Upwork Still Good?

With the rapidly changing environment, i.e., ChatGPT, generative AI, the economic slowdown, and additional competition, a member of the Finxter Mastermind Group Oz recently shared the following macro concerns in the group:

Perceived headwinds of Freelancing on Upwork:

• ❌ An economic downturn has pushed many into the gig economy, increasing competition.
• ❌ Low-code and no-code AI solutions have impacted the costs for lower-skilled tasks, making it difficult to get started.
• ❌ The pool of clients has reduced.
• ❌ The pool of talents has increased.
• ❌ The costs to run Upwork at this scale are up, so they charge more for transactions and Connects. This, in turn, frightens clients.

Before I’ll give you my perception of the changing landscape in freelancing, let’s examine these points one by one:

Economic Downturn

Assumption: An economic downturn has pushed many into the gig economy, increasing competition.

These are actually two assumptions: (1) we are in an economic downturn, and (2) competition has increased.

Freelancing is inherently global. Every freelancer can offer their labor, skills, and know-how to every business, no matter where it is located in the world.

As long as there are businesses making money, there is an opportunity for remote-based freelancers – even if your local economy might be in a downturn.

Do businesses still make money? The answer seems to be yes. This map shows the growth rate of different regions in the world. Most of it is green, so there’s still real GDP growth (of course, this is considering the official inflation numbers which are not that reliable):

Even when considering that the official “real” inflation is too conservative, there is no clear significant negative real GDP growth.

Unemployment rate hasn’t spiked yet, so there’s no mass unemployment yet:

I definitely consider mass unemployment a threat but this will make freelancing even more attractive as an additional way to make money.

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Regarding the second assumption on the growing number of people working in the gig economy, we’ll address that below. (👉 “Increased Number of Freelancers“)

Low-Code, No-Code, AI

Assumption: Low-code and No-code and AI solutions have impacted the costs for lower-skilled tasks making it difficult to get started.

A low-code platform is often used by IT professionals with some coding skills to create custom applications, while no-code platforms typically allow business users without any knowledge of how coding works to address their own development needs.

ChatGPT is a great example of both a low-code and no-code platform. It expands the number of people capable of doing coding work. This is on a first-principle basis so the assumption that lower-skilled tasks have become cheaper is 100% true.

However, the rise of these low-code and no-code solutions hasn’t made it more but less difficult to get started as a freelancer.

Freelancers can now use LLMs to create more and better code faster! Similarly, we can use LLMs to create more and better quality text, designs, and consulting faster.

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Here are some examples on how even by making the products cheaper, a freelancer can earn more per hour by using low-code or no-code solutions:

1. Logo Design:
   • Before AI: 3 hours @ $100 total.
   • After AI: 1 hour @ $66.67 total.
   • Result: Time reduced by 3x, income per hour increased from $33.33 to $66.67.
2. Article Writing:
   • Before AI: 6 hours for a 1000-word article @ $100 total.
   • After AI: 2 hours for the same article @ $66.67 total.
   • Result: Time reduced by 3x, income per hour increased from $16.67 to $33.34.
3. Data Analysis:
   • Before AI: 9 hours for basic data analysis @ $100 total.
   • After AI: 3 hours for the same analysis @ $66.67 total.
   • Result: Time reduced by 3x, income per hour increased from $11.11 to $22.22.
4. Graphic Design for Social Media:
   • Before AI: 4.5 hours for a set of social media graphics @ $100 total.
   • After AI: 1.5 hours for the same set @ $66.67 total.
   • Result: Time reduced by 3x, income per hour increased from $22.22 to $44.45.
5. Basic Website Setup:
   • Before AI: 12 hours for a basic website setup @ $100 total.
   • After AI: 4 hours for the same setup @ $66.67 total.
   • Result: Time reduced by 3x, income per hour increased from $8.33 to $16.67.

Reduced Number of Clients

Assumption: The pool of clients has reduced.

The concern that the pool of clients has reduced is somewhat paradoxical in the context of an expanding global economy and the increasingly digital nature of businesses.

In fact, the assumption is just plainly wrong, as shown by this actual data from Upwork’s investor relations deck:

Also Marketplace revenue from the last available quarter (Q3 2023) has increased so there’s more money to be earned:

Even amidst economic fluctuations and uncertainties, the shift towards remote work, digital transformation, and online presence has arguably increased the number of potential clients for freelancers.

