Stephane Kasriel, the CEO of Upwork, the main platform for freelance labor, considers assorted pricing alternate choices and ways to again the matching route of as fragment of a industry mannequin redesign. Harvard Industrial College professor David Yoffie discusses his case, “Upwork: Rising the Human Cloud” and is joined by Michael Cusumano of MIT Sloan College. Along with Annabelle Gawer, they co-authored the e book, The Industrial of Platforms: Draw within the Age of Digital Opponents, Innovation, and Energy.
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BRIAN KENNY: What originate the next firms salvage in neatly-liked? InGen, Cyberdyne Programs, Omni User Merchandise, and Tyrell Company? Any concept? Successfully, for one factor, they’re all unsuitable. The stuff of Hollywood. And that’s honorable, because for one more factor, they are all corrupt mega-firms who salvage inclined expertise to purchase very finest thing about naïve consumers in their insidious quest for world domination. Techno thrillers had been surefire hits at the box place of job for decades, and within the age of noble data, these cautionary tales appear all too plausible. Fortuitously for humanity, fact is much less thrilling and tons more hopeful. In fact, the fetch and the upward thrust of social networks salvage made us more connected than ever, opening the door for a brand new expertise of firms whose procedure is to fetch our lives more straightforward and more productive, by connecting firms and customers in new ways. On the present time we’ll hear from professor David Yoffie of Harvard Industrial College, and professor Michael Cusumano of MIT Sloan College of Administration, about the case entitled “Upwork: Rising the Human Cloud.” I’m your host, Brian Kenny, and you’re taking note of Cool Call, recorded reside in Klarman Corridor Studio at Harvard Industrial College. David Yoffie’s analysis specializes in competitive technique, expertise, and global competitors. Michael Cusumano of MIT Sloan College specializes in technique, product pattern, and entrepreneurship in computer machine, to boot to autos and user electronics. Together, they are two of the authors of the newly printed e book, The Industrial of Platforms: Draw within the Age of Digital Opponents, Innovation, and Energy. The third author is Annabelle Gawer, from the College of Surrey. We did no longer salvage the funding to raise her over from England this day, so it’s valid us three gents. Welcome.
DAVID YOFFIE: Elated to be right here.
MICHAEL CUSUMANO: Hello, thanks.
BRIAN KENNY: Colossal to salvage you both right here. I in actuality loved this case about Upwork. I had no concept, in actuality, about Upwork, unless I be taught the case, nonetheless they are a noble participant in this industry of platforms, which you’re going to chat rather a lot more about. David, let me interrogate you to originate. Correct how does the case open? Who’s the protagonist, and what’s on their solutions?
DAVID YOFFIE: Upwork is a platform for connecting firms to freelance labor. In 2016, there become a brand new CEO, Stephane Kasriel. He’s French. The corporate had valid hit a thousand million greenbacks in transaction, making them one amongst the supreme avid gamers within the gig financial system. And they’ve an field, which is that they’ve to determine the supreme technique to join more purchasers to more freelancers, because his procedure is to develop to $10 billion in transactions over the following few years. Apart from to, he has to determine the supreme technique to lead sure of the supreme sigh on the platform, which is customers, the customers, company purchasers, usually traipse at some level of the platform after they meet their freelancer on the platform, and purchase the industry offline. Then, the associated sigh to that is, they’ve to determine the supreme technique to fetch a residing. They’ve been round for two decades. They clearly originate rather a lot of industry. Nonetheless in two decades, they’ve by no methodology made a revenue.
BRIAN KENNY: What led you to jot down the case, and how does it repeat again to your analysis?
DAVID YOFFIE: Michael and I started engaged on this e book with Annabelle Gawer about a years ago, and so we predominant to salvage a case that would again us salvage about the sigh of establishing a industry mannequin that labored. Right here’s an organization that’s been round for a really prolonged time, and but they’ve a industry mannequin which has consistently been struggling to determine the supreme technique to genuinely fetch a residing. That you can salvage that an organization that’s got two decades of history, of rather predominant scale, and is all digital, ought to fetch a residing. That’s the neatly-liked wisdom. And but right here we’re, and they struggled with it. So, this become a noble opportunity to leverage our analysis on how platforms work into an in-depth look of a explicit company.
