Announcing Matrix XII: An $800M fund to invest from concept to Series A Read more
As Upwork prepares to go public, we’re going to start hearing a lot more about freelancer marketplaces.
Today, 47% of working millenials freelance, more than any generation before them. At current growth rates, the majority of the workforce overall will be freelancing within 10 years. [1]
The typical thesis around distributed work goes something like this:
Together, these drivers increase the potential global GMV of “online work.”
Yes, labor liquidity is a powerful thing. On the other hand, we won’t realize the full benefits of this new way of working until we pair it with another, equally powerful force: automation.
The opportunity is to merge these two forces together inside a new type of marketplace. Only then do we have the opportunity to fundamentally change the way companies get things done.
Marketplace 1.0: The Aggregator
Horizontal marketplaces like Upwork make it easier for companies and freelancers to find each other and handle payments. This type of platform is an aggregator. An aggregator’s purpose is to match supply and demand. No more, no less.
Aggregator marketplaces frequently face the same problem: once a freelancer and client have made initial contact, what keeps the participants from disintermediating their matchmaker and dealing with one another directly?
Beyond facilitating the transaction, the aggregator platform has no effect on the quality or speed of the work itself. It can therefore be circumvented once it has created the match. The actual work gets done outside the aggregator marketplace.
We have more than anecdotal evidence of this happening. For example, in 2016, Upwork changed its pricing policy to grow take rates. At the time, a survey showed 76% of freelancers would leave the platform in the next 6 months as a result. 92% of those said that when they left, they would take their clients with them. [2]
Marketplace 2.0: The Cyborg
Turns out more and more people who sit behind a computer for a living work inside vertical-specific SaaS applications. Customer support agents work inside Zendesk. Email marketers in Mailchimp. PMs in Optimizely. UX designers in InVision. An entire generation of knowledge workers is becoming used to working this way.
So on one the one hand, we have a case for distributed, “online work.” On the other, we have job-specific SaaS that makes people work more efficiently or partially automates routine tasks. The combination of these two trends is allowing a new type of marketplace to emerge: the cyborg marketplace.
A cyborg is part human, part machine.
The work of science fiction writers and directors have caused many to have negative associations with the term “cyborg.” It is not meant as such. We refer here simply to the output being derived from the combination of both human labor and software.
A cyborg marketplace combines a labor pool (human) with vertical-specific software (machine). Unlike aggregator-only marketplaces, the supply side actually performs the work inside the platform, using tools specialized to a certain type of job.
A perfect example of a cyborg marketplace is Smartcat. A new investment of ours, Smartcat is modernizing the translation industry, allowing any text to be translated into any language. Its founder, Ivan Smolnikov, had previously run an agency that translates documents into foreign languages. There he discovered that the freelancers translating from one language into another were typically paying out-of-pocket for licenses to expensive desktop-based software required to do the job.
Smartcat inverts the model by giving away web-based translation tools for free to any freelancer or company that needs it. The suite includes so-called translation memories, dictionaries, and custom glossaries to ensure consistency, OCR to convert scans and images to editable text, automatic quality checks, and machine translation engines that perform rough drafts, from which expert human translators then make improvements.
Companies who need localization can then hire freelancers on the Smartcat marketplace to translate any online or offline text imaginable.
As in the case with Smartcat, the role of software in any cyborg marketplace is to lift the efficiency of human operators as well as improve their experience. The key to making this work is specializing — at least initially — in one vertical where you can build software for one specific job to be done. We believe many labor-intensive industries will benefit from these efficiency gains.
At Matrix, we’re excited about this new shift toward cyborg marketplaces. If you are building one, we would love to chat.
— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —
[1] “Freelancing in America.” Upwork & Freelancers Union, 28 Sept. 2017, www.slideshare.net/upwork/freelancing-in-america-2017/1.
[2] “Another Unicorn Bites the Dust.” Valley Insider, 20 May 2016, medium.com/@ValleyInsider/another-unicorn-bites-the-dust-community-in-uproar-after-disastrous-merger-upwork-expense-cuts-53708f2a6833.
Husain, Murtaza. Email, 10 Aug. 2018.
Pofeldt, Elaine. “Upwork’s New Pricing Model Sparks Outcry.” Forbes, 7 May 2016,
