Elance: A Case of Extraordinary Reinvention and Innovation within the “Staffing Industry” Ecosystem

The histories of formation of “online staffing” platform providers provide rich, interesting, and informative insights into this emerging industry segment.  Freelancer.com, for example, was started-up in Sweden in 2004 as an early innovator in “online staffing,” and as of 2009 is now owned by Australian company Ignite Networks (and has recently acquired Canadian platform Scriptlance). oDesk was started-up as an “online staffing” platform business in 2006 under private financing in the San Francisco Bay Area, and it has grown organically to become the one of the largest online staffing platform businesses measured in annualized contractor billings.  Freelancer.com and oDesk provide interesting, but slightly “conventional,” stories about companies that “started-up” day-one to become “online staffing” platforms. 

A more interesting and less conventional story adheres to another leading online staffing platform business, Elance, which has been growing rapidly (as shown by its publicly reported Q2 2011 through Q2 2012 statistics presented below). More recently, at the start of Q4 2012, Elance top management has been reporting that their business is now accelerating through an annualized run-rate of contractor billings of $250M (which suggests that Elance and oDesk--both Silicon Valley-based--may now be vying for the lead position in the pack based on “gross revenue size”).

 

The Elance story also reveals that there is something quite unique in its “business DNA” that may confer some key advantages as it unfolds its strategic development of platform and markets. 

Elance had already been started-up by the time the current CEO, Fabio Rosati, was brought onboard in 2003 by the investors and board to lead and grow the business.  Interestingly, the business of Elance at the time was not that of an online staffing platform, rather of an enterprise software system which was then called “Service Supplier Management System” (essentially what we would today refer to as a VMS). Under Rosati’s leadership, the business went on to serve customers the likes of FedEx, GE, AMEX, EDS, and BP, such that by 2005 the Elance vendor management system was supporting about $10B in contingent workforce spend!

But, by this time, Rosati and his board were becoming doubtful about the future of the VMS direction. My interpretation of the quandary and question they were then grappling with is this:  Was VMS simply “paving the cow path” of the staffing supply chain, basically automating existing processes and structures?  If so, was VMS really a business that would continue to grow to create long-term shareholder value?

The conclusion they came to was “no.”   It seemed like VMS might be a transitional stage in the development of the staffing industry (achieving more control and efficiency by tightening and optimizing the fundamental structures and processes in the supply chain).  As such, the potential value of competing in this segment appeared limited.  Better to try to “catch the next wave”—the wave of fundamental structural transformation of the industry which technology would inevitably drive over the longer term:  digital platforms that would enable direct and highly automated matching and transacting between businesses needing certain forms contingent work and workers with the skills/expertise to provide the work needed

The outcome:  a bold decision by the company to sell almost all the assets of the business, hit the reset button, and reinvent itself (or as it is called in today’s start-up world, “pivot”).  So in 2006, the majority of the assets (less some IP and other assets) were sold to Click Commerce (which was later acquired by Emptoris and then IBM), thus providing an infusion of cash that could be used to reinvent the business.  So in 2007, Elance (with cash, some other assets, and very small team) re-launched as a second-time start-up!  

But this was a start-up with some special advantages:  first, an intimate, deep and detailed knowledge of how the staffing supply chain worked, and second, lots of accumulated feedback and analytically-based ideas about “how it could work” (especially for certain kinds of work, such as software development, et al).   So Elance started its journey as an online staffing platform business with a well-informed set of assumptions and strategies on how an online staffing platform could grow and create value—not with just an “undifferentiated growth strategy” to gobble up market share, but with an experienced-based understanding of how certain markets could be served and how value could be created over the short and much longer runs.  For Elance, the goal has not been just “to grow fast,” it has been to grow deliberately through successive stages which would allow it to gradually transform (innovate and reinvent) certain segments of the staffing supply chain to allow more and more businesses and contractors to transact business/work with one another.

Six years later, Elance is clearly progressing successfully along its strategic path.  The platform currently has about 2M registered workers and over 1M registered business users/buyers of work, and growth is accelerating.  Elance has clearly laid the basic foundation of a platform designed to support certain kinds of work arrangements and to support much evolution and development of services targeted to a broad range of enterprises.  Elance received $16M dollars of additional private investment in January 2012 to fund its growing operations and, more importantly, to continue—under the guiding hand of an experienced Rosati--the implementation of its unique strategic plan that is based on an inside-perspective on the staffing industry and is further motivated and driven by a vision of innovation and transformation for some parts of the staffing industry—leading not just to greater value-added within existing segments, but also to growth of work transacted in existing segments and potentially in altogether new segments as well.

RECENT SIA INSIGHT REPORTS ON "ONLINE STAFFING:"

“Online Staffing” Platform Businesses: Competitive Landscape

“Online Staffing:” What Is It, What’s Driving It, and What Does It Mean For Staffing Firms?

“Online Staffing” Platforms: Threats and/or Opportunities For Staffing Industry Businesses?

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