What's next for freelancing marketplaces?
The current state of digital freelancing marketplaces
The concept of you being your boss is fantastic. Driven by this underlying thesis, freelancing has taken off because it provides freedom and flexibility. I have talked to many ambitious people, and the most common answer is that their goal is to control their time — sometimes at the expense of letting go of millions of dollars.
The freelance workforce has grown significantly recently, mainly driven by resignations, layoffs, remote work, and higher inflation. It is estimated that there are 59 million freelancers in the U.S., making up over 30% of the total U.S. workforce. Statista estimates there will be 86.5 million freelancers, 50.9% of the U.S. workforce, by 2027.
Even with recent layoffs and the economic downturn, companies are saying that they are finding it hard to recruit for various roles. JPMorgan reports that labor shortage remains one of the top business threats, and to circumvent this, companies are looking to hire more independent workers.
Major Freelance marketplaces have been around for almost a decade now, namely Upwork and Fiverr. While these platforms have seen growth in their revenue, fueled by remote work and frothy markets, their net losses have widened, and their topline growth has decelerated.
As you can see below, Upwork’s YoY revenue growth has decelerated from 35% to 22%. The company’s net losses also widened, clocking around -$90M of annual net loss in 2022.
Fiverr represents a similar story, as seen in its financials below. Revenue growth deceleration and widening net losses. These platforms can increase their take rate to boost the net margins, but that will likely eat into their revenue growth. I sense that the freelancing marketplaces will have to develop something more creative to accelerate growth and attract more customers.
Next frontiers in freelancing
I think the next growth phase in freelancing in digital space — i.e., barring work that involves your hands, e.g., handyman work, moving, etc. — can come from the following themes:
Short-term AI gigs
Until AI becomes fully democratized to the point where every household can quickly deploy AI on their own, freelancers working in the AI industry will continue to be in demand. This is not the best news for freelancers working in writing/editing because AI practically replaces those gigs. More niche jobs like AI prompt engineers and developers will push this industry forward.
Niche and targeted marketplaces
Freelancing marketplaces (Freelancer.com, Upwork, etc.) have gotten too big and generic with millions of job-posting. Because of the size of these marketplaces, buyers have to spend extended time combing through bids and talent providers. For example, I posted a simple web development job and received 90 proposals in one hour. For a buyer, choosing the right provider becomes a difficult task. Large freelancers on these marketplaces provide a broad range of services, from 3D game development to email integration, often at the expense of quality of service. I think that more targeted marketplaces can provide a better customer experience for buyers. For example, a freelancing market is just for illustrators or wedding planners.
Continuing education for independent workers
Freelancing marketplaces have loads of data on user demand and shifts in technological trends. By providing proactive and relevant education opportunities to gig workers, marketplaces can help talent providers stay ahead of the curve. This also creates brand loyalty for talent providers on these platforms, reducing the churn and overall better customer experience.
Moving upmarket but not at the expense of a long tail of customers
The recent trend amongst the freelancing marketplaces has been attracting more sophisticated buyers who sign up for longer-term projects to squeeze more spending out of them. This approach can work in the short or medium term to make financials look good. However, many small customers are the mass consumers of these marketplaces. Dialing up sales headcount to establish entrenched customer relationships can be an excellent strategy to improve independent workers’ and buyers' experience on the platforms.
Brand creation and management
Helping independent workers create their brand on the Internet. This can include helping them create an online presence, social media strategy, logo, branding, etc. I sense that freelancers would appreciate help on these aspects, and this add-on service can become an additional revenue source for the marketplaces.