The Impact of Freelancing and Crowdsourcing Marketplaces

When busy executives and managers search for ways to “get things done” without hiring new internal staff or burdening current staff with new projects, business process outsourcing (BPO) is a common and cost-effective solution. Business process outsourcing is often defined as the contracting of business tasks such as accounting, engineering, human resources, and data management to an independent service provider.

The 21st century has seen increased popularity of BPO activities, with total contract revenues peaking at about USD 237.0 billion in 2020, with a forecasted growth to USD 405.5 billion by 2027 at a compound annual growth rate (CAGR) of 8.0% from 2020 to 2027.

Instead of relying on either BPO suppliers or employees, emerging alternatives to business process outsourcing include freelancers and online services. The combination of these two alternatives (online service websites and freelancing individuals) is now referred to as “crowdsourcing” — a term that originated in 2006.

According to Daily Crowdsource, “Crowdsourcing is the process of getting work, usually online, from a crowd of people. The word is a combination of the words ‘crowd’ and ‘outsourcing.’ The idea is to take work and outsource it to a crowd of workers.”

Let’s discuss the impact of crowdsourcing on BPO, including an overview of the differences between business process outsourcing and crowdsourcing.

Crowdsourcing Market Leaders

Two of today’s leading crowdsourcing websites include Upwork and Freelancer — together, they represent about 12 percent of the BPO market totals.

Upwork — Based in the United States (Mountain View, California), the company was formed by the 2013 merger between Elance and oDesk. It encompasses 4 million clients and 9 million freelancers (numbers are according to Upwork, a privately held company). Their annual billings (again, based on Upwork’s reported data) are about 4 percent of the BPO market or 1 billion dollars.

Freelancer — Another major crowdsourcing platform, Freelancer, was formed in 2009. Based in Australia (Sydney), the company had almost bagged a revenue of USD 54.00 million in 2019.

For Freelancer and Upwork (as well as most other crowdsourcing sites), the service companies operate globally — with both clients and freelancers located throughout the world. The crowdsourcing platforms earn revenues by charging fees to freelancers, client companies, or both. For example, Freelancer charges freelancing workers 10 percent of the total of each project while client companies are charged 3 percent of the same total.

Upwork has recently increased their fees for projects under $500 to 20 percent (paid either by freelancers or client companies) and charges client companies a credit card processing fee of just under 3 percent. For projects ranging from $500 to $10,000, the current Upwork fee structure of 10 percent remains in effect. In comparison, projects over $10,000 are eligible for a 5 percent fee (only after paying the 20 percent and 10 percent fees first on the initial $10,000).

What do business clients get in exchange for the crowdsourcing fees?

The fees are primarily for facilitating the crowdsourcing tasks such as listing requested work tasks, collecting payments, and disbursing funds to freelancers when work is completed. One major role that is not included in the crowdsourcing fees is quality control. Client companies still have the responsibility to monitor the quality of work performed by freelancers.

Impact of Projects Outsourced to Crowdsourcing Sites

Because crowdsourcing sites rarely report all of their data to the general public, most conclusions about the size and volume of crowdsourcing projects must be inferred from the public listings of projects. In Freelancer, Upwork, and Guru, most projects are found to be under $500, while tech-related projects tend to range from about $750 to $1250. This conclusion is also supported by Upwork’s recent decision to double fees from 10 percent to 20 percent for projects under $500.

Crowdsourcing platforms, by their very nature, also create an atmosphere that tends to encourage unusually low bids for freelancers to get work on smaller projects. The potential of “cheaper than cheap” services available on crowdsourcing websites can be especially appealing to self-employed individuals and small businesses widely believed to constitute the bulk of crowdsourcing users.

Since crowdsourcing sites rarely reveal the full identity of their freelancers to prospective hiring companies, the built-in element of anonymity can prevent hiring companies from being completely sure of “what they are getting for their money.” This also acts as a significant factor that limits many hiring companies of all sizes — big and small — from relying on the possibilities of regularly using crowdsourcing to complete critical projects via online freelancers.

Differences between Crowdsourcing and Business Process Outsourcing

The BPO market leaders are currently Accenture and Infosys — both report ongoing growth of about 8-10 percent annually despite the shrinkage of business process outsourcing overall. The technique of “offshoring” BPO tasks to companies based in another part of the world has also grown in popularity in recent years. This specialized outsourcing strategy has been responsible for global companies such as BackOffice Pro assuming a leadership role during the past decade.

Regardless of whether client companies are dealing with Back Office Pro or other business process outsourcing experts, differences like the following often act as major factors in organizations ultimately choosing BPO experts rather than crowdsourcing freelancers:

• Cost-Effective Pricing — While BPO companies are rarely the “low bidder” in comparison with crowdsourcing price proposals, established business process outsourcing companies typically provide the “most cost-effective price” (always important whenever “quality matters”).
• Consistent Talent — Business process outsourcing companies have the stability of long-term talent pools that provide consistency over time. BPO relationships can facilitate working with the same individual or team over an extended period.
• Quality Control — BPO managers, can guarantee quality while crowdsourcing platforms leave the quality control up to clients.
• Management of External Resources — BPO operations are known for “taking care of everything” in many outsourcing assignments. This often encompasses managing all resources. In comparison, crowdsourcing operates more like a “self-service operation” in which hiring companies still need to pay attention to everything from hiring to training to alert for costly mistakes.
• Specialized Training — The more formal BPO process requires added accountability and use of “best practices” by the business process outsourcing companies. This results in ongoing training of their team members, while crowdsourcing platforms often require client companies to train freelancers along the way.

BPO — Still Considerably Ahead of Crowdsourcing

The “sweet spot” for crowdsourcing appears in less technical projects under $500. In addition to cost factors, the client ultimately must decide what matters most to them. As noted above, in matters involving cost-effective prices, the stability of talent, control of quality, managing resources, and training requirements, the decision to emphasize a long-term BPO partner like BackOffice Pro can result in a more successful outcome. Contact us to know how outsourcing can benefit your business, facilitating you to partner with a reliable company.

– Backoffice Pro