Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Pam, can you provide a short introduction to your background, please?

I am a consumer internet professional. I’ve spent most of my career on the marketing and business side of consumer internet companies, specifically focused on marketplaces. I’ve spent 20 years in that space and have worked for companies such as eBay, PayPal, 99designs and, currently, I work at an expert marketplace called JustAnswer.

What was your role and responsibility at 99designs?

I was with the company for six years; I spent three years as chief marketing officer and took on other operational responsibilities for my last two or three years there, as chief operating officer. That was a combination of, not just marketing, but analytics, finance and customer support.

When you first joined in 2014, what was 99 designs’ core business model?

99designs was fairly well-known among entrepreneurs – a lot of Silicon Valley entrepreneurs – as a place to get the logo for your venture. The business model had evolved over the years. The company was founded in 2007 and it evolved based on a design ping pong that was happening on a website that the founders were managing. There were these designers who would refine designs. If someone put something out there, another designer would say, I think it needs a little bit of this, so there was this crowdsourcing going on, in the design space. A business person or a customer would go on the site and say, I would actually pay money for that. Can I buy that from you? So the business model was born.

In 2014, 99designs had grown and honed that business model so that you, as a customer, could come to the website, have access to designers from all over the world, with all different types of skill sets, who would, essentially, refine designs, to help you come up with the best concept for your venture.

Was that the contest format or was it pre-contest?

Essentially, that was what we call the contest format. In the early days, there wasn’t really a name for it. As we came to the market and packaged it and thought about how to present it to customers, we did pitch it as a contest. You are a customer, you come in and designers will compete for your business. The way that worked was that designers would present concepts to you and you would look across them and say, I think these five are my favorite. You, as a customer, would tease it out, work a little bit longer with the designer and make a decision on which one was the one that you liked best.

If I’m In Practise, I go to 99designs, say that I want a blueish logo, send it out to the designers on the site and they will pitch their vision of what the logo could be and I could then choose one and work further with the designer, to hash it out in more detail?

Exactly. One of the reasons why this works – especially in the design space – is because for many people in business, unless you are in the creative field, you don’t spend a lot of time in design. You don’t know what to ask for; you don’t even know the verbiage or the terminology. One of the really great things about a place like 99designs is that you don’t have to pick a designer that you are going to work with, that you have to commit to and you are not sure how that working relationship is going to go, because you don’t have a lot of experience in those types of professional relationships.

99designs gives you the opportunity to work with different designers and see how they do their work, how you work with them, such that you can find the best match for you.

99designs seemed to have evolved into more of a true marketplace, where I can go on and find a designer and contact them?

Exactly. Back in 2014, one of the things that was very valuable is that you worked with a designer, you picked the design you liked which meant, essentially, this is the designer that I think I work best with, as well. As a business, you probably have other design needs. Great, you’ve got your logo but you may need web materials, email templates and so on. 99designs helps introduce you to that designer and you can then have a long-standing relationship with them. There are many, many companies and customers who would use 99designs in that fashion, as a way to meet the designer that is best for the business.

Later on, we did pull that part of the business out and put it more front and center to the customer because we found that there were some customers that did appreciate and need that contest model but then there were others that were fairly savvy and had worked with designers in the past. They were looking for a specific skill set and were confident in assessing portfolios. That projects product gave customers the opportunity to go that route, without having to go to the contest product that they felt wasn’t best for their needs.

How do you think about 99designs’ positioning in the online freelance marketplace?

As I mentioned in my intro, I’ve spent years involved in various marketplace businesses; everything from broader horizontal marketplaces, like the eBays of the world, to more vertical marketplaces, like 99designs. That is the distinction. There are definitely opportunities for marketplaces to thrive in verticals and, generally, you find those opportunities where it is challenging for supply and demand to connect and where a technology solution enables that to happen more freely; that is where the magic happens.

