Crowdsourcing Promises Savings...and Danger
Norman’s Rare Guitars in Tarzana, Calif., needed a website overhaul badly -- but didn’t want to spend the kind of money splashy designers require. Its answer? A crowdsourcing contest for the best designer on online freelance marketplace CrowdSpring. Norman’s Marketing Manager Sarah Harris reviewed portfolios and actively encouraged good designers to bid, receiving 23 entries before choosing an American expat based in Puerto Vallarta, Mexico. Harris loved the results and has since hired the designer to do additional work. “It ended up being a perfect situation,” she says.
If you’re a business owner interested in hiring freelancers or you're a freelancer looking for work, you’ve probably heard of online sites such as Elance, Guru.com, and oDesk. These freelance marketplaces connect businesses with freelancers in disciplines ranging from accounting and software programming to design and writing. Jobs are competitively bid on at many of these sites, often down to very low rates. This method of connecting a large pool of freelance workers with prospective employers -- in any of several forms -- is known as crowdsourcing.
Crowdsourcing has boomed over the past few years as part of a major shift in many companies’ approach to staffing. Between the fiscal austerity inspired by the Great Recession and the rise of the Internet and other tools that enable remote work, businesses large and small are steadily moving away from hiring full-time workers, says Steve King, a partner at small business research and consulting firm Emergent Research in Lafayette, Calif. “Businesses are still freaked from when the recession hit in 2008 and business stopped dead,” King says. “Managers are thinking, ‘We’d better shift to variable cost models instead of fixed costs.’”
According to Emergent, U.S. freelancers will constitute 50 percent of the U.S. workforce in 2030, up dramatically from the current 20 percent. This doesn’t even take into account the growing number of overseas workers looking to get in on the country’s booming freelance trend. Crowdsourcing marketplaces are benefiting from and accelerating this trend as they facilitate connections between businesses and freelancers.
Done right, crowdsourcing can be the answer to a small business owner’s prayers, offering bargain prices for quality work. Likewise, freelancers can grow their businesses by connecting with firms looking to outsource various work functions. But both sides should beware the dark side of crowdsourcing, where freelancers disappear into the ether without submitting a shred of work, or businesses refuse to pay freelancers or just stop communicating with them.
Perhaps more important in the long run, crowdsourcing competition holds the potential to cut prices so low that professionals can no longer earn a living -- devaluing the skill and forcing out the most talented practitioners. The Web is full of blogs and forums in which professionals rail against crowdsourcing sites ruining their livelihoods.
It’s also important to note that crowdsourcing comes in several flavors, and the differences can significantly affect costs and outcomes. Some crowdsourcing websites let freelancers bid on each job, with the company choosing whom to work with based on price, reputation, and other factors. But other sites, such as CrowdSpring, use a competition model, whereby freelancers actually create the desired work on spec and the company chooses the result it likes best. The winner gets a preset fee … everyone else gets nothing.
Given the variations and potential pitfalls of crowdsourcing, careful navigation is key to making it work for your business. Emergent’s King and business owners and freelancers who have used crowdsourcing sites offer some tips:
Success Strategies for Business Owners
- Start small. King suggests assigning a small project initially with the promise of more work if you’re happy with the results.
- Hire carefully, especially overseas. Communication may be difficult due to time differences and language issues when using overseas freelancers. William Collins, owner of design agency Archetype Productions in Fayetteville, Ark., thought he got a great deal when he found a freelancer from India who charged just $9 an hour for some programming work. But the programmer didn’t understand what Collins wanted, and eventually Collins gave up, paying a U.S. pro to finish the work.
“There’s a trial-and-error process to find the good freelancers,” Collins says. “I’ve pretty much written off getting workers from overseas. I’d rather spend the money to do it here, do it right, and do it efficiently.”
