Upwork is the largest global freelancing platform, connecting businesses with talent all over the world. Specifically, Upwork is a transaction platform which lowers both search and transaction costs. Upwork benefits from cross side network effects – the more business postings that exist, the more talent is attracted to the platform and vice versa.
Upwork creates value for both the businesses and the freelancers. Businesses post a job describing a project and the skills required to complete the work. Both businesses and freelancers are empowered to find their own matches by searching the platform, however, Upwork utilizes algorithms to recommend the best projects/freelancer matches. Upwork creates trust on the platform by verifying freelancers and companies and displaying various data to increase transparency. This includes skill level, success scores and client feedback.
Businesses benefit from the flexibility offered by the Upwork platform. They can quickly augment their full-time employee base to complete projects as needed. They can immediately find talent with specific skills from a global pool of online specialists that would have otherwise been inaccessible. Freelancing platforms enable companies to get high quality work done at a fraction of the cost of a full-time employee or conventional agency.
From the freelancer perspective, Upwork enables talent to have freedom and flexibility to find jobs online. Upwork consolidates millions of projects, providing freelancers with top paying, quality work all in one place. Additionally, Upwork highlights ideal jobs for freelancers but gives total control to choose their own clients and projects. This reduces the time it would normally take for freelancers to find work
Upwork also creates value by managing administrative tasks associated with freelance work. There is an online workspace that encourages easy collaboration, enables communication and provides tools to verify hours worked. Upwork also handles all invoicing and billing for the projects with payment protection.
Upwork captures value from both sides of the marketplace. From the freelancer, they take a fee based on the size of the client relationship. The pricing model is outlined below:
- 20% on transactions under $500
- 10% on transactions from $500-$10,000
- 5% on transactions over $10,000
By utilizing this model, Upwork is incentivizing freelancers to work consistently with the same company, making the platform stickier for both sides. Upwork also capture value from the business side of the marketplace by offering tiered services for a monthly subscription fee. However, the freelancer fees make up 63% of their revenue as of 2019.
In addition to monetary value, Upwork finds value in the data that is collected on the platform. Freelancers that have more project feedback are more likely to get hired again and so this is a valuable way to keep the platform engaged. This data is a valuable way to discourage disintermediation for both sides. It also informs the data algorithms that Upwork uses to recommend projects and freelancers.
Upwork has the benefit of scaling within a massive market – over $1.5 trillion in the gig economy and over 36% of Americans working as freelancers in 2018. Freelancing is becoming increasingly popular, enabling Upwork to scale even faster. Additionally, new businesses and freelancers can quickly be added to the platform at an extremely low cost. They have been able to create automated, simple, repeatable processes on the platform. Upwork benefits from cross side network effects so there is little need for high sales/marketing costs. Because Upwork can serve the global market and easily enter new markets, the platform is scalable.
Although Upwork is experience growth (23% increase revenue), they are continuing to lose money. Upwork has a defensible global network cluster but must figure out how to generate profit to be sustainable. One concern with Upwork’s current business model is disintermediation. Because freelancers are being charged the bulk of fees, they have an incentive to move their relationships off the platform. Freelancers are likely to be more price sensitive than corporations and therefore might not be the side of the platform to capture majority of value from. Another concern is the ease of multi-homing; it takes very little effort for a business to post the same project description and for a freelancer to maintain a profile on multiple sites. With low barriers to entry, a new competitor could easily enter this space and undercut the fees charge by Upwork to steal their talent and client base. To combat these issues, Upwork will need to continue to add value, in the form of additional services, for both sides of the platform.