Several years ago, when Serge Knystautas was building his Web site business, PrestoSports, he faced a typical start-up dilemma: He badly needed software developers, and he was finding it hard to lure such in-demand workers when he couldn’t promise them a steady paycheck.
So Knystautas turned to oDesk, an online platform for hiring, managing and paying remote freelance workers of all kinds. From his Rockville, Md., headquarters, he scooped up developers based in Russia, China, Colombia and elsewhere to help PrestoSports build its system for hosting Web sites for hundreds of college teams.
“Telecommuting on steroids,” Knystautas calls it.
PrestoSports has grown since those early days, now working with some 700 colleges, but oDesk remains an important part of its business model. More than a dozen technologists in Latin America today work for PrestoSports via oDesk, collaborating among themselves and with workers in the Washington area.
Knystautas never meets oDesk workers before contracting with them, but the site has ways of reassuring him that he’ll get his money’s worth. It asks freelancers to pass tests to verify that they’re qualified for specific jobs. It shows reviews of their work for previous oDesk clients. And once freelancers are on the clock for Knystautas, an oDesk tool offers him screenshots andminute-by-minute logs of their progress, making it easy to ensure that they are on task.
By providing a marketplace and vetting tools for employers to connect with far-flung talent on an as-needed basis, oDesk and its sister site, Elance, believe they are at the heart of the ongoing revolution in the way work gets done.
“There’s an enormous amount of inefficiency in the world of work today,” said Fabio Rosati, chief executive of Elance-oDesk. “It makes zero sense to us when you have geographies where companies have tens of thousands of open positions, and you have other geographies with people sitting around and looking for work.”
Web-based freelancing platforms, he says, can bridge that gap, opening up new employment possibilities on a global scale.
Elance, which started its online workplace in 2007, and oDesk, founded in 2005, have already gained traction, with a combined 8 million freelancers and 2.5 million business clients. Freelancers are projected to pull in about $930 million via the sites this year. (After years as competitors, the two companies merged this year, though they maintain separate sites.) And it’s not just small businesses that are using the sites: Major corporations such as Unilever, Panasonic and Walt Disney Co., have used these platforms to hire or manage freelancers. Businesses in Australia, Germany, Britain and elsewhere are using Elance-oDesk to hire workers.
Elance and oDesk are some of the largest players in a digital temp industry that is expected to grow to $2.7 billion in 2014, according to research firm Staffing Industry Analysts. By 2020, the firm projects the market could grow to somewhere between $16 billion, by its most conservative estimate, to $46 billion, in its “aggressive, but possible” scenario.
But the sites are more than just online versions of traditional staffing companies: They dramatically expand the labor pool by allowing employers to tap the talents of highly skilled, knowledge-economy workers based virtually anywhere in the world.
Beyond hiring, Elance-oDesk provides a suite of tools for online collaboration and management that facilitate long-distance teamwork, supervision and payments — tools that have proved especially useful to large corporations.
“The majority of our customers are companies with many, many different options to find talent,” Rosati said. “Our goal is to provide something far better, a superior alternative.”
Transparency is an important part of Elance-oDesk’s hiring process: The platforms offer a range of ways that its business clients get a clear view of a worker they want to hire. It administers nearly 1,000 online skills tests so that freelancers can demonstrate their abilities in language translation, HTML coding or business math, among other competencies. The sites can also verify credentials that a freelancer claims to have, such as someone’s score on the TOEFL exam for English language skills, or a certification as an Oracle database administrator. All of this information is included on a freelancer’s profile, along with reviews from clients of the quality of their work.
“If you [as a job applicant] tell me that you’re a very good PHP developer, that’s great, but it doesn’t necessarily bring credibility with it,” said Stephane Kasriel, Elance-oDesk’s senior vice president of product and engineering. “So those kinds of external signals are incredibly useful.”
Elance and oDesk are continuing to improve the process of pairing employers and freelancers: The merger gave them the benefit of each other’s research and development teams, and the combined organization is expanding, with plans to hire 80 people this year. (Yes, the Mountain View, Calif.-based company uses its own product: Its 750-person workforce comprises 250 full-time employees and 500 freelancers.)
Using graph analysis and natural language processing, a method in which computers understand conversational speech and jargon, Elance-oDesk is working to provide smart recommendations to its users. For example, if a business likes the profile of a freelancer, but that person is booked on another project, Elance and oDesk serve up the profiles of other similar candidates.
