Upwork, Fiverr, & Freelance Marketplaces
In Practise Weekly Analysis
inpractise.com/articles/upwork-fiverr-and-freelance-marketplaces
Why is this article interesting?
In Practise reflects on some of the key lessons and major questions explored in one or more interviews each week
Upwork, Fiverr, & Freelance Marketplaces(June 28, 2021)
This week we interviewed the Former COO of 99designs, a vertically-focused competitor to both Upwork and Fiverr, to discuss the dynamics of freelance marketplaces.
Beyond the typical dynamics, we think Upwork and Fiverr are particularly attractive internet marketplaces for three reasons:
- Aligned incentives of a pure transaction model
- Favourable supplier contribution margins
- Large enterprise opportunity
Pure Transactional Marketplaces
Upwork and Fiverr are transactional marketplace models. Tranactional marketplaces exist to facilitate a connection between suppliers and customers to exchange value. Given net revenue is a percentage of the gross transaction value, Upwork and Fiverr are incentivised to reduce friction between supply and demand and increase the value that is exchanged on the platform. This aligns incentives between the marketplace, suppliers and buyers.
Ad-driven marketplaces are different. In the UK, real estate agents advertise properties on Rightmove to drive leads from homebuyers. Rightmove gets paid a fixed advertising fee per month based on the number of properties listed, not sold. Rightmove gets paid regardless of conversion. The company earns ~70% EBIT margins and has shown little interest to add more value in the transaction unlike Zillow. The high profitability and scale advantages can lead ad-driven marketplaces to lose touch with the end customer experience. We prefer pure transactional marketplaces that are closer to the end-transaction and can increasingly add value to both sides of the exchange.
