Person To Person Outsourcing, better known as PPO has been in existence forever and if you think long back since the time of the simple barter trade system, where two Individuals usually exchanged services or products, for which there was a mutual demand and supply with the individuals.
In modern world, one side of the balance has been replaced eventually by money and the term PPO, "Person To Person Outsourcing" now refers primarily to services which an Individual Entrepreneur or a Small Medium business, is willing to outsource to achieve their own business efficiency. In the overall multi-billion$ outsourcing industry PPO currently still accounts for $250 Million dollars* and with the rapid strides in Globalization because of growth of internet penetration (Technology advancement, Rise of Consumer Internet & Web 2.0); PPO is touted to become a $2 billion industry by 2015*, if not earlier. (*Data on current & projections taken from Evalueserve, a global research and analysis firm)
Moving onto some more figures (courtesy Evalueserve research), at the moment, there are around 5,00,000 vendors and freelancers from various low-cost countries in the PPO space such as India, Philippines, Russia, Ukraine, Romania, China, Vietnam, even Thailand & Sri Lanka. Interestingly, out of these approximately 30% are from India and PPO generates revenue worth $65 million annually. It is expected to touch $500 million by 2015 for India, which quantifies into an eight-fold increase in nine years at a cumulative growth rate of 26%. Although still in its infancy in India, PPO will take another 2-3 years to completely establish here.
PPO till date follows 2 business models.
- Direct interaction model: An individual client/buyer signs a contract directly with the vendor who in turn either hires people on a full-or part-time basis or sub-contracts the job.
- Online Services Marketplace: An individual client/buyer posts his requirements for a new project in the online marketplace, which is actively participated upon by enrolled subject matter experts, freelancers to showcase their skills & experience and vie for these projects for a self quoted cost. The buyer uses the information available to make a judgement on quality and quantity against the requirements and selects an eventual vendor/freelancer to provide the service.
According to research estimates conducted by Evalueserve, there are over 90 online market places currently existing and more being launched everyday as a clear testament and sign of growing people power.
TYPES OF PERSON-TO-PERSON SERVICES BEING OFFSHORED
- Online tutoring
- Website development
- Graphic design
- Database and other software development
- Writing and translation services
- Accounting and tax preparation services
- Architectural, home and landscape design services
- Marketing and sales support services
- Creating drafts of legal documents
- Administrative services
Some of the established players in the Online Services Marketplace, having a first mover advantage are:
- www.elance.com : Founded in 1999 by Beerud Sheth, headquartered in Mountain View, California. Possible one of the oldest in this space, Elance is known for its outsourcing solutions supporting medium to large enterprises and has approximately 80,000 registered vendors and freelance professionals. Of these, approximately 50% are from low-wage countries. Elance has an "open auction" bidding system, which implies that each vendor can adjust its bid after seeing competitors' bids. On completion of the project, the payment and 1099 is handled by Elance. Freelancers who are looking for work register on the Elance site and build a profile and reputation over time. There are various membership plans ranging from $10 to $40 per month in subscription fees. ELance tried a Final Value Fee (FVF) business model earlier, whereby, they charged freelancers a % of the total project value. Today, however, the business is entirely Membership Fee based and still does about a million dollars a week and aims to make $200 million in revenues by 2009. Its revenues in 2007 were $47 million. The company's valuation, if it were to exit today, would be around $200-$250 Million. (Data Courtesy http://sramanamitra.com)
- www.guru.com: a Pennsylvania-based company, seems to be the largest marketplace with more than 625,000 registered vendors and freelance professionals, more than 60 percent of which come from low-wage countries. Guru follows a "closed auction" model of bidding and hence the vendors cannot see each others' bids. Usually, after a project is completed, the final work-product is sent to Guru's "Workroom," which is only accessible to the contracted parties. To reduce their risk, the clients can use a SafePay Escrow service that protects the interests of both the client and the vendor during the execution of the project; this is clearly very important since these two parties are likely to be located in different countries.
- www.RentACoder.com: A Florida-based marketplace that has more than 175,000 registered freelancers who only do coding of software programs. One of its main attractions is its escrow and arbitration service. More than 80% of these programmers are from low-wage countries. Its bidding model is a closed auction model and the client awards the project based upon the freelancer's or vendor's price, qualifications, references and schedule.
- www.GetAFreelancer.com: From Sweden-based Innovate it. Most of its freelancers are also IT programmers from low-wage countries. The buyers decide whether to allow closed or open auction bidding and the marketplace also provides a payment escrow service.
As long as there are differences in cost, such models will continue to flourish. Even if costs differences close in, such models can survive on the basis of time differences, quality and availability of services as long as the services provided offers a value proposition which has been mainly lower costs till now and indirect benefits like:
- Addition to Direct competition and an even playground globally, thus driving existing players to step up on Quality, Efficiency (Cost & Schedule) & Constantly Innovate and provide the benefit to consumers.