BRIAN KENNY: Colossal. We’re going to proceed to refer again to Upwork as we struggle by intention of the conversation, nonetheless I in actuality must surface some of the guidelines on your e book. Michael, would perchance you negate us: what’s the platform financial system?
MICHAEL CUSUMANO: It’s a term we hear pretty a exiguous bit this present day. It in actuality refers to the commercial sigh that a gargantuan different of firms that use the fetch for essentially promoting merchandise and companies and products, or gathering up innovation… By gathering up, I imply incentivizing third parties, programmers, to illustrate to jot down positive aspects that fetch some core product more treasured. So, we’ve considered platform forms of firms for about 30 years. Or now no longer lower than those pushed by non-public computer expertise or internet expertise. Going again to Microsoft, Intel, after which one more expertise at some level of the fetch, after which more now no longer too prolonged ago in social media.
BRIAN KENNY: It appears to salvage taken off, I guess. Clearly your e book is a signal that there’s rather a lot more sigh right here, and you guys are making the valorous prediction that these are the firms of the future. What’s riding that?
MICHAEL CUSUMANO: Undoubtedly, expertise is riding fragment of it. The availability of smartphones, wifi expertise, internet accessibility from assorted forms of gadgets. We’ve additionally considered changes within the financial system, and in inhabitants. As an instance, rather a lot of young people, they don’t love to take things. They don’t love to take autos. They don’t basically must take properties or shuttle properties. So, we search firms love Airbnb attain about. They’re a main fragment of the platform financial system. Or Uber, in particular in city areas. Or dwelling household instruments, and even pets. I imply, you’re going to use the platform financial system to borrow any individual’s pet, or borrow any individual’s drill. Assemble valid about one thing else. And various that we associate with the gig or sharing financial system, of which Upwork is a fraction, for offering entry to abilities which would be now no longer on the total accessible by intention of used staffing firms, or assorted forms of directories.
BRIAN KENNY: And if truth be told, Uber is a noble instance of the fragment of the drivers within the again of the gig financial system.
MICHAEL CUSUMANO: Successfully, it’s a honorable and a notorious instance, in many ways. We discuss Uber rather a lot within the new e book. And it’s, for basically the most fragment, platforms are bringing two or more aspects… We name them our actors in a market… collectively. And if there’s an imbalance in provide and inquire for those two aspects, and a platform works in actuality effectively, and the fetch or digital platforms are crucial, because their scale is genuinely global, and entry is prompt… Nonetheless within the case of Uber, it’s powerful to fetch drivers and to raise drivers, and it’s powerful to fetch riders, unless you’re going to desire a tag that’s under taxi cabs or assorted methodology of transportation. So, Uber ends up what we name subsidizing every facet of the promote it’s attempting to raise collectively, whereas Airbnb charges every facet. It charges people that hire rooms, and it charges people which salvage rooms to rent. So that they’re both gig financial system forms of platforms, and serious aspects of the platform financial system, nonetheless they purpose very otherwise.
BRIAN KENNY: David, let’s return to Upwork for a minute. The e book talks about two forms of platforms. I’m questioning what those are, and which one Upwork is?