Let’s delve into some first-principle arguments against this point:

1. Digital Transformation Acceleration: Many businesses have accelerated their digital transformation efforts in response to changing market conditions and consumer behavior, especially due to the COVID-19 pandemic. This includes small and medium-sized enterprises (SMEs) that previously might not have considered going digital. As businesses adapt, the demand for digital services—ranging from web development, digital marketing, to cybersecurity—has increased.
2. Global Market Access: The nature of freelancing platforms such as Upwork enables freelancers to reach clients globally, not just locally or nationally. Although competition has indeed increased, so has the potential client base. With the internet breaking down geographical barriers, a business owner in one part of the world can easily hire a freelancer from another part for specific skills or cost advantages.
3. Diversification of Services: The expansion of service categories on platforms like Upwork also plays a significant role. Initially, these platforms were heavily focused on web development, graphic design, and content creation. Now, you can find categories ranging from legal services and consultancy to video editing and 3D modeling. As technology evolves, new niches emerge, offering freelancers opportunities to adapt and specialize in areas with less competition and higher demand.
4. Startups and Innovation: There’s a continuous emergence of startups and innovative companies looking to outsource tasks that are not core to their business or that require specific expertise they don’t possess in-house. This trend contributes to an expanding pool of potential clients for freelancers.
5. Cost-Effectiveness of Freelancing: For many businesses, especially amidst uncertainties, hiring freelancers is a more cost-effective solution than employing full-time staff. Freelancers offer flexibility in scaling operations up or down, without the financial and legal complexities of hiring employees. This economic advantage can encourage more businesses to turn to freelancing platforms for their needs.

Increased Number of Freelancers

Assumption: The pool of talents has increased.

The assertion that the pool of talents in the freelancing world has increased is largely accurate. This observation can be attributed to several socio-economic trends and technological advancements.

In fact, more freelancers is what we want – the gig economy is the ultimate endstate of the freelancing disruption. If we saw a year-over-year reduction of the number of freelancers, we should be worried because it might indicate a shift away from the gig economy!

Let’s probe into the intricacies of this development:

Global Connectivity and Access to Technology

The advent of high-speed internet and the democratization of technology have made freelancing a viable option for people all around the globe. It’s easier than ever for individuals to offer their skills and services online, leading to a surge in the number of freelancers.

Economic Factors

Economic downturns, corporate downsizing, and shifts towards more flexible work arrangements have nudged or forced many individuals to explore freelancing. People seek additional income streams or pivot to freelancing full-time as traditional job markets become volatile.

Platform Accessibility

Platforms like Upwork, Freelancer, and Fiverr have simplified the process of entering the freelancing marketplace. These platforms offer a straightforward way for people with diverse skill sets to find work. As a result, many individuals who may not have considered freelancing in the past are now joining these platforms, thereby increasing the talent pool.

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The Appeal of Flexibility

The flexibility and autonomy that freelancing offers are attractive to many, especially millennials and Gen Z, who prioritize work-life balance and independence. This desire for a non-traditional work environment has contributed to the growing number of freelancers.

The COVID-19 Pandemic Impact

The COVID-19 pandemic has exponentially accelerated the shift towards remote work and freelancing. With many individuals losing their jobs or adapting to remote work environments, freelancing has become an appealing or necessary option. This situation has further expanded the pool of freelancing talents worldwide.

Challenges and Opportunities

An increased number of freelancers leads to a more competitive landscape. Here are some implications:

• Increased Competition: More freelancers mean more competition, especially for entry-level jobs or in oversaturated skill areas. Freelancers may need to distinguish themselves through specialization, quality, and building a strong personal brand.
• Lower Barriers to Entry but Higher to Success: While it’s easier to start freelancing, standing out and achieving success requires more effort, skills development, and sometimes niche specialization.
• Decommodification of Skills: Freelancers need to decommodify their skills by focusing on unique selling propositions and establishing themselves as experts in specific niches.
• Adaptation and Continuous Learning: Success in freelancing increasingly depends on adaptability and the continuous acquisition of new skills, especially with rapid technological changes and the emergence of AI, low-code, and no-code solutions.

Conclusion

The increase in the number of freelancers presents both challenges and opportunities. It fosters a competitive environment that demands differentiation, specialization, and a focus on continuous improvement. However, it also signifies a thriving and dynamic marketplace with a wealth of talent and potential for innovation. Success in this evolving landscape depends on one’s ability to adapt, leverage personal strengths, and create value that stands out in a crowded marketplace.

Upwork Costs Up

Assumption: The costs to run Upwork at this scale are up, so they charge more for transactions and connects which in turn frightens clients.

The argument that increasing operational costs for Upwork have led to higher charges for transactions and connects, which in turn may dissuade clients, could be oversimplified and warrants a more nuanced examination. Let’s unpack this and explore the broader implications.

Upwork’s Pricing Structure

Upwork employs a sliding service fee model that is primarily designed to reward long-term relationships between freelancers and their clients. The fees are structured as follows:

• 20% for the first $500 billed with the client
• 10% for total billings with the client between $500.01 and $10,000
• 5% for total billings with the client that exceed $10,000.