By increasing the number of jobs getting filled or improving satisfaction with the work, the innovations to the matching process are “starting to really, really show extremely positive impact on pretty much every metric in the marketplace,” Kasriel said. “It’s removing the noise.”
It’s free for freelancers to post profiles on Elance and oDesk and to apply to jobs. The sites make money by charging business clients a fee that equals a share of the total amount they paid the freelancer. Elance charges 8.75 percent; oDesk, 10 percent.
Once a freelancer agrees to a contract, the business can track the worker’s progress. Elance-oDesk provides screenshots of the freelancers’ computers that are taken at random intervals when they are logged into the sites, so employers essentially can look over workers’ shoulders.
“The idea behind the screenshots is something similar to the physical office,” Kasriel said. “You don’t really know if the person is delivering quality work by screenshots. However, I can see from random screenshots that she seems to be working on the stuff I asked her to.”
Knystautas says he rarely uses this function once he’s worked with his freelancers for a while and knows he can count on them. But he said it is helpful in the early stages.
“All the trust issues you might have that can complicate a relationship when it’s first building are really addressed by oDesk,” Knystautas said.
A model in which more employees work online in temporary gigs can provide cost savings for employers, because they don’t have to pay benefits or lease office space for these workers. Perhaps more importantly, a freelance labor force allows businesses more flexibility to shrink or grow their ranks on the fly as economic circumstances change.
“The last thing you want to do is have layoffs; it’s demoralizing,” said Jon Osbourne, vice president of strategic research at Staffing Industry Analysts. “But if 10 percent of your workforce is already contingent, you’ve got this buffer.”
The ability to scale his workforce is what drew start-up founder Ashoka Rajendra to hire on oDesk. The University of Virginia graduate is developing Latch, a product that would effectively turn a smartphone into a key to enter a building.
“Right this second, we don’t have anyone on oDesk,” Rajendra said. “That is actually one of the nice things; we can kind of scale up or scale down the resources. If we have a milestone to hit, we grab one or two guys from there to help us get there.”
A more complicated question is what the set-up doesfor the freelancers. These arrangements don’t provide the benefits and job security that are a key attraction of traditional full-time positions. But experts say millennials — who are poised to make up 46 percent of the workforce by 2020 — may not be put off by this kind of arrangement. Study after study shows this generation greatly values having control over where, when and how they work.
“Millennials grew up watching the breakdown of the predictable work contract,” said Ken Matos, senior director of employment research at the nonprofit, Families and Work Institute. “More millennials and younger Generation X are starting with a position of, ‘These are all transactions. There is no company in the world that is going to take care of me.’ ”
And with many companies pulling back on benefits spending for full-time workers, the rigidity of traditional contracts and schedules might seem less worthwhile, according to Sara Horowitz, executive director of the Freelancers Union.
The mind-set, she says, is “if I’m not going to get retirement and I’m not going to get good health insurance, then I’m going to live my life the way I want.”
Brandon Tvedt, 34, works about 30 hours a week on online freelancing platforms, including oDesk, doing jobs ranging from voice-over work to technical writing. He said he strongly prefers the flexibility that online freelancing provides, and he doesn’t worry about running out of work.
“There’s perfect job security,” Tvedt said. “There’s more work than you can possibly ever do out there.”
Still, Matos said, having to constantly search for the next gig can be stressful and disruptive for some workers, especially because the process is so fast-moving. Employers are often snapping up freelancers on the same day that they need them to start working. Elance-oDesk says that 25 percent of the jobs posted on their site are filled in 24 hours, and, on average, openings are filled within three days.
And it’s unclear how the transparency of these online platforms affects the kind of pay a worker might be able to command. In theory, freelancers with sought-after skills should be able to scan the marketplace of online offerings and get top dollar for their work. In reality, that may not always happen.
“What freelancers say — particularly more seasoned ones — they feel like these platforms sometimes create a bidding war and that they literally earn less now in real dollars than they did 20 years ago,” Horowitz said.
Businesses, too, have something to lose if a significant share of their workforce is comprised of online-gig workers. Experts say it’s harder for workers to develop a cultural connection to the organization, which can in turn weigh on their engagement and productivity.
But despite those challenges, experts say that businesses’ and freelancers’ mutual desire for flexibility means Elance-oDesk and its challengers likely have ample opportunity for growth.
“This is how America works now,” Horowitz said. “And these companies are stepping into the market to really connect people with work.”