That was the case with 99designs. In the design vertical, there are a lot of designers out there. It is challenging for them to meet and find clients. There are a lot of customers out there that want design and don’t know how to get it. They don’t know if they should go downtown to the local designer. They might have a friend that says, I know someone who knows someone who is a designer. There was just a lot of efficiency in that matching of supply and demand. Again, the design vertical was ripe enough that it had those elements where demand and supply was really challenging; there were no efficient solutions to make that a great match. 99designs came in and was able to make a dent in that market because those inefficiencies existed.

Within the freelance marketplace space, how do you compare the likes of Fiverr and Upwork, that are more horizontal marketplaces, versus a 99designs?

Again, they go after the horizontal play, closer to Amazon or even eBay. It’s a different model; it’s a different focus. If you are a horizontal marketplace, what you are looking to do is look across all your categories, all your products and services, and trying to figure out what you can do to grow this business. Oftentimes, it’s very horizontal type activities, on the product side, for example.

Maybe more specifically, marketplaces like Fiverr or even Upwork, spend a lot of time on the transaction part of the equation. They spend time on making sure that the transaction goes well, making sure that the supply or the freelance community is vetted, keeping the transaction safe. 99designs also needs to do those things but, as a vertical player, they can spend more time working on the process with the customer. The way we always talked about it is, we are in it with the customer, not just, hey, go to our marketplace, find something you like, awesome, we’re happy, off you go. We thought about that as more of a partnership with our customer, to help them get through that process.

Fiverr takes it to the extreme, effectively, and has productizable SKUs that are digital that you can almost purchase like a book on Amazon?

Exactly. If you are Fiverr or an Upwork, you are looking across all your categories and you are either looking for things that you can do horizontally or you are looking for opportunities – almost like surgical opportunities – within a category where you may be able to make an impact. Fiverr may take a look at a category and say, we can probably productize or package this better for a certain customer segment and, boom, they are going to go after that.

A vertical player is deeper in the vertical so probably more part of the process. In 99designs, for example, we invested a lot in the tools that enabled designers and customers to work together, so they could actually riff on designs online. For example, a customer could annotate a design and say, this is where I’d love to see a little bit more curvature or more shadowing. It doesn’t necessarily make sense for some of these horizontal marketplaces, especially in the short term, to invest that deep, vertically.

Just looking at my days in eBay, I do think that was our approach. How do we just make a great marketplace for buyers and sellers? As the marketplace has matured, we also found opportunities to go deep. For example, we created the cars category and that had a whole different host of functionalities required to enable a great transaction between a buyer and seller. Similarly, in real estate. If you are a horizontal, in your earlier years, you are probably focused on how you make the sum of the parts great. Maybe later you spend time on going down the vertical route.

How do you think the horizontal marketplaces can protect themselves from vertical threats?

It’s really challenging. However, one of the things that horizontal marketplaces have going for them is that they can do customer acquisition more frequently. Think about your retail experience. You walk into a large store, even a grocery store, where you were going in there to buy one thing and, all of a sudden, you walk out with six. The same thing happens online. Take Amazon, for example. Amazon can do customer acquisition and target you with this new book that has launched. You go to Amazon to buy that book and you realize that you need to buy four or five other things and, therefore, you’ve spent much more money and the customer acquisition costs then make sense for Amazon. It makes sense for them to buy you, as a book consumer, to attract you to the website, but then they make money on all the purchases that you make.

As a vertical player, it is more challenging, because you don’t have those other products to put in front of a customer, to help monetize. You have to be fairly confident that you are getting in front of the right customer, with the right products, because that’s pretty much the only product you have to give them.

Going back to answer your question, they probably start horizontal and create a moat or a competitive advantage in that customer acquisition engine, which then just allows them to make more money and then have the opportunity to invest in some other vertical areas. It is not uncommon for these horizontal marketplaces to go out and use the money they have earned on customer acquisition in building that moat, to go and buy a vertical player, for example. They didn’t then have to necessarily invest in the functionality required to make that vertical successful.

Just going back to eBay, clearly Amazon evolved their model and owned more of the customer experience which disrupted eBay, in a way, and slowed down their growth. What do you think could be the Amazon for Upwork or Fiverr?

