The Wall Street Journal has an interesting article on two online marketplaces for freelancers (“Managing at a Distance”).
The article focuses on two aspects of these markets: First, the ability to monitor the progress of the project and the fact that the freelancers indeed work the reported billed time. Second, the marketplace’s role in helping resolve disputes:
oDesk and Elance use different approaches to keeping employers in the loop as projects get done. ODesk requires freelancers to be logged into the site whenever they’re working on a project, so it can track their work hours. Meanwhile, the site takes screen shots of freelancers’ computers up to six times an hour at random intervals, and employers can review these immediately after. However, freelancers also can reject a screen shot if, for example, it was captured while they were taking a break to check Facebook. In such instances, employers can decline to pay freelancers for the amount of time each screen shot represents—10 minutes.
In my opinion these tools are helpful in monitoring some aspects of the work, but in the long run can be quite detrimental to the quality of the work and the service providers on such websites. When a firm (or a person) looks to outsource part (or all) of the work to a freelancer, it basically says that it does not have the capability to do it in-house and usually it does not have the ability to judge the different dimensions of the work. These tools allow the firm to monitor some aspects of the effort (as measured by adherence to reported time), but in my opinion they also reduce the level of trust between the freelancer and his/her client. These markets will work well for one-time transactions where long-term relationship cannot be forged anyway and thus the initiating firm must resort to simplistic monitoring mechanisms. It is enough to read the comments on the article to understand the resentment many freelancers have to such markets. Many see it as a temporary solution until the economy picks up.
I also find these markets interesting from the operational point of view. In a recent paper, my colleagues, Achal Bassamboo, Eren Cil and I study the different configurations of such markets, and how these markets improve the efficiency of the matching between the customers and service providers. In particular, we study the impact of the effective pooling of capacity in one market on the market outcomes. We also explore the impact of the size of the market: as the market grows the impact of each agent diminishes.
In thinking about how to produce a certain product (or perform a certain service) a firm has three options: (i) market-buy – the firm can search in the open market for a service provider (ii) long term relationship – the firm can engage in relationship with a limited number of service providers and (iii) vertical integration: the job is performed in-house. There are many factors that may lead a firm to choose among these. In my opinion, as we see that more of these marketplaces employ strict monitoring tools while also growing in size, they will restrict themselves to be the first solution (i.e. the solution for firms who try to “market-buy”), and probably that’s where they can create value anyway.