DAVID YOFFIE: In fact, we discuss three forms of platforms. We discuss transaction platforms, innovation platforms, and hybrid platforms, which are a aggregate of transaction and innovation. On the total, a transaction platform is pushed by what we name wicked facet network effects. It’s the chance of bringing one facet of a market on. It makes it more sleek to the assorted facet of a market. So, it’s more shoppers results in more sellers, more sellers results in more shoppers, more passengers for Uber results in more drivers approaching, more drivers approaching in actuality creates a wicked facet network intention to crimson meat up the chance for more passengers. Now, innovation platforms purpose very otherwise. They are a technological foundation for constructing complementary merchandise. Issues love an running gadget, the put the motive of the platform is to fetch third parties, such as application builders, to jot down positive aspects which will add fee, and will right away be connected to the assorted facet of the market. Which, in this case is progressively consumers or workers or enterprises. A hybrid is an organization that in actuality combines the two. So, you’re going to salvage about Google, to illustrate. They salvage got a transaction platform with Android, to boot to with Google Search, the put they join advertisers to full users. Nonetheless they additionally salvage an innovation platform round Android, the put people write literally thousands of thousands of positive aspects for a smartphone, that again you to fetch every manufacture of new capabilities onto that smartphone that Google doesn’t present right away. And they originate both. That’s what we name a hybrid, because they’re doing both innovation and they’re doing transactions. Within the case of Upwork, Upwork is a classic transaction platform. What they’re doing is, they’re connecting freelancers anyplace within the world to company purchasers, and they’re attempting to again firms determine how can they web any individual who can originate a extremely explicit, professional job, that can enable them to originate the work for them, with out basically being a plump-time employee.
BRIAN KENNY: K. This sounds a exiguous bit bit love some… I don’t know. It’s love after I salvage of Manpower, or I salvage of some of the assorted staffing companies which had been available for a really prolonged time… How is Upwork assorted than those?
DAVID YOFFIE: Manpower is in actuality very assorted. I in actuality met with the CEO of Manpower final week, and he’s assorted, because they in actuality use 600,000 people. They literally are the employer of account. And what they originate is, they purchase the people they use, and they attach them into firms on a non eternal foundation. Within the case of Upwork, the freelancer in actuality works right away for the company. That’s why we salvage of Upwork as a platform, and we would salvage of Manpower as rather more of a distributor and employer of account. So that they are in actuality very assorted forms of systems, nonetheless they’re all fragment of the staffing ecosystem, which is, there are millions of avid gamers who are in broadly the same industry as Upwork — recruiters, temp companies, assorted platforms. You would possibly well be in a situation to even salvage of Uber as a competitor in some sense, because what are drivers? They are non eternal freelancers, who are working with Uber in show to right away join to a person passenger. Now, Upwork essentially focuses in on two areas, which is technical areas… Issues love machine pattern and internet fabricate, to boot to creative fabricate. Nonetheless they in actuality enable freelancers to work in thousands of lessons, starting from writing and advertising, to factual abilities and translation companies and products. So, they usually enable any freelancer, anyplace within the world, in nearly any conceivable skill blueprint, to join with a client who needs one thing in their explicit expertise.
BRIAN KENNY: So, they’ve chosen a particular vertical, it sounds love, which is within the creative blueprint. So it’s now no longer industry-explicit, nonetheless it completely’s purpose-explicit.
DAVID YOFFIE: Successfully, there are two verticals that they work with, which are essentially within the technical blueprint. A total lot of what people originate with Upwork is that they can originate the fetch application or the fetch fabricate, or write code on a extremely explicit mission. Then they’ve a total predicament of creative people, who will originate one thing else from logo fabricate, to doing your job. To doing advertising.
BRIAN KENNY: Are there characteristics of this platform that fetch it work, and will fetch it work for assorted specialties as effectively?
DAVID YOFFIE: The reply is sure. As I said, they literally salvage thousands of verticals, though they’ve two dominant ones. One of the crucial challenges that Upwork as an organization has — And right here’s one amongst the challenges we discuss within the case — is that very in actuality professional platforms in vertical spaces are more likely to be their competitors. So, you’re going to imagine one who’s valid doing factual work, to illustrate. The inquire for an organization is, if I’m a exiguous industry, and I desire a attorney to originate one thing very in actuality professional, will I traipse to Upwork to web a doable attorney, or will I traipse to a factual platform to web a assorted attorney? So, they compete with many, many, many verticals who are in actuality professional in explicit lessons, and they additionally compete broadly at some level of a horizontal spectrum, of genuinely to any extent further or less work that you’re going to imagine.
BRIAN KENNY: Michael, what are some of the challenges which would be neatly-liked to platforms?
MICHAEL CUSUMANO: Successfully, the first sigh is how originate you open.