- Offers an avenue for the huge talent pool (especially in countries like India, China) and to showcase their skills and eventually an employment opportunity.
- An avenue for sharing knowledge and best practices globally openly.
India has always been one of the hotspots for the above model. Why?
- As a developing country, it enjoys all its advantages of flexible labor and especially of low cost.
- Time differences can allow work to follow the sun.
- The big pool of skillful people who speak better English than its competitors like China and Russia.
- Finally, the stronger analytical skills and a conventional society having high focus on education.
The offshore model has been successful in India and so the PPO is a logical extension to it. With such a vast country with huge supplies of skilled persons ranging from lawyers, architects, designers to engineers and teachers, India becomes a natural choice for such models to roll on. The big firms are already established in the Offshoring model catering to the corporate clients abroad. Now it is turn for the freelancers to come into the picture and service the smaller units.
The opportunity can be identified in two halves:
- From the demand side, the whole World is waking up to such an opportunity as evident from the growth of such a market as mentioned earlier and to enjoy the quality & cost benefits.
- From the supply side, India has a huge number of people who are technological savvy and can provide such services using the web. Further, it is supported by the following:
2. High unemployment of educated youth and the will of employed youth to work overtime and work as a freelancer apart from the regular jobs.
3. Competition: The big firms like IBM, Wipro, etc. and the medium sized firms ignore the smaller valued services, which can easily be absorbed into the PPO system.
4. Indian society is still conservative with majority of the women generally in homes. They all can work from there and are big potential players in this segment. To collaborate it, currently around 32% of the urban housewives access the internet from home. This number is huge and if even a small pie of it can provide value services on the internet, then we are looking at something unimaginable. (Figures courtesy http://www.ogilvy.com)
5. Though the PC penetration in India is just 2% but if one looks at the absolute figure it implies 20 million users. The total internet users in India were around 50 million in 2006 accounting for 5% of the world share. (Figures taken from Computer Industry Almanac Inc)
Still this market is in a maturing lifecycle stage, with the following certain unanswered questions which can hinder the fast growth of PPO services:
- How do these platforms enable a qualitative& objective assessment for selection of a preferred vendor?
- How do these online services marketplace replace a relationship based Buyer - Supplier model?
This is where some of the newer players are trying to focus and provide the missing elements in this PPO - Online Services Marketplace:
- www.odesk.com: Based in Menlo Park, CA, oDesk was founded by Odysseas Tsatalos and Stratis Karamanlakis in 2003. It is a platform that lets companies hire and manage remote workers from a global talent pool and pay them on an hourly or fixed rate basis. Service providers are not charged any subscription, but oDesk charges the companies who post projects, 10% of the amount paid to the remote worker. This fee was previously 23% but the company managed to lower it due to increased operational efficiency. For this fee charged, oDesk helps the companies to hire and rank remote providers from all over the world, manage and monitor the process, pay the provider and handle all the country-specific statutory requirements. This business model is different from its competitors like Elance, who charges the service provider a subscription fee or Guru where freelancers are either free or subscribing members.
The general opinion is that the site is user friendly and has a few good projects mixed with many less attractive ones. Often the price offered per project is very low and not feasible for a service provider from a western country. Yet, the company's homepage claims there are currently about 48,000 providers for 3,700 open jobs. Overall, the remote workers who use oDesk from all over the world (over 80% being overseas) are satisfied.
In April 2007, oDesk announced that a record ten million dollars have been spent on outsourced technology projects through the company's global job marketplace. Today, the company states that the amount earned through its site is over $26 million. At 23% fees and $26 million in projects, one can estimate their 2007 revenue to be between $5-6 million, and current valuation in the $20-25 million range (Data Courtesy http://sramanamitra.com).
- www.LimeExchange.com: Probably the latest entrant in this space, from Lime Group (Company also responsible for Tower Research Capital, Lime Wire, Lime Brokerage) launched in 2008, tackles the existing gaps problem very differently by having an integrated social network to allow fostering of communities among the Service Provider and Buyers, thus allowing them to build long term mutually beneficial relationships. From a penetration perspective they have kept subscriptions and postings as free to all users and only charge 8% for a successful project executed, from the provider. They do have the already trusted Escrow Payments, & Arbitration features to help its users. They are also trying to become more efficient by sharing their user acquisition costs with the community itself, via Affiliations, so users inviting other prospects and eventual users actually make more money. Interestingly having a socially networked platform allows them to use the benefits of community marketing not just for their product but also for all users to promote their products, services. They are already using this strategy, which allows them to be more efficient, and have a Blog Contest series ongoing to attract experts to their portal and also create a reputation in this space.
Conclusion: PPO is here to stay and so are Online Services Marketplaces, they still have a lot of work to do to ensure that Global Buyers not only see the benefits as a perception but see them objectively !