Just going back to the eBay/Amazon example, I was there in the early days when Amazon was still little and it wasn’t even clear that Amazon was going to be the behemoth ecommerce player that it is today. Looking back over the years, what eBay did very well was that they were very strong in the used market. We had a lot of people who came to eBay because they couldn’t find something in their local store. It wasn’t a new and boxed product; it might have been collectibles or other antique type products. What Amazon did well was to capitalize on the new market, better and faster than eBay did.

Potentially, you could have seen a scenario where, if eBay went after new and boxed products faster or in a different way, maybe we would be in a different situation today, in terms of what has happened in the eBay/Amazon situation over the last 20 years.

Maybe hindsight is 20/20 and it’s easier for me to look at that example and see why and how that happened. Coming back to Upwork and Fiverr, what would have to happen for someone to outplay them, I just can’t think of anything off the cuff.

How do you look at Upwork and Fiverr?

I look at marketplaces across various industries and those such as Upwork, Fiverr and even 99designs, are focused less on consumers and more on businesses. A lot of those customers may be very small businesses but, at the end of the day, they are still making that purchase for those businesses.

I think what Upwork did pretty well is that they were fairly successful in the SMB market and they gradually went upstream, closer to enterprise. They had success in certain categories, in the enterprise market. Specifically, in the customer support space, where they enabled you to find customer support agents, all around the world, that could help support your business. They were also very successful in the technology space and the developer space and that gradually moved to UX and other tech functions.

They had early success with SMBs but realized where they could get repeat usage and higher margins was through the enterprise, by providing a greater level of service and a higher level of product to the enterprise and that’s how they made their name.

Fiverr didn’t do it differently, but they went very aggressively against that SMB market, with Upwork. The other thing that Fiverr did really well is that they went after these categories that weren’t super established on Upwork. Upwork was well-known for developers, UXers and customer support agents; more like your traditional business functions. Fiverr had the quirky creatives, such as find someone to do your ad read; those categories that Upwork wasn’t super strong in. That just attracted, even potentially the same customers, who were interested in those different categories and then Fiverr was able to expand into other categories beyond those creative ones.

What also amazed me about looking at Fiverr is that they seem to be targeting the smaller end of the market. A huge portion of their revenue is sub-$100 per gig-worker, per year. Yet they have the highest take rate; they have a 27% take rate. It does seem as if they have such scale in the low end of the market that enables them to charge 27% take rate, which is far above the other players.

The other thing that they did very well, which is very different from 99designs or Upwork, is that they started at that very low price point. They just attracted customers with unbelievable deals; $5 for a gig. It proved that there was a market there for that low-end work. What they then did really well was the add-ons. It’s hard to be profitable with a $5 customer, but they were able to turn that $5 customer into a $100, $150 customer. It was a different way in which they went after attacking the market. They had categories that were a little off the beaten path, where there were still supply and demand inefficiencies and they were able to identify and capture that, as well as a pricing and promotion strategy of, hey, it’s so cheap; that did very well for them. Frankly, they also just spent a ton of money getting customers in the door. They spent a lot on marketing that many of these marketplaces have never really done. They did it much earlier in their lifecycle, I would suggest, than other marketplaces have.

Is that really the advantage here? It stems from capital; it stems from spending the money to acquire the customers? Obviously, you have to retain them and they have to spend but it just seems so hard to compete with the money they spend.

Yes, absolutely. How do you compete? You compete either because you raise the money from venture capitalists or others or, somehow, you have this amazing business model that allows you to self-fund. For those of us who have been involved in business for years, even with smaller companies and seeing them grow, venture funding really does give you that leg up and a way to accelerate. The risk is, is it going to pay off in the end?

I would suggest that, for a fairly long time, it was not clear that Fiverr was going to be successful. Are they going to hit the wall or are they going to be able to get over the wall? I would say that a similar thing applies to Amazon. If you think about Amazon, back in 1999, people would say, are they ever going to make a profit? They’re just losing money, losing money, losing money. Amazon didn’t hit the wall; they jumped over the wall. It’s a risky game but, obviously, it can work.

