Upwork has many problems, like many other service marketplaces. I'm on a mission to empower the freelancers.

    1. 1

      color me very interested

      1. 3

        I'm building a high quality content marketplace to connect writers to marketers. I don't aim to compete for low paying clients who want low quality content because anyone can deliver that. Writers deserve to be paid much more than they currently are given the value of the content they are able to create, so we will make that happen.

        1. 2

          Totally agree. I'm eager to see what you make!

          1. 2

            Thanks, Gene. I'm currently in the first phase of solving the chicken-egg problem: https://www.Penname.me

        2. 2

          I dig.

      2. 1

        REPLY
        1
        I would put up some money to see if it could be done

        anyone else interested ?

        1. 1

          I'm interested. Consider me in for 10-50k if people are serious.

      3. 1

        This comment was deleted a year ago.

  15. 1

    I have had similar thoughts for years. When I started freelancing on Elance there was a good mix of simple and complicated projects. I specialized in solving the harder algorithmic and data processing jobs. It was a good way to pay for college. Upwork seems to be the place for people who can't find work elsewhere or have a lower cost of living so can undercut western markets.

    Unfortunately Upwork has a pretty large moat:

    1. Considerable legal framework for for holding funds in escrow (trust)
    2. A steady supply of both contractors and clients
    3. A reputation management system with extensive work/rating history
    4. Project management and time tracking tools
    5. World-wide Payment processing system (both to accept and payout around the world)

    With that said I think you could come up with a strategy for penetrating the market. I have built a few market places in the past and generally you need to game one side of the market to beat the chicken and egg problem.

    I think the high end side of the freelance marked is under-served. Try to find a profitable niche that isn't services well by upwork yet skilled developers are interested in. Something that the co-founders also have expertise in (so you can take on projects) but can be completed reasonably quickly (in an evening or weekend). Algorithm implementation, machine learning Ai, performance tuning of existing systems, image processing, security audits, etc. The type of tasks a good senior dev can accomplish in their spare time. Find developers in your network who are looking for some quick side projects. This allows you game 2) and 3). If you can secure funding you may even want to hire a few developers to work on projects.

    Make the payments manually to begin with. Restricting signups to a limited area NY, SF, Vancouver, London, etc would make transferring funds much easier. I don't see as much of a need to restrict where clients can be from as long as your payment processor can accept funds. This takes care of 1) and 5). 4) you can probably live without to start.

    I'm sure this is an over simplified analysis but perhaps it can serve as a starting point. Overall to be successful I think it is much more important to solve the business problems than build a shiny app.

    1. 1

      I like the idea of a freelance market for high end tasks, but I think high end of task such as AI, performance tweak, security audits etc seem like a winner take all market where a very few specialized people the best in their field will get projects.

      Moreover, those tasks are usually core to the business and requires business specific insights. An outsider will find it quite challenging/time consuming to do one task. If a company need the tech described above for their business, I think that company will have a budget to just hire in house team.

      1. 1

        I disagree that it would be a winner take all market. For this to be the case the supply of highly skilled worker would have to outstrip supply. There has been a chronic shortage of development talent.

        With any outsourcing there is always the problem of keeping the competencies withing the company. However there are many organizations where the use of AI etc is not as core to the business. In my experience companies often have a single use case or problem that they don't have the internal capacity to accomplish or the constant demand to support hiring a specialist.

        I'm certainly not arguing that the high end market is the only opportunity in the space. Attracting good talent will be much harder than average talent. In any skills hierarchy there will be far more people near the bottom but also more competition and less value to the client.

    2. 1

      About the moat:

      1. you can offer a money back guarantee. The first few months can be hard, but when you gain enough information about the customer lifetime value, you have a fairly predictable stream of revenue.
      2. you can offer convenience. You manage the relationships with the freelancers, your clients save money and are covered from bad work. Looking for and managing freelancers is extremely time-consuming.
      3. lots of reviews are fake, people have started to realize it.
      4. I don't see it as a problem.
      5. with people and stripe you are well covered.
      1. 1

        Regarding:

        1. you have to balance the money back guarantee against the freelancers desire to get paid. As projects grow it can become increasing difficult for the company to cover the costs.
        2. Fake reviews are a big problem, but they are harder to fake over longer periods of time, and for projects with larger budgets.
        3. Stripe is really good at collecting payments but paying out is more difficult. Stripe connect does offer some features but I don't think they are compatible with an escrow like service. They currently support payouts to 34 counties up from the 8 they launched with a few years ago but they still have a long way to go to achieve global coverage. Eventually you are going to want to expand the service internationally.

        Moats can be bridged but it's important to be aware of their existence and have a well thought out plan. So often they are underestimated.