Part 1: Sorting out the OSM Platforms
We’ve been a bit baffled.
The tech and business world have recently
been abuzz with stories on crowdsourcing, open innovation, Enterprise 2.0 and
other web 2.0-enabled models that are about to reshape today’s business. Just a
few years back -- about 2005-- the topic of outsourcing and offshoring dominated
the public spotlight in a similar fashion, with especially heated debates
raging in the US. It seems odd then that a development that sits right at the
intersection of these two domains, web 2.0 and outsourcing, has so far received
scant attention. In this post, we start to fill this gap.
Online Sourcing
Marketplaces (OSMs) seek to harness the power of the web to enable firms and
individuals to source tasks and projects from external providers or hire
temporary workers. OSMs have been around since the late 1990s and today they
are doing quite well – the total revenue for the industry in 2009 is estimated
between $200 and $250 million. But OSMs are not at the paradigm shift point, at
least not yet. Many would argue that it's still very much up in the air whether OSMs will ever live up to their promise of transforming the way work is being done and making the
“e-lance economy” a reality. We believe, however,
that today OSMs may be as close to the tipping point as ever.
In 2009 we started a research project aimed at
getting a better understanding of how OSMs have evolved in the past, where they
stand today, and how they will likely develop in the future. We spoke to and
visited all major OSM platforms, including Elance, Guru, oDesk, Rent-A-Coder,
TopCoder, Crowdspring as well as a few smaller ones. Today we start a series of
blog posts highlighting our key findings.
We are also in
the process of launching the second phase of the project, this time focusing on
OSM buyers and suppliers. If you have ever done business through OSMs in either
of these capacities or if you considered using an OSM but in the end decided
not to, we would love to talk to you. Please, send a short email to
core@iese.edu and we will provide more details on what the participation will
involve.
Back to the blog
post, in the next month or so we will publish three pieces on the topic of OSM.
In the remainder of the current post, will define OSMs and discuss key
characteristics of OSM platforms. In the second post, we will go into more
detail on OSM buyers and suppliers. In the third and final post, we will
outline key challenges that OSMs are facing today and suggest how OSMs will be
develop in the future. For those interested in a more detailed analysis of the
OSM space, we will prepare and make available (including on this blog) a
project report. This will likely be done once the second phase of the study is
complete.
OSM defined
What are OSMs? We define Online Sourcing Marketplaces
(OSM) as online spaces where buyers and suppliers of services can meet, offer
and apply for jobs, carry out project-related tasks, and conduct financial
transactions. This definition needs to be applied broadly as there exists a
wide variation of practices across different OSM models. As we will discuss
later, some OSM platforms offer just a few functional features included in the
definition, while others go well beyond it.
How do OSMs work? Despite the significant variation in
models and practices, all OSM environments include three main stakeholders:
buyers, suppliers, and (online) platforms. Generally, the interaction among the
three unfolds in a manner shown in the diagram below. That is, the buyer and
supplier go through the stages of their respective workflows, whereas the OSM
platform connects the two.
Types of OSM platforms
What takes place
within each of the stages shown above, as well as what mechanisms the platforms
deploy to connect the two workflows, varies widely across different OSM
environments. Based on these variations, we’ve identified three main types of OSM
platforms. The key characteristics of different
|
|
Directory
|
Marketplace
|
Community
|
|
Main
focus/objective
|
Help buyers
discover suppliers by providing supplier listings with profile and contact
information.
|
Connects
buyers and suppliers in all stages of the workflow
|
Helps members
(i.e., suppliers) to develop professionally through community interaction and
paid client (i.e., buyer) engagements
|
|
Nature/structure of deals
|
Deals are
done off-line. The platform is not involved.
|
Deals are
done online, usually through a reverse auction-type process. The platform is
involved in both legal and financial aspects of the deal.
|
Deals are
done online and usually structured as contests or competitions. The platform
is involved in both legal and financial aspects of the deal.
|
|
Platform’s
role in facilitating buyer-supplier interaction
|
No
buyer-suppliers interaction takes place on the platform. Buyers may have an
option of posting projects online but all the ensuing activities take place
outside of the platform.
|
The platform
facilitates buyer-supplier interaction with focus on project completion.
|
The platform
facilitates buyer-supplier interaction with focus on learning and community
building
|
|
Revenue model
|
Advertising,
sponsorship
|
Project
commission paid by suppliers, buyers and suppliers may sign up for premium
membership
|
Project
commission/fee paid by buyers
|
|
Platform
examples
|
Infolancer,
Chinasourcing
|
Elance, Guru,
oDesk, Rent-A-Coder
|
Crowdspring,
TopCoder (Direct)
|
Boundaries between different types of OSM platform sometimes
get pretty fuzzy. For example, a platform may start out as a directory but,
over time, add features with an objective of gradually evolving into a
marketplace. Similarly, there seem to be a trend wherein platforms in the
marketplace category adopt elements from the “community” category, and vice
verse. For example, marketplace platforms, such as Elance and oDesk, have made
significant effort to engage with and foster the community of suppliers (e.g.,
both maintain blogs and are active on Twitter). On the other hand,
Crowdspiring, a community platform, has been diversifying modes in which deals
can be structured. Recently, it added an auction-type model to its portfolio.
It is also important to note that the marketplace category
in itself is quite diverse. While all the platforms share the high-level characteristics
shown in table above, the focus and implementation details differ significantly
from one platform to another. Elance, for example, seeks to provide buyer and
suppliers with an ultimate “online workplace”. Its focus, consequently, is on
building up a comprehensive tool set for project management and execution.
Guru, on the other hand, concentrates on tweaking its rating and feedback
system with the goal of attracting the best and brightest suppliers. Similarly,
difference can be found in the approach taken by other platforms, such as
oDesk, Rent-A-Coder.
In general, however, we believe that this classification of
the platforms is helpful. Joining different types of OSM platforms holds
significant implications for buyers and suppliers in terms the kind of
counterparties they are likely to encounter, the sort of challenges they will
likely to face, and the types of mechanisms the platform will provide to
alleviate these challenges. In our next post, we will discuss these issues in
more detail.