Are Mega-Freelance Marketplaces Sustainable?

[#1]

With all of the talk about moving platforms in response to recent changes on Upwork - most notably the announced fee restructuring, I began to wonder if any other platform is really a "secure" marketplace in terms of financial stability. As mentioned here in the forums, Upwork has not had a profitable quarter since Q4 2020 (see p14). Well, it also turns out that Fiverr has the same issues, but on a smaller scale, because they actually have less revenue and less expenses. Turns out, Upwork had almost 2x the revenue (and net loss) of Fiverr this past year. Upwork had 12x more revenue (and net loss) than Freelancer. As far as I can tell only those 3 are publicly traded, so I can't find reliable info on any other platforms. All of the other platforms, near as I can tell, have some degree of investment funding.

So with the current limited data, I wonder: is it possible for a marketplace to grow large and remain profitable? It is not like this is an American company issue - Fiverr is in Israel and Freelancer is in Australia. If the marketplaces can't regain profitability, the only options are that they are purchased, file for bankruptcy (the re-structuring type), or shut down altogether. Is the future just a bunch of small, niche platforms that can optimize for their sectors?

[#2]

I am really amazed to know that Upwork is not profitable. 

[#3]

With their recent decisions, they're just killing the platform long-term

[#4]

I don't know and don't have the the capacity to asses sustainability but I can see the reasons for their "innovations". Boosts, connects, fee restructurization, they're finding a better market and trying to get money from everything possible in hope it will help to balance their ads,  7-8 figures salary, and other expenses.

I don't know about the future but it's logical to open the gate and milk the unlimited supplies of freelancers, and also aiming for short term contracts instead of the long term ones.

One thing I don't really get is why they're increasing the 5% fee. They're gambling the increased revenue from freelancers who decide to stay with their long term relations will cover the loss from freelancers who decide to bring it outside. Or maybe they have solid data to base their decision on.

[#5]

One thing I don't really get is why they're increasing the 5% fee. They're gambling the increased revenue from freelancers who decide to stay with their long term relations will cover the loss from freelancers who decide to bring it outside. Or maybe they have solid data to base their decision on.

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I've wondered the same. It feels like they did not consult any behavioral economists when they ran their projections.

[#6]

I asked questions related to this since a few days ago on the other thread but nobody answered. 

I just saw a post from Attila H which might clarify a few things.

It's quite different for me, where I said nothing Upwork can provide that are worth 5% and I see no reason to keep a "broker" between me and client for over 10 years.

So maybe they do have some solid data to base their decision. The number of people like Attila might be significant enough to cover for the loss, or even "to raise profit".

[#7]

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Radia L wrote:

One thing I don't really get is why they're increasing the 5% fee. They're gambling the increased revenue from freelancers who decide to stay with their long term relations will cover the loss from freelancers who decide to bring it outside. Or maybe they have solid data to base their decision on.

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What do you mean "bring it outside", that's against Upwork policies? Or do you mean leave Upwork forever?

[#8]

For freelancers that already has relation for more than 2 years and paid the $1 fee, of course.

Sorry for not making it clear in the previous post. I got notified and read the other thread whenever there's an update, and I saw so many freelancers saying they have long term clients that they will bring outside before this year ends.

[#9]

With their push toward drawing in more long-term clients and fewer who are looking for true freelancers, there will presumably be a significant shift toward $10k+ relationships (which are likely a small percentage of freelancers/client relationships now). If they continue the discount at that point, it would severely undercut or even eliminate the gains they'll see from more staffing-like arrangements.

[#10]

Lack of profitability is because of ad expenses. Ad prices are driven by nothing but competition. It means that freelancer marketplaces are competing against each other using investor's dollars. 

Eventually market consolidation will reduce ad prices they pay (because there won't be competition as other marketplaces will be dead or acquired by the survivors), and bring them to profitability. This is the normal process.

