SI Review: May 2012

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Research Report: Online staffing to take off

Taking Off

Why online staffing is poised to surge

By Dan Begley-Groth

The owner of a small flower shop has a beautiful website that makes clear to visitors her store is the obvious choice. However, it lacks online shopping capabilities. Site visitors cannot browse her inventory, check prices or place orders online. But her website designer is just a part-time college student, and this task exceeds his abilities.

Enter online staffing, or crowd- sourcing. She posts her job request on a site such as Elance or oDesk. A handful of independent contractors quickly respond, and she chooses a qualified developer who offers a reasonable rate and lives halfway across the country.

There’s a reason online staffing is taking off — in today’s modernized, fast-pace workplace, employers are turning more and more to contract work (which can be either hourly or project-based), and online staffing grants them the worker of their choice with minimal effort, no obligation and zero legal hassle (most online staffing companies handle the compliance issues, 1099s, year-end tax reporting, etc.). The numbers show it — Elance had more than 650,000 job postings in 2011 and its revenue has grown from $100 million in 2008 to $500 million in 2012. Meanwhile, oDesk had more than one million job postings in 2011, and the number of hours worked through oDesk has doubled each year from 2007 to 2011. Contractors earned more than $25 million through oDesk in February 2012 alone.

Keeping Tabs

Many of these sites, including Elance and oDesk, allow employers to keep track of their contractors by monitoring their hours. Elance, for example, provides software that automatically keeps track of hours worked and uses screenshots to track progress. With fixed-price jobs, employers can set up milestones within a project and receive an alert when each has been met. ODesk uses a “Work Diary,” which allows an entire team of contractors to monitor one another’s work and collaborate from anywhere in the world, and manages contractor time logs.

It is free to post jobs and hire contractors through these sites — the online staffing firm takes a cut of the contractor’s bill rate (between 6.75 percent and 8.75 percent through Elance and 11 percent for oDesk, for example). This markup rate is significantly lower than that of staffing firms, which typically range from 40 percent to 50 percent, according to results from our most recent Staffing Industry Benchmarking Consortium.

Continued Growth

Online staffing is clearly a booming industry that has not yet peaked. In its December 2011 Online Employment Review, Elance predicted the market for online contingent work will double again in 2012. “The future of work will be contingent, global and online. As individuals are taking control of their future by building careers as independent professionals.” Elance also predicts that by 2020 one in three people will be hired online, half of businesses will have online teams, and global professional guilds will emerge online.

Similarly, oDesk had this to say: “By the end of this year, the online work market is expected to reach $1 billion, and that’s just scratching the surface. If even one in 10 jobs is moved online in the next few years — which we believe is completely feasible, as oDesk itself already has three online contractors for every one in-house employee — you end up with a massive market.”

How does all this affect staffing firms? At first glance, it may appear that online staffing poses a significant threat, as employers and contractors can circumvent staffing firms with an online system that charges a significantly lower markup. However, staffing firms surely recall when online job boards first came out and were deemed the end of the staffing industry. Now, every staffing firm has a job board, and the Internet was deemed to be the most beneficial exogenous issue for staffing firms in this year’s Staffing Company Survey.

There’s a reason that a Google search for “online staffing” or “crowdsourcing” yields countless pages of results — the only thing needed to start an online staffing website is a computer, an internet connection, some website design skills and an understanding of the independent contractor compliance legal environment. It might be time to join, instead of fear, the hype

Dan Begley-Groth is a research analyst at Staffing Industry Analysts. He can be reached at dbegleygroth@staffingindustry.com.

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