When looking at how you competed with a horizontal marketplace, does it push you down the customer journey, focusing on providing a better quality experience, which requires more customer support and arguably more cost into the process? Which then pushes you to a higher price point and higher value customers?

Yes, definitely. Anyone who goes to 99designs will see that reflected on the website and throughout the experience. If you want quality design, you are going to get an elevated experience if you go through a place like 99designs. As a customer, you can go to these marketplaces and see for yourself. In order to provide that elevated quality of design, 99designs invested differently from how Fiverr and Upwork invested.

As I was saying, Upwork and Fiverr are looking at more horizontal investments and we were making more vertical investments, more investments in the process. That allows 99designs to probably command a higher price point in those design products because they are, ultimately, delivering a higher quality product.

In the UK, I think it’s £279, £280 per logo, for 99designs.

It has been a while since I looked at the UK pricing but that is probably about right.

For vertical marketplaces, don’t you have this issue, in any category, that I only need one logo. I also only need one website or email template. Does that not make it difficult that you have a natural churn with your customers?

I would say that, in most marketplaces, the 80/20 rule is in effect. 20% of the customers deliver 80% of the revenue. 20% of the sellers or suppliers deliver 80% of the supply. That is pretty much a fundamental truism of any of these internet marketplaces. Yes, you’re right. There are a lot of customers that come in and they might just need a logo and maybe they need a couple of other things but then, as a marketplace, you find the customers that are going to contribute more regularly, the sellers and suppliers that are going to contribute more regularly. Essentially, you also build the experience for them, to make sure that they stay and that they commit to your platform.

How would you segment the buyers on 99designs?

If you think about the design and who you might expect to purchase design, it’s fairly consistent with the offline world in that you have small businesses who need design work. You might then have agencies who are design sources themselves, but traditionally, agencies are smaller outfits; maybe they are 20 employees or less. A lot of times, if you are an agency, sometimes you are rolling in it and sometimes you are not; it’s just very volatile. You might not be able to staff everyone you want to staff. You might not be able to staff all the designers across a variety of design categories, such as someone who does web design, someone who does print design, someone who does graphic design, so it does not make sense to always have them on staff.

You might use 99designs to augment your design resources, such that you make sure you are staffing what you need on a regular basis and then again, you might use 99designs for those areas where you don’t have staff on-site or on hand. Or it’s projects that you don’t do all the time and, therefore, you need a specific expertise. You have a client that comes in and you usually do signage and, all of a sudden, they want a website. You want to service the customer as best as you can, so you can use a marketplace like 99designs to access extra talent.

On the enterprise side, companies need design, whether it’s for internal purposes, things they are using with employees or events that they host for customers; they have a lot of design needs. A marketplace like 99designs works well for them because, again, they have people on staff that might be focused on certain things but, all of a sudden, they need to do a once a year event. It’s not going to make sense to hire someone, full time, to work on that; they are going to access staff or talent outside of their four walls.

How did you look at acquiring demand, versus the likes of Fiverr? You can work out the customer acquisition costs that were around $250 and then declined a bit in 2020 to around $150, if you normalize it a bit. That seems, roughly, a one-year payback for them, on the revenue and gross margin that buyers spend. Could you spend more to acquire the customers, given that you had a higher price point?

Very similar to how most internet businesses look at customer acquisition. They look at the various places they have to acquire customers; they look at the general lifetime value of their customer and how long they’re willing to wait to earn that income from that customer. That is, obviously, a function of how much money they have in the bank and how long they are willing to wait.

Again, 99designs is a vertical marketplace so, like most vertical players, you have to be better at converting. You know that you have limited product to be able to put in front of the customer, so your conversion rates need to be fairly high. Once you get that prospective customer to your landing page, you need to perform better than average; better than a horizontal player might need to perform. At 99designs, we just had to be more surgical with our customer acquisition efforts to make sure that our conversion rates were very high.