Also, check your freelancers’ experience and credentials before finalizing any deals. While many new freelancers try out crowdsourcing platforms as a way to get initial work credits, others are experienced professionals. CrowdSpring Cofounder Russ Kimbarovsky says the majority of freelancers on his site have more than five years’ experience. Determine whether a green freelancer will work in your situation (it’ll save you money) or whether you need to shell out for a seasoned professional. - Charge by the project, not by the hour. Define project milestones carefully so you pay only when work is satisfactorily completed. Atlanta business owner Christy Annis of Peas for Prosperity paid an overseas freelancer $300 through oDesk for a website redesign. He charged by the hour, but never turned in any satisfactory work, leaving Annis obligated to pay him anyway under oDesk’s rules, she says.
- Guard your passwords. After Annis posted a negative comment about her contractor, he used her password to take her website offline, causing weeks of downtime that she says negatively impacted her holiday sales. Give freelancers temporary passwords and change them as soon as the work is done.
Success Strategies for Freelancers
- Specialize. Emergent’s King says having specialized, in-demand skills is critical for freelance success on crowdsourcing sites. The wide reach of these sites means that generic jobs can get bid down very low.
- Choose your jobs carefully. Experienced journalist Stephanie Mojica of Edenton, N.C., says she routinely makes $100 an hour through Guru.com and oDesk. Mojica says she finds these sites more exclusive than mass advertising sites such as Craigslist, where hundreds of applicants routinely apply for each job. On Guru, she targets jobs that aren’t getting many bids and call for special knowledge.
“The freelancers [on these sites] have a lot less competition,” Mojica says, “and the qualified freelancer is going to stand out. I’ve made up to $300 an hour, and I get about half of the gigs I apply for.” - Research the company. Before jumping at a freelance opportunity on a crowdsourcing site, check out the company’s track record, including how many jobs it has previously assigned and the dollar values involved. If they’re small potatoes or have bad reviews, they may not be worth the risk.
- Ask for multiple payments. Rather than waiting for your whole fee at the conclusion of a job, insist on a series of payments as you meet various milestones. That would have helped freelancer Matt Baehr of Windridge Web Design in Fairfax, Va., who lost a $700 payment for a website redesign project he got through Elance.
“I got one round of feedback, but then the communication just stopped,” Baehr says. “The crappy thing was, I’d had to sub out part of the job, so I was out cash. And I never saw a penny.” - Don’t rely exclusively on crowdsourcing for clients. You’ll command higher rates with clients you find on your own through networking or prospecting, says King. If you’re entirely reliant on crowdsourcing sites, your annual income will likely be lower.
A Look at the Top Sites
Each freelance marketplace offers a unique array of job types and its own way of doing business. While competitive bidding by freelancers is a common thread, here’s a rundown on the business models of five top crowdsourcing marketplaces:
- oDesk: Nearly 900,000 registered freelancers use oDesk, in virtually every business support role, including administrative help, design, software development, and writing. Billing is on an hourly basis, verified with spyware contractors must use. The company says it has handled $65 million in contracts, and the average job is worth $5,000.
- Freelancer.com (formerly GetAFreelancer): This site boasts more than 2 million freelancers and has paid out $79 million since starting up in 2004. Its promise: “Virtually unlimited labor at next to no cost.” Work is structured around milestone payments for completing tasks. The average gig is small -- under $200 -- and workers hail from more than 230 countries. Besides the usual writing, design, and programming categories, businesses can also hire engineers and scientists.
- Elance: More than $330 million has been paid out here since 2007, with over 330,000 freelancers registered. Skills include legal, engineering, design, writing, sales and marketing, and administration. Freelancers like Elance’s policy of requiring businesses to deposit the contract pay in an escrow account at the start of the job.
- vWorker (formerly RentaCoder): This site touts its money-back guarantee if businesses are dissatisfied with the quality of work. More than 300,000 freelancers with a broad range of skills use vWorker, which offers pay either on a milestone or hourly basis.
- Guru.com: Guru.com has 1 million registered freelancers and posts 8,000 projects a month. Nearly half of workers are outside North America. Like Elance, there’s an escrow account in which funds wait on deposit while workers complete tasks. Guru.com boasts a broad range of jobs, including fashion design.
Business reporter Carol Tice contributes to several national and regional business publications.
