The freelance economy has seen rapid growth the past 3 years. Remote work. The great resignation. Even layoffs supported the shift to companies turning to freelancers as in Q4 of 2022, Resume Builder reported that 40% of companies are hiring contractors to replace laid off workers and 53% moved full-time workers to contract positions.
But Q1 and Q2 of 2023 have been humbling. In May Upwork announced a layoff of 15% of full-time employees, or 137 roles, along with a 94% reduction to their brand media budget. Also in May, The Guardian reported that Nike could be fined over $530m for misclassifying thousands of temporary office workers. And return to the office seems to hurt remote work as the share of people working from home fell from 60% in 2020 to 27%, with Nick Bloom, Stanford Researcher, predicting it will stabilize at 25%.
This raises the question, is the freelance economy cyclical, or will companies continue turning to freelancers? And if so, what will hiring freelancers look like in the next 5 years? Below I’ll show why it’s not cyclical, and what the next 5 years most likely will look like.
Data Shows The Freelance Economy Isn’t Cyclical, But The Industry Is Undergoing A New Normal
The data is clear that the freelance economy is not cyclical. I look at four stats on the client and freelancer side.
On the client side, SIA estimated that the global gig economy posted $5.4 trillion in revenue in 2022, meanwhile the Atlanta Fed showed that remote work pushes companies to turn to part time employees, independent contractors, domestic outsourcing, temps, and offshoring.
On the freelancer side, Statista estimates that there will be 86.5 million freelancers, 50.9% of the total U.S. workforce by 2027. And there was a 27% increase in 2022 in freelancers that make over $100k+ according to MBO Partners.
But there is a shift in what clients and individuals expect from their freelance solutions, and that’s what’s driving the delta between marketplaces hurting and marketplaces excelling in today’s economy.
This shift can be described by four main changes, a shift to large and fractional, a shift to niche marketplaces, a shift to scale, and a shift to enterprise grade.
Shift One, From Small and Gig Based To Large and Fractional
Since Elance’s founding in 1998, the marketplace based freelance economy primarily focused on task based, self service, on-demand platforms matching freelancers with clients.
Industry 2.0 shifts from this gig based work to large, complex, agency level projects. The Human Cloud book highlighted how Gigster, a software development freelance network, helped North America’s largest motorcycle manufacturer build a mobile application by engaging over 20 global freelance PM’s, developers, designers, and DevOps engineers. According to the book, “Within thirty days, they had a spec of the skills, a road map for the project, and a distributed team to begin development.” This will become more common as marketplaces verticalize then partner to take on large and broad scopes of work. For example, vertical marketplaces Khibraty and Talmix recently announced a strategic partnership in the Middle East, combining Khibraty’s in depth regional understanding with Talmix’s over 60,000 consultants.
Also the new wave of freelancers have Director and above experience and capabilities to manage. Take Adrian Tan, a fractional CMO who told The Human Cloud Podcast in one of his fractional engagements, “there’s a team that I manage where we meet every Wednesday morning, and I go into the office every other Wednesday and set up individual one on one’s in the afternoon.”
Shift Two, From Horizontal To Niche
Horizontal marketplaces provide large global networks of freelancers in the millions (Freelancer.com lists 50 million users registered). Upwork IPO’ed in 2018, Fiverr IPO’ed in 2019, and 30% of Fortune 500 companies use Upwork.
Yet niche marketplaces are quickly rising. Open Assembly’s Open Talent Ecosystem lists over 500 marketplaces globally.
Niche marketplaces specialize in specific skills, or industries, or regions. They look like G2i for React developers, Catalant for consultants, Expert Powerhouse for strategy consultants, PowerPublish for business journalists, or Khibraty for Middle East freelancers. Instead of the self-service focus within horizontal marketplaces, niche marketplaces operate like agencies and managed service providers since they help the scoping, shortlisting, and business risk processes like classification, employer of record, payroll, and data management. As a result, they can take on larger scopes of work and scale across teams and organizations.
Shift Three, From Individual Support To Scale
Traditional marketplaces are built to transact 1:1 matches between client and freelancers. The next wave of marketplaces are providing 1:many matches, meaning multiple freelance candidates per each single hiring manager. This serves many purposes, from meeting hiring manager demand to reducing the number of vendors managed by Procurement departments. Take a large cloud migration engagement. Rather than a presentation design needing one single freelancer, a hiring manager for a cloud migration engagement might need up to 30 software developers, along with architects, project managers, etc. This hiring manager can’t individually manage all of the posting, shortlisting, and interviewing. Instead, they’d want a partner to manage the brunt of posting, shortlisting, and yield proof that candidates have a high chance to pass the interview.