What would be a best-in-class conversion rate?

I think your best-in-class is probably 3X what an average conversion rate is.

I think booking.com convert 14% to 15% of the traffic to the booking, but that’s travel which is obviously very different.

I’ve seen many companies and many customer acquisition strategies and it all depends. Honestly, even though we look for these truisms like CAC to LTV or these various ratios, it is the package. For example, one of the things that 99designs had going for it was that we just had excellent word of mouth. People loved their 99designs experience. We had a lot of successful entrepreneurs on our platform and they would tell their entrepreneurial friends that 99designs was excellent. Do you know who Tim Ferriss is? He had a great experience at 99designs. He wrote in his book, The 4-Hour Workweek, about what a great experience he had. We would look through our referrals and we would see that he was referring customers to 99designs. That is a marketing channel we had at our disposal that, maybe, other companies don’t.

It comes from the money you spend on the product, as well? That money you spend in making the experience great gets reflected in the word of mouth growth?

Absolutely. You’re right; nothing is free. Even word of mouth is not free; you have to invest in order to earn that word of mouth. I was trying to make the point that every product is different. Our product had some viral elements to it, as well. If you were a customer and you had five designs that you were doing over, you could send that out to your friends and say, which one do you like the best? Then your friends would say, what is this 99designs thing? Our polling feature also helped to drive customer acquisition but that was because we had a contest model and some other marketplaces might not have that innate virality in their product, to be able to leverage.

You were asking what strong conversion was. You look at it channel by channel. To anyone who is in SEM, what are average ecommerce conversion rates? For someone who is going more vertical, you probably have to be 3X better than your competition. Depending on the package of marketing leverage that you have at your disposal or that you can build, that’s really going to impact what your conversion rate is.

How did you see customers behave on 99designs versus other marketplaces you have worked at?

Maybe, if I think about the eBays of the world and more consumer ecommerce, generally speaking, in consumer ecommerce, it’s a little less of a sophisticated exchange. Typically, if you went to eBay, you knew what you were looking for. If it was a collectible or an antique, you’d be able to ask specific questions, but it was a lot more defined in that transaction.

Whereas at somewhere like 99designs where, for the most part, you are selling a digital product, it’s a lot less so. Also, the satisfaction with the purchase is very different. If you were on eBay and you received an item and it had a piece broken, you are very clearly able to articulate what was wrong with that transaction; you received a damaged product. In a design marketplace, like 99designs, if you don’t like the design, it’s hard to communicate exactly what you don’t like about it and it’s very subjective. What is challenging is, how do you navigate that subjectivity and how does 99designs, as a company, help the customer and the designer navigate that subjectivity?

What about retention? Did you see any difference in sales retention or customer retention in 99designs?

Again, I would go back to the 80/20. Across marketplaces I have looked at, either worked at or observed or know through reading about them, there is this 80/20, where 20% of customers repeat or are heavily engaged, and others are not. I would say that is probably just a requirement of what makes a marketplace work.

Whereas in other business models, it might be okay to have non-repeat customers or customers that repeat infrequently. Let’s take the example of a car company. People make a car purchase once every eight years, but that doesn’t stop companies from marketing them, to try to build brand recognition, such that when they get to that eight-year purchase point, that they are in the consumer’s mind. Again, I think it’s just a requirement of marketplaces that you have a certain number of customers and suppliers who really are just there, day in, day out, to enable the marketplace to thrive.

One stat that I saw in Fiverr’s reporting was that they are seeing a growth in repeat buyers, as a percentage of revenue. I think repeat buyers contributed to about 55% of revenue. I don’t exactly know what the definition of that is, but obviously the sales retention that Upwork have reported is a slightly different metric. They have got a net retention number which is 102% to 105%. Do you think there is a difference in the sales retention of those lower value marketplaces, like Fiverr, versus a more enterprise Upwork?

