Analysis: More everyday Kiwis outsourcing work to India, and elsewhere, via the web

Freelancer.com is an online service that lets you farm out a project, such as some Photoshop work or website for your small business, to a low cost worker overseas.

When I last checked in with the Sydney-based company, back in 2010, it had just set up a local currency website, www.freelancer.co.nz.

Since then, it seems to have grown steadily, New Zealanders have now commissioned more than $1 million of work, CEO Matt Barrie told NBR. Around 4000 Kiwi employers have posted projects.

Barrie talks about it as “the people cloud”. Instead of hiring extra staff for a project, you tap people via the web, as needed.

Outsourcing has long been popular with big companies. Barrie says Freelancer makes the concept accessible to sole traders and small businesses, too. 

Of course, there are many locals who will happily handle the kind of web design, graphic design, coding and search engine optimisation tasks that feature heavily on Freelancer.

But Freelancer lets people worldwide bid for a project – and many, especially those from India and the Philipinnes, will do it a lot cheaper than their Kiwi competitors (31% of all jobs commissioned through Freelancer.co.nz have gone to bidders based in India, followed by the US on 9% and Pakistan 8.5%).

You top up your Freelancer account with a credit card or Paypal, then make payments milestone payments as a successful bidder completes each phase of a project in the time-honoured half now, half later fashion.

Employers pay $4 per job posted or 3% of the value of the job, whichever is greater.

If everything does go bellyup, Freelancer offers a dispute resolution service.

Destroying local jobs?
I asked Barrie if he feels guilty about putting locals out of work.

Not at all, he said.

He’s helping sole-traders and small businesses in the Western world cut and become more competitive by offering them a cheaper way to execute projects (and Barrie doesn’t just spout about this in interviews; he’s also spent more than a decade as an external lecturer at the University of Sydney; most recently in technology venture creation).

His message: outsourcing and offshoring isn’t just for big corporates, anyone can do it through a site like Freelancer.com. For example, it helps give a leg-up to the high-tech start-ups he meets and mentors through his course work – freeing up money and time to focus on strategy and other headline tasks.

Branching out, growing fast
Freelancer has always focussed on web and other IT-related projects (web design still accounts for about 50% of its projects) but it is now diversifying into other areas. Barrie says any task that can be done online is on the table – including those in high-end areas like astrophysics and biotech, as well as more mainstream areas like data-entry, accounting and sales and marketing tasks.

The diversification is helpign to fuel growth (although some expansion has also been through Freelancer taking over struggling competitors).

Freelancer.com is growing fast, from a small base, in NZ, with usage tripling since 2009.

Worldwide, around 4 million are using the service.

When I last spoke to Barrie, two years ago, his company had around 20 staff. Today it has 135 (about 50 in Sydney and most of the balance in Manila. It also has a satellite office in London and will shortly open one in the US).

Revenue has doubled then doubled again to around $US50 million. Barrie won’t give any specifics on the privately-held company, but says it is single-digit profitable.

It’s harder to say if the category as a whole is growing. Freelancer.com has grown so fast, in part, by buying a dozen rivals in the US, Europe and Asia – some of whom (like Lime Exchange, in liquidation) have been struggling and were presumably picked up by Barrie for a song.

Which bidders can you trust?
My own experience of Freelancer.com has been mixed. I posted two projects in 2010: one to transcribe an interview, a second to drive traffic to a news story on NBR.

Dazzled by Barrie’s descriptions, I was expecting compliant, highly motivated offshore workers.

But the Indian whose bid I accept for the traffic generation project required a lot of bugging to meet his target number of page impressions.

And the Filipino woman I hired for transcription staged a temporary strike until I sent a milestone payment – and then did a so-so job because she struggled with my Kiwi accent.

A related issue was that dozens bid for my projects, but they all had five-star reputations. It seemed likely some were gaming the system, using sock puppet accounts and/or small jobs to harvest good ratings from their friends (or themselves).

Barrie, acknowledges this was a problem, but says it has been fixed by an upgrade to the reputation management system.

Better reputation management, community ratings
A key element of the new community reputation is that you’re now weighted toward the volume of money you’ve been paid rather than the number of jobs you’ve done – making it harder to game the system. Bidders are also now rated for attributes like professionalism, communications and how many times they’ve been re-hired.

Another tweak: a person who posts a project sees a bidder’s reputation score as it relates to a particular project. For example, your experience in web design work will count for nothing if you bid on a genealogy project.

Arbitrage
The site has also seen another phenomenon recently: the rise of arbitrage (now the subject of a Harvard University PhD student’s Freelancer study).

Barrie gave this example: a company in India might win your web development project with a $5000 bid, but subcontract it out for, say, $2000 to another company (what Barrie calls the true cost).

The Freelancer CEO sees this as win-win. The prime contractor manages the project, and makes sure you’re happy with the work, which is still cheap by Western standards – and it makes a big whack of profit.

I’m more thinking: $3000! $3000!

Three locals like it
Bambini, which provides breakfast and lunches for underprivileged school children, is one of the small NZ outfits that has posted jobs to Freelancer.co.nz.

CEO Rod James used Freelancer.com to get help with a moving typography project for the charity’s website.

"As a not-for-profit, we didn’t have a lot of money coming in,” said James.

“So I put the project online and pretty soon about 40 people had looked at it.

“I wasn’t simply chasing the lowest price, I wanted someone who would understand what I was doing and would care about it. The successful bid ended up being a freelancer from England, Mark Winteredit. Mark was so professional and maintained great communication all the way through - he really worked hard on the project and produced a fantastic result. Freelancer was easy to use and helped get our charity off to the best possible start."

For charity ...
Lucette Dillon, who runs the Quan Am Foundation, a charity to raise awareness of orphaned children in Vietnam, posted projects on Freelancer for website development and a logo.

"Signing onto the site the next day I was pleasantly surprised to have a number of bids and private messages from people/companies willing to work pro-bono on this assignment. From there on I viewed profiles and chose RedAtom studios who are based in the US for my project. The whole process was so simple, I thought it would take months to find someone to help me but RedAtom had a draft site for me to view within the week," Dillon said. (The site has yet to go live as Dillon is traveling overseas.)

... and the the folding stuff
One of the most enthusiastic advocates is Ryan Sanders, founder of Haka Tours.

Sanders has posted search engine optimisation, affiliate marketing, and web design jobs to Freelancer.co.nz.

“Haka Tours is one of a number of tourism brands I own through which go direct to the consumer online," Mr Sanders told NBR.

No qualms about hiring offshore
Like Barrie, Sanders has no qualms about funneling work overseas. Rather, he sees it as a secret of his success.

"Freelancer has enabled us to run multiple online marketing projects simultaneously for a fraction of what it would cost us if we hired locally," he said.

“In late 2010, I was awarded NZ Young Entrepreneur of the Year at the National Tourism Awards by John Key for business innovation. At the heart of my business strategy, was a comprehensive outsourcing model which allowed me to double industry average net profit margins whilst not having the burden of hiring staff during a difficult economic period.

“We are operating in a global labour market. That is a fact. As always, businesses can choose to adapt or fall by the way side. As a business owner, your first question when faced with a job vacancy should be “Can this role be performed remotely?”

It seems to be working. Haka Tours was recently named the top tourism company from more than tourism businesses in New Zealand  for 2012 by an independent travel review website Rankers, beating out the likes of AJ Hacket Bungy and Shotover Jet.

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