Service Marketplaces

                    A Market That Still Isn't Catching On

I was reading Global Services magazine (www.globalservicesmedia.com ) and came across a lengthy piece they completed titled "Online Services Marketplaces". The focus of the story concerned how small and medium sized firms are using online services marketplaces like eLance (www.elance.com), Guru.com (www.guru.com), Freelance.com (www.freelance.com) and others. The story pegs the total marketplace for such services around $200-250 million annually with a lot of deals being staffed from Eastern Europe personnel.

I have a lot of expertise in this space and so does my colleague and former IQ4Hire business partner Vinnie (www.dealarchitect.typepad.com). Here are my thoughts on this space:

• Renting a body for a specific price and time commitment is far simpler than getting an entire project staffed. It is a giant step up in complexity to choose an integrator for a full-blown SAP project vs. a graphics designer for a week.
• Intangible attributes (e.g., 'Chemistry' or 'cultural fit') about service providers are very hard to quantify in online service directories. Many service buyers want to meet the team/person before cementing a deal. An online service complicates or hinders this.
• Different sites are better at some tasks than others. Many sites are good for getting one person at a time. Some can help with completing a phase of a project while fewer still can help with an entire project. Almost no site carries the tools to assist in the selection and brokering of complex, large-scale IT programs (e.g., IT infrastructure outsourcing).
• Almost all sites are funded by service buyers. If you're expecting neutrality in an online service, forget it.
• Almost no site tries to help service buyers with tools to create statements of work, task descriptions, complex work estimates, project (not personal) work plans, etc. Most sites are like dating services with the addition of a reverse auction capability that applies to bill rates.
• Amazingly, few sites are specific to IT. This begs the question: Can a site that helps me find a babysitter, a lawn service and a logo artist really help me complete a major technology program? I don't think so.
• Subject matter experts could do a lot to help buyers make better decisions. However, low-end or small-deal size sites usually provide no human experts to counsel either buyers or sellers. If your firm has never completed a CRM deal, wouldn't you want someone who watches dozens of CRM deals every month to advise you?
• Intellectual property (i.e., relevant and synthesized work plans, task descriptions, performance metrics, etc.) could really help both buyers and sellers of services. However, few of these are to be found on most small market oriented sites.
• Big companies believe they can negotiate anything - including services. They believe that suppliers will flock to them and all they need to do is sift through bids and apply brutal leverage vendor-against-vendor. While I believe that pride goeth before a fall, it won't get big companies to use these marketplaces for big projects.
• Staffing firms (and others who provide contingent labor) provide tools for their customers that provide much of the same functionality offered in services marketplaces. This creates a substitute type of competition to existing services marketplaces and prevents these marketplaces from growing more.

I think the article is correct in its estimate of the market and any venture capitalist backing one of these firms should think really hard about the long-term growth prospects for this space. While I like the concept and believe that buyers would benefit from these marketplaces, people have been building these since the late 1990s and the adoption rate has been very slow. One marketplace I know has suffered through approx. half-dozen CEOs and close to $100 million in capital financing. Most marketplaces were eithered shuttered or merged. Still, the space didn't get stronger with market consolidation. It has just stayed tough, slow-growing and, often, unprofitable.

Good luck to those fighting to make these a market success.