I would have to say yes. Working at enterprises for years – and I was also an SMB owner myself – the switching costs for enterprises are so high and they are fundamentally different customer acquisition techniques, sales techniques and so on. With the enterprise, it is a long, long sales cycle and it takes a lot of time to get to that commitment. But once you make that commitment, it’s like you’re married. You integrate the software, you integrate the processes so the freelancers are part of your systems. For someone to come in and replace that is just really challenging.

Either the replacement opportunity has to be much cheaper or 10X better. Those are, essentially, the two options that would get an enterprise to switch out. Whereas, for SMBs, a lot of them don’t succeed so there is a lot of turnover. My observation is that companies that are successful in servicing the SMB market are generally successful because they are good at attracting new businesses – companies that are just getting off the ground – and they are good at managing churn. Either they really understand churn, so they understand how it impacts their business, or they have little churn. Because there is so much turnover in the small business market, you need to be good at it.

This is my question with Fiverr. It does seem as if Upwork are naturally more inclined to go to higher dev, higher value enterprise type work. Fiverr is really focused on the smaller gigs. I question how much runway there really is for Fiverr to keep growing, because you have to keep replacing those buyers really rapidly.

Yes, however I would just suggest that it’s a global world; it’s different from how it was 20 years ago. Even 20 years ago, eBay was very regional. There was eBay Germany and eBay France. Over the last 20 years, with technology, the efficiency and the globalization has just opened up markets in ways that weren’t available then. I hear you; you could say they are going to run out of SMBs. But maybe they will be the size of Amazon before they do.

That is the other challenge with businesses that are dependent on SMBs. There is a lot of turnover and you have to be excellent at customer acquisition because there is going to be a lot of churn and it does get expensive to grow, over time. I think that is probably just a truism in the SMB market. You need to be great at customer acquisition and you need to be great at managing your churn.

How can a player like Fiverr move upmarket?

I think there are probably two ways. Firstly, you grow with your customers. If Fiverr has SMB customers with $10 million and above revenue, you make sure you grow with your customers and that you can serve them as you grow. The other part is, frankly, you have to invest. You have to invest in the security protocols, and even just in the legal aspects. If you are a Fiverr, going after an SMB, you go to Google and you access your marketing leverage to drive traffic to the website. If you are going after an enterprise, you need a sales team. You need legal support to redline contracts and make sure you are not signing the company up for something you shouldn’t. It requires a different muscle going after enterprises.

My experiences is that consumer and SMB marketing is more similar, whereas enterprise is a very different muscle and a very different way of approaching the market. My understanding is that Upwork has invested, fairly heavily, over the last 15 years, to get itself there. It is not something to be taken lightly.

What do you think will be Upwork’s challenge moving into enterprise?

The challenges that exist with any enterprise business. With SMBs, there are something like four million that come online, in the US, in a year. Whereas for enterprises, there are a list of them. You could literally read the list. It’s a finite list and it doesn’t rotate that much. Whereas your SMB list of X million a year that come online or start their businesses, is constantly changing.

What is challenging is, how do you think about strategically going after that list? Do you start at the top? Do you start at the bottom? Do you break it out by vertical? Do you want to go after certain verticals? Some of the times, these enterprises want you to be the exclusive provider so you have to make decisions around, if we go after this vertical and we get company A, are we not going to be able to get company B, because that also reduces your market share opportunity. There are big strategic questions that you need to be prepared to answer. The challenges are, it’s a finite list, you have to answer those questions and it takes a long time to know if you are going to be successful.

In SMB marketing, you can throw some ads up on Google; you can take a look at your conversion rates. There are a lot of growth marketing tactics that you can use in the consumer SMB space. My sense is, you don’t have as many quick wins in the enterprise space.

The feedback loop is much longer?

In the enterprise space, yes. You have to be really good in the beginning. Whereas in SMBs, you can be a little more sloppy and a little bit more test and learn. I guess I would use the word surgical again.

Did you see bigger enterprises using 99designs, during your time?

Yes, we did.

