In this post I want to address a question we get quite often, as to whether we are ‘driving prices down’ for freelancers.
Firstly, I believe the question should be a split one, based on what the reference point is.
1. The micro view
The question here really is: do we as a marketplace encourage and drive prices down within PeoplePerHour?
I believe the answer is a strong no. First of all, it would make no commercial sense for us to do that as we ourselves would make less money from it. Our interests are aligned with that of our users given that we take a % fee and not an absolute amount. And in fact we tail our fee down the more that gets billed through the site so as to encourage higher prices.
Secondly, the data has consistently shown the opposite. For the last 7 months, over 60% of awarded jobs did not get awarded to the lowest bidders. Unlike an open auction, at PPH we deliberately do not show what other Sellers’ proposed prices are so as to not encourage undercutting and a race to the bottom.
And more surprisingly, 10% of fixed price jobs and 17% of per hour jobs get awarded above the initial budget requested by the Buyer. So in fact it’s not uncommon that the better Sellers, or the ones who place more detailed proposals that justify their fee and take the time to educate the Buyer, end up convincing the Buyer to increase their budget.
To those who read this thinking ‘yes but the base is low’ – for the same period the average of all the cheaper proposals worked out at £11 per hour which is still almost double the minimum wage, and the average awarded job was at £28 per hour, which is more than double the average median income of the UK of £12 according to Wikipedia.
So the arguments we sometimes hear that people are bidding consistently lower than and earning lower than minimum wage is unfounded. On PPH it seems the average wage is a good 2.3 times higher than the UK’s average.
And we are making more effort to improve it further. Just a couple weeks ago we introduced a new feature where we actively recommend budgets in the posting form so as to help educate Buyers on what fair market prices are. That’s as close as we can get without becoming a price setter, which goes against the ethos of an open marketplace.
2. The macro view
The second part of the question is: do marketplaces in general and PPH in particular drive freelancer rates down in the economy at large over the longer term?
Well first of all, PPH is not big enough just yet to affect the whole macro economy. Secondly as per the data above, the average wage on PPH is 2.3 times higher the average in the UK.
Beyond that, this question must be considered in the context that the overall market ‘pie’ is increasing quite dramatically. We are not entering the pizza market to undercut Dominoes and steal market share. We are in fact creating a marker that to date has been very patchy in the UK at least, virtually unknown and inaccessible to the vast majority of Small Business and potential Freelancers.
To put this in perspective: freelancing today is an estimated $1BN industry globally and projected to be $5BN in the next 5 years. On PPH some 70% of our Sellers have never worked as freelancers before. So their ‘price’ couldn’t have dropped from anywhere. Their freelance income prior to PPH was zero. You can’t get below zero.
Granted, once we reach scale and freelancing becomes a mainstream phenomenon, as it deserves to be, the variance in prices in the market will be much wider, which is a pure economic fact: it’s what happens in every industry which goes from an unstructured cottage industry to one that serves a good % of their target market. And the world is better for it.
I will draw an analogy here, which I think is relevant. I saw an interview recently with Sir Terry Leahy, ex-CEO of Tesco, where he was accused by the interviewer of driving prices down at the expense of the local grocer. The reality is of course that Tesco does do that, but is it a bad thing overall for the consumer or the economy?
Tesco didn’t just drive down the prices of a flat market, they grew the pie substantially and – much like Walmart – took affordable quality products to rural areas where they were previously inaccessible.
Of course before the Tescos of this world were around, prices were more expensive – as I’m starkly reminded every time I have the misfortune of buying something at my local high street store. I feel ripped off! The price is 5-fold that of a chain supermarket. And the quality is the same or worse, much like the service – which in not so many words was Sir Terry’s answer. If you add value to the customer and your margins as a business are aligned with your customer, it is in the grander scheme of things better for everyone. Always. That corner shop needs to find a way to either better their products to sustain a higher price or drop their prices to be more competitive. Or close down. And as always when there is change, the smart ones see it as an opportunity and evolve. The smart corner stores are turning themselves into Delis (which are now cropping up everywhere in London) where the price is higher but the produce is arguably differentiated and thus makes higher prices justifiable. And I’m a happy customer of them.
The point is simple: in a market that goes from its infancy (or non-existence) to a much bigger audience, it’s to be expected that what was once the only solution (and thus with a monopolistic or sticky price) is now one of many solutions and the price variance grows. The concept expands to Buyers and Sellers that were previously unaware of it, so the market grows and matures. Competition is what drives the world around, not protectionism, as the UK has witnessed from the 80’s onwards when the late Margaret Thatcher embraced open free markets. And much like back then there were protest and some pain for those that were stuck to the older ways of doing things which benefited them and them alone but clearly – and time has proven this – not to the benefit of the overall economy.
I don’t want to get or sound too political here, but rather point out what I think is the obvious: our mission as a business is not to serve some against the others. It is not to shelter a few against the many. Nor is it to artificially set prices on what suits us. It is to serve the customer at large and the market. Our mission is to allow more people to benefit from the dramatic (and to the testament of so many of our users, truly ‘life-changing’) advantages of buying and selling services online versus in the traditional world.
Our vision is that one day this will become the de facto way of working for businesses and individuals alike, and will be as mainstream and as easy as buying a book on Amazon is today. I still remember the first time I bought a book on Amazon, after constantly procrastinating for weeks and falling back to my usual habit of going around to the nearest book store and paying more. I doubted whether the book would ever arrive. But sure enough it did, and – much like Buyers tell us when they first use PPH – I was transformed. That became the new de facto way for me and millions of others who now buy books and other products online.
The services market has the potential to be bigger than commerce online, but as in the offline world it lags behind in maturity and development. Our job at PPH is to accelerate that and take this new and much improved way of working, with all its benefits, to every business and every person in the country. And whether prices in the macro drop or not, one thing I have no doubt about is that – much like with commerce online – the world will be a better place for it.