This requires a marketplace like FlexC, an India and US based marketplace with over 70,000 technical freelancers and the ability to help hiring managers source 1:many matches. They do it by focusing on single areas such as SAP, ServiceNow or Microsoft, providing white glove account management, and a technology layer that matches how hiring managers already work. The result is that hiring managers can source at scale versus just plugging a hole. Linda Mann, Chief Product Officer at FlexC and former Product Owner of PWC’s Talent Exchange, calls this the strategic use of independent talent. According to Linda, “ clients gain a strategic advantage by how they use independent consultants by looking at the big picture. Think about how the use of independent talent can make a meaningful difference above and beyond ad hoc usage to fill one off gaps.”
Shift Four, From SMB and Innovative To Enterprise
Marketplaces are rapidly trying to attract large enterprises. Upwork states that 30% of Fortune 500’s use Upwork Enterprise. Meanwhile Enterprises like Microsoft, Unilever, Airbus, PWC, and EY to name a few have publicly shown their freelance interest.
Yet there’s a disconnect between what Enterprise leaders expect and what freelance marketplaces market.
Take Supportwave, an IT Freelancer Network. Supportwave quickly scaled to a 5,000+ technician network that could consistently deliver over 3,000 IT support skills with an average 4.6 score on trust pilot. While their model gained traction amongst SMB’s and a handful of Enterprise clients like Visa UK and TDX Corporation, in Q1 of 2023, they conducted in-depth research on Enterprise reception to freelance models. According to Caitlin McGregor, Chief Marketing Officer, what they found was that “The term ‘freelancer’ takes away from the intensive vetting, onboarding and quality assurance measure we have put in place”. According to Kelvin Wetherill, Supportwave CEO, “At the end of the day, ITDMs don’t want to see marketing fluff, they just want to the job to be done efficiently at speed with quality skills, and that is what Supportwave embodies – deploying verified IT Technical Talent on a global scale”.
In response, they changed the name from NerdApp to Supportwave and changed the website to reflect the research. It is important to note that the product and process didn’t change, just the language. And the results, while still early, have immediately shown value as Rex C. Poe III, CTO for TDX Holdings said, “Supportwave has been an extension of our IT department. Their trustworthy, highly skilled, and experienced team members committed from the first day to assisting our internal staff with creating an internal Help Desk Support Center dedicated to our family of companies. Supportwave has allowed us to control the cost of IT by only providing the type of expertise we need when we need it. They have become valued team members, increasing internal capabilities while decreasing costs.”
Marketplaces will have their own industry requirements. Some industries will be more open to terms like freelance, while others will expect terms like independent experts. Add regional requirements and marketplace marketing departments have a tangible challenge ahead.
Closing Words, How Leaders Can Be Ready For This Shift
The data is clear that the freelance economy is not cyclical. JPMorgan Chase & Co released their Midyear Business Leaders Outlook in July. According to the report: “Companies are still struggling to find employees. More than 20% said a shortage of labor was their No. 1 external threat.”
Likewise, MIT Sloan Management Review and Deloitte released their Future of the Workforce global research project. They found 33% of work was being performed by external workers and 86% of global business leaders said the effective management of external contributors was critical to their organization’s overall performance.
But adapting to this change isn’t simple. It requires a mindset and sourcing strategy that’s different from the full time first mindset of the last 85 years. It requires a mindset like Vinod Kartha, Vice President of Strategic Initiatives at UST, who said, “we realized that more and more people are moving to that workforce [independent workforce]. And then when we looked at the pool there, it’s like, when people talk about talent shortage, open talent was screaming what shortage? So that’s when we realized that there’s really not a talent shortage, but it’s more of a talent shift. More and more people want to be independent.” Or Mina Bastawros, VP of Airbus, who said, “There are 70 plus million people doing exactly that. We’re 130,000. Imagine having access to 70 million people as a workforce going forward. That in itself was just a done pitch.”
More to come, but for now, the freelance economy is in the second inning of shifting from a gig economy to a strategic talent sourcing channel.