[#11]

I believe this is the reason for Upwork's stated shift in focus toward longer-term/recurring clients. As they move away from true freelancing toward modified staffing, they won't have to pour nearly so much into advertising to bring in a steady stream of new clients. 

[#12]

... and they did ALL possible mistakes on that path. Changed fee back to 10%, closing their eyes on job application spam etc. They literally make it quantity over quality. The amount of decent long-term projects significantly reduced in the last 8 years

[#13]

I think they could be, if they refocus their attention and resources on the essentials of the platform which I see them doing right now. Every large company these days seems to want to be the place for everything when really it's okay to provide one service and leave it at that. You don't have to be throwing away resources to coaching sessions, group events, courses, and new functions no-one asked for (like bidding). It's clear UpWork is making money but is just losing more in the attempt to seem hip.

And I do think the fee structure change still makes sense since it is essentially the platform meeting the freelancers halfway. Of course, we always want the lowest fees possible but they are also running a business. With the recent change, the fee structure is more attractive to new freelancers (10% sounds a lot better than 20%), and starting new contracts will be a lot more lucrative for everyone. It's understandable people with large contracts are upset, but I find it silly to be bickering about a 5% increase in the light of record inflation caused by the reckless actions of our governments. In addition, in most developed countries the overall tax rate on citizens is well into the double digits (when taking into account income taxes, social fees, real estate taxes, VATs on each purchase, etc.), and so I'd look to them first!

[#14]

... is it possible for a marketplace to grow large and remain profitable?

I think it depends on the marketplace and the type of growth they’re experiencing.

For platforms like Upwork and Fiverr, the growth in the number of clients posting jobs and the number of freelancers seeking work is burdensome. More people, more problems, and those problems always emerge as huge, recurring business, financial, technical, and resource issues. It’s not sustainable in its current form and profitability is unlikely when the number of problems continues to rise.

Upwork’s financial growth is driven by long-term and recurring use of its marketplace by clients and freelancers, and Upwork loves this type of growth. The trouble is, they welcome anybody and everybody (freelancers and clients), and that makes it difficult to sustain this kind of growth. I'm all for inclusivity and openness, but there is something to be said for exclusivity, niche-building, and targeted demographics. Every sector isn’t great and not all clients and freelancers are the same.

As Tuuli pointed out, if Upwork refocuses their attention and resources on the essentials of the platform, they can turn a corner, and make a run at profitability.

[#15]

It's kind of hard to become profitable when you're paying seven-figure salaries to your executives (you know, the ones who can't make the platform profitable).

[#16]

Those salaries are a very small portion of their budget, so probably not the thing that's holding them back.

[#17]

I think if a company that is bleeding money still pays those kinds of salaries to the people who are supposed to stop the bleeding, that tells you enough about their vision and priorities.

[#18]

It's again, simply a matter of competition. They pay as much as necessary to attract good executives. 

Again, lack of profitability is inevitable in a market sector which is not consolidated yet. Sustained profitability only comes when you have a monopoly or oligopoly.

[#19]

Their "good executives" have failed to improve the platform's financial situation, have failed to attract quality clients, have failed to keep their platform's reputation intact, and are failing to foster client and freelancer loyalty. How much more money do they need to actually do a good job?

[#20]

Not so sure they are doing things wrongly. Upwork is still by far the biggest freelance marketplace, it's margins are not worse than those of others, and it didn't start first meaning, all this isn't a result of first-mover advantage.

[#21]

You are right. After a quick check on Yahoo Finance, I saw that their operating expenses have been eating their revenues alive over the years. According to Upwork, "Our vibrant culture is built on shared values and our mission to create economic opportunities so that people have better lives." That is a noble cause that deserves a standing ovation, but I think they should look into their SG&A if they are to return a positive net income. What is still sustaining Uwork is the fact that they are not "brick and mortar."

[#22]

Question must be, why do you think smaller platforms are more sustainable?