Would they just have one big job or was there a longer-term contract with them?

It varied. A lot of times, they had repeat work that they didn’t want their internal design team spending time on. They wanted their internal design team to be spending time on something else, so they would come to 99designs. Another example might be that they had this big project that wasn’t really in the wheelhouse of their existing creative team, so they might come to 99designs for that.

Also, it’s just sometimes hard to get things done in big companies. They have these maverick people in the organization who are number 37 on the list with their creative team, or they could go to 99designs and get this done in a week. We would have marketing managers or creatives in big companies, who might use 99designs to get things done faster than they may be able to do via their traditional processes.

Do you think that we will see the bigger enterprises actually using more vertical solutions for their work, rather than the horizontal, because they have the time, the capital and the wherewithal to actually go through a quality solution?

I don’t know if I have a strong sense for that. But I guess I would say, that to be successful, you have to have a great solution. If you are an enterprise and you are looking for a great solution, the horizontal solution needs to be pretty great or you are going to go with the vertical solution.

One way in which the horizontal marketplace can do well, even if they don’t have the best solution, is that they have the contract with the enterprise. The enterprise might say to the employees, hey, we have this contract with Upwork so if you are going to access freelance talent, you need to go through these channels because we’ve worked with them to make sure that we are following all contract laws and that our data is safe and so on. Enterprises need to be careful about mavericks going off, outside the processes, because of legal and other issues that they want to make sure they protect themselves from.

If you are just asking me, from a pure product solution perspective, what is the best solution, as a business, no matter what, you’re going to be in trouble if you don’t have a great solution for your customer.

Upwork could even come to you, 99designs, for the design work for an enterprise customer?

Yes, sure.

At the client, who typically signs the contract with the marketplace?

It depends. In a lot of enterprises, there is a procurement department and it has the relationship with all the vendors that the company uses for printing, accounting or whatever it is. Generally, how I think it probably works is, whoever needs the solution, needs access to the freelance talent, they are probably the ones looking at solutions or getting pitched solutions. Maybe Upwork is going to their head of engineering and saying, hey, we could help you if you need talent. I would think that the heads of those departments would decide if that would be an effective solution and make sure that, working with procurement, they could get the sign off for working with Upwork or whoever the vendor is.

What could be the risk of Upwork being challenged by the vertical solutions in the enterprise market?

At 99designs, if we were talking to the enterprise, we were probably talking to the head of creative or the head of marketing. If you are Upwork, you are probably talking to the head of engineering or the head of customer support or the head of UX.

So it’s a different focus. Really, it’s up to Upwork to break into signing with the head of procurement or head of HR?

I don’t think it’s HR; it might even be finance. These companies are public and they need to make sure where legal and finance sit. They could also go and pitch procurement directly. They could go to procurement and say, you’re responsible for the vendors; here are the solutions we can provide. The procurement folks can go out to the various departments and understand if there was a horizontal play that would make sense for the company.

How would you compare the supply side of 99designs versus the likes of Upwork?

Freelancers are always going to go where they think they can be successful. The way we looked at it at 99designs is, how do we enable our freelancers to be successful? In fact, we almost thought about that more than the customer success side. We felt that if we made the designers successful, the customer was going to be successful.

That being said, none of these marketplaces say, you can work here, you can’t work there. It is really the responsibility of the marketplace to create a great environment for the freelancer so that they want to work there. That is a combination of many things. Can I make money here? Do I enjoy the projects and the process and how are the clients? When you are a freelancer, there is nothing more annoying than two things. Firstly, you have a hard time working with the client. Secondly, that you don’t get paid. Those are the two things that you care about.

As a marketplace, any of us marketplace folks are responsible for making sure that our suppliers get paid and that we do our best to make sure they are successful with their client.

How do you think Upwork’s pricing could evolve?

That’s probably another hour’s conversation itself. I guess I would say, marketplace pricing is a department in and of itself. How do you understand the supply and demand dynamics, by category, by quality level? There are so many different factors that go into, how do I price my product. At the end of the day, marketplaces are about take rate, figuring out how much goes to the supplier.

