Have you ever dreamed of being your own boss? Well, maybe we will all be forced to become entrepreneurs of some ilk if these new electronic (auction) freelance markets become the norm for hiring new staff. For our (team 24) technology of the week discussion we decided to dive into a complicated area, namely that of electronic markets for freelancers. What explains the emergence of these electronic freelance markets? Who are the key players in this game and what do they do differently?
Grounded in theory
The emergence and growth of online markets are driven by the electronic brokerage effect, among others (Malone et al., 1987). Our selected companies, Elance-oDesk and Freelancer.com, are prime examples of the brokerage effect. These electronic markets reduce search costs of finding a match between labor supply and demand due to a decreased need for intermediaries and the creation of an open channel between players because all the information required to reach a ‘purchase’ decision is readily available through better information technology.
We see that these electronic (auction) markets reduce seller uncertainty due to the implementation of systems governing perceived trust and reputation levels (Dimoka et al., 2012), such as feedback text comments, ratings, and similar information signals. The biggest threat to electronic markets is, however, product uncertainty as part of the information asymmetry present in electronic market economies. Buyers are unaware of the hidden defects of the ‘product’ (i.e. person they are considering for a project) due to description uncertainty and performance uncertainty (Dimoka et al., 2012), which influences price premiums negatively as uncertainty begets caution, especially when people are risk averse towards buying high-valued ‘products’.
We have therefore considered several opportunities to reduce product uncertainty, spread between two major categories: 1) efforts to reduce information asymmetry through better information signaling, and 2) the development of better information technology to reduce coordination costs. Some examples include providing third party assurances to increase perceived reputation levels, and tools to enhance the textural context to allow for greater degrees of asset specificity.
It’s in the way they attract users. Their information signals are different. Freelancer.com has gained a lot of traction through the use of a heavily “gamified” process, while providing just enough feedback signals. The adoption of video game mechanics in value driven business processes encourages people to make continued use of the service (Luminea, 2013). Whilst Elance-oDesk provides simple metrics only (e.g. text feedback comments, ratings, search tools etc.) to help the market coordinate itself, but isn’t incentivized like Freelancer.com.
The freelance economy is here! At least, that’s what we might see happen in the future if these trends continue. Because of the increasing capabilities of information systems, more complex tasks will find their way to online intermediaries as the technology makes them seem less complex. The coordination costs of markets will fall due to the presence of increasingly better information technology, thus online intermediaries seem to become more attractive (Malone et al., 1987). Therefore we expect the online staffing market to increase vastly in the coming years.