For clients, there are nominal fees involved for using Upwork’s platform, including payment processing and administration fees. While there is a cost involved, these fees also ensure they have access to a global talent pool, secure payment structures, and Upwork’s mediation services if disputes arise.

Cost vs. Value Proposition

1. Global Access to Talent: Upwork provides clients with access to a vast talent pool from across the globe, which can be very advantageous for finding specific skills or competitive pricing that local markets might not offer. This value can significantly offset the platform’s fees.
2. Secure Transactions: Upwork’s escrow service and dispute resolution provide security and trust, making it a reliable platform for clients to engage freelancers for their projects. This security aspect is often worth the overhead cost for many businesses.
3. Quality and Efficiency: The platform offers tools to help clients find the right freelancers quickly, manage projects efficiently, and streamline communication. For many businesses, paying a premium for these utilities is justified by the time and resources saved in the long run.

Economic Implications and Adaptation

• Market Adaptation: Just like any market, both freelancers and clients adapt to the economic realities of the platform. Freelancers may adjust their rates to account for Upwork’s fees, and clients may factor these costs into their project budgets.
• Enterprise Solutions: Upwork offers enterprise solutions that come with custom pricing to accommodate the needs of larger organizations. This tier includes dedicated support and more sophisticated collaboration tools, showcasing Upwork’s flexibility in serving diverse client needs.
• Client Retention through Quality: The platform’s longevity and growth suggest that despite the fees, a significant number of clients find the value proposition compelling enough to continue using the service. The key is the quality of work and reliability that clients get in return.

Conclusion

While higher operational costs and the consequent fees on platforms like Upwork might raise concerns about their potential to scare off clients, it’s essential to balance this perspective by considering the value provided. For many clients, the benefits of secure, efficient, and scalable access to a global talent pool outweigh the additional costs. Moreover, in a competitive freelance marketplace, both freelancers and Upwork must continuously demonstrate value to attract and retain their client base. The dynamic nature of the platform encourages adaptations and improvements that can mitigate the impact of increased costs over time.

Putting It All Together

Combining the analysis of the changing landscape of freelancing, particularly on Upwork, with the broader implications and dynamics at play, we can synthesize a comprehensive perspective on where things stand and where they may be heading.

Economic Downturn and the Gig Economy

The assumption that an economic downturn solely leads to a more crowded marketplace with intensified competition doesn’t encapsulate the full spectrum of opportunities available in a global economy. Yes, more people may turn to freelancing during challenging times, but concurrently, the demand for freelance services can also increase as businesses seek more flexible, cost-effective solutions. Freelancers equipped with niche skills or those who quickly adapt to market needs can thrive even in a seemingly saturated market.

Impact of Low-Code/No-Code and AI

The rise of low-code/no-code platforms and AI technologies represents a shift rather than a setback. These technologies democratize the ability to perform certain tasks, making it easier for freelancers to deliver higher-quality work more efficiently. The initial concern that they might depress prices for lower-skilled tasks doesn’t take into account the opportunity for freelancers to scale their services and take on more work, potentially at a higher effective hourly rate. Additionally, there’s always an evolving demand for new skills and services that emerge alongside technological advancements.

The Global Client Pool

The narrative that the pool of clients is reducing overlooks the dynamic nature of the digital economy, where new businesses and opportunities are constantly emerging. As more organizations recognize the benefits of digital transformation and remote work, the potential client base for freelancers can actually expand. The key for freelancers is to remain visible, relevant, and competitive. Continuous learning and adaptation to new market demands are essential.

Upwork’s Costs and Value Proposition

Concerns about increasing costs on Upwork due to its operational scale need to be balanced with the value proposition it offers both freelancers and clients. Upwork provides a structured, secure platform for freelancers to connect with clients globally, offering features that facilitate project management, payments, and dispute resolution. While fees might increase, they are often justified by the benefits and conveniences the platform delivers. Both freelancers and clients are adapting to these models, indicating a mutual recognition of value despite cost implications.

Conclusion

The freelance marketplace, particularly on platforms like Upwork, is undeniably in flux, driven by economic forces, technological advancements, and evolving work norms. However, these changes are not unilateral threats but rather indicators of a maturing, diversifying market that offers new opportunities alongside challenges.

Freelancers who succeed in this environment are those who adapt to market shifts, leverage new technologies to enhance their offerings, and continuously seek to understand and meet the evolving needs of their clients. The ability to navigate these changes, coupled with a focus on building strong, long-term client relationships, will be key determinants of success in the dynamic world of freelancing.

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