Fiverr is interesting though because they have 20% take rate for the supplier and then 5% for the buyer which is on the high end of marketplaces.

Yes, and they do it a little differently, in that most marketplaces do take it from the supplier. Whereas Fiverr is one of the few where there is that buyer fee. The other thing is currency exchange rates. All these marketplaces are dealing with cross-border transactions. There are so many variables that go into figuring out how to price your product. It’s one never ending optimization game.

How do you think that would change for Fiverr?

I don’t know if I am in a position to say. Nothing is coming to mind as to why it would or wouldn’t move in one direction or other. I guess I would just say, a truism in business is that you have to be competitive in pricing. For marketplaces, you are not going to have a great supply and demand balance if the supply doesn’t get paid enough or if the price is too high for the customer.

Is this the power of aggregating demand, as you said before, where they’ve aggregated the demand for those cheaper, smaller value gigs?

Very early on in my eBay days – and I still feel as if this holds true – Meg Whitman was CEO of eBay, way back when, and I recall her saying, it’s the economic theory that if you bring the buyers, the sellers will come. I think if you look across all these marketplaces, if you bring the buyers, the freelancers, the supply, is going to be there; it’s economic theory. I think we’ve seen that proved out, again and again.

As I said, at 99designs, we needed to make sure our designers were successful. Part of making them successful was making sure that there were clients there.

When does that not hold true?

It doesn’t hold true when, maybe, there is an imbalance on the other side. For example, maybe not for marketplaces as a whole, but there are definitely cases in marketplaces where there is limited supply and too much demand. Then there is more pricing power on the buyer side. We would see that at eBay, for example. There were certain categories where there was a ton of demand, not a lot of supply, or a ton of supply and not a lot of demand. It was up to our category managers to go around and say, we need to figure out how to get more supply in this category. How do we do that?

That’s a little bit outside of pricing, although pricing is still a lever to help drive that balance. There are pockets, in marketplaces, where sometimes it doesn’t hold true, just because there is an inefficiency in the market somehow, where there is not enough supply.

One last question that I wanted to discuss is your experience around customer acquisition costs. Did you typically see a decline over the years, at 99designs, for example?

What we focused on was continuing to grow customers, attract them to the platform, make sure that they had a great experience and make sure that our pricing was in line with competition. It was almost like a constant situation with all of those parts moving and how do we make sure we pull the right levers, to make sure that we continue to drive growth? There was no macro in the market that drove anything one way or another.

If we look more conceptually at the Fiverrs or the Upworks, how would you think about the customer acquisition costs for those types of marketplaces?

As a horizontal marketplace, you potentially have more areas to go after because you have more products to sell; you’re not just focused on one. I guess what I’ve seen, in pretty much any marketplace, is that there is usually something that gets you off the ground and then you build out other channels. For example, at eBay, we had a very strong relationship with AOL, in our very early days. AOL helped give eBay step function growth.

Part of the challenge of any marketplace is trying to find that something that will give you that extra step function growth.

Like a pandemic?

Right; as we’ve seen, the pandemic has accelerated ecommerce.

Fiverr’s customer acquisition cost has gone from $250 in 2018, to sub $100 last year.

Maybe that is the pandemic; maybe it is that they are just at scale. Early on, you acquire more customers and if those customers bring in more customers, that can build on itself. I think it’s fairly clear that while the pandemic has decimated some businesses and industries, there are others where there has just been extreme acceleration.

It was $150 in 2019, which is obviously pre-pandemic. When you look at horizontal marketplaces, is it more logical that the customer acquisition cost declines over time, but declines slower for vertical specific ones? I guess you run out of customers? The marginal customer for a 99designs is probably much harder to acquire than a Fiverr customer?

You’re probably right, over the long term. But again, how long is long term? The lifespan of most companies is 20 years. Theoretically, you’re right. But does it happen in six months, or does it happen in 40 years?