BRIAN KENNY: Upright.
MICHAEL CUSUMANO: Within the case of Upwork, to illustrate, you’re going to’t line up firms and provide professional workers for them in case you don’t salvage any workers online, or in case you don’t salvage any firms lined up. We name this a chicken or egg sigh. You’ve got to originate somewhere. In overall, platform firms, they salvage to determine what are the perimeters of the market they’re bringing collectively. They salvage to determine which one is more crucial than the assorted. In assorted words, which one will appeal to or pull within the assorted facet, in case you’re going to need some momentum there. They salvage got to determine which facet they can fee, or which aspects they can fee. There needs to be some more or less a industry mannequin under this, and at final they’ve to determine the supreme technique to raise a watch on or govern the ecosystems that they manufacture. Within the case of Fb, to illustrate, as we’ve considered, we had rather a lot of tainted sigh from the Russian government, or pseudo government companies, attain in and impact elections. So there’s a total bunch things that can happen on these platforms if they’re now no longer governed wisely, and that’s a noble sigh, once they’re noble sufficient to be crucial.
BRIAN KENNY: Which brings me to 1 more inquire. I imply, the numbers even at Upwork were rather staggering. Those were noble numbers. You talked about the manufacture of workaround that become occurring, and that one amongst the challenges they’ve faced become that usually their customers and their workers were lowering facet provides, I guess. Can a platform fetch too noble for its possess honorable?
MICHAEL CUSUMANO: Successfully, it if truth be told can, in many ways. Of us usually danger about an organization love Amazon, which is one more characteristic platform financial system company. Though it’s more complicated than that. Amazon has consistently had a extremely solid bodily presence, as effectively. Nonetheless Amazon has so many firms, and it more or less links them for the duration of data and a neatly-liked be conscious of a customer, more or less a digital database that tells the company what people are procuring. So, it would perchance promote groceries. It will promote books. It has a High membership gadget, which now no longer simplest provides them data, nonetheless additionally discourages people from procuring anyplace else. And so, the noble platforms are more likely to fetch larger. And right here’s fragment of the network effects, which, they’re love obvious solutions loops. And so, if Amazon has 500 million merchandise, why would you traipse anyplace else? And if Upwork has thousands of thousands of doable workers, and the final abilities you doubtlessly need, why would you traipse anyplace else? So this bound to fetch noble, and fetch noble slightly mercurial, is a crucial fragment of how platforms had been designed, and fragment of their technique. Now, if they fetch too noble, clearly they can attain up towards antitrust prison pointers or assorted forms of prison pointers. Nonetheless one amongst the issues we search in Amazon, to illustrate, is that they don’t in actuality salvage dominant market fragment in too many markets. They originate in digital books. Per chance you’re going to yell online retail is, nonetheless it completely’s now no longer in actuality a market. It’s a channel. So, you know. They simplest salvage four % of groceries, nonetheless they dread the hell out of every grocery company within the US, attributable to what doubtlessly they can originate.
BRIAN KENNY: David, as you salvage about the put Upwork is in their evolution… They’ve been round for pretty a whereas, you talked about… are they manufacture of at some extent the put they’re poised to purchase that subsequent soar, and originate they urge the risks of getting too noble?
DAVID YOFFIE: They don’t urge the threat of getting too noble. Correct to give you some context, Manpower is a $21 billion company. Upwork is a $200 million company, at the time of the case.
MICHAEL CUSUMANO: Successfully, through revenue.
DAVID YOFFIE: They’re a exiguous bit bit larger this day… When it comes to revenue. Nonetheless even through total transactions, this day Upwork is simplest about a thousand million and a 1/2, in contrast to, let’s yell Manpower is $21 billion. So, they’ve rather a lot of upside relate doable. In fact, one amongst the things that’s noble for them is that the freelance labor market is exploding. There would possibly be an rising different of freelancers, and rising inquire for freelancers. So, they’ve an starting up runway to develop. Nonetheless again, they’ve been doing this for two decades, and they haven’t realized the supreme technique to fetch a residing. So the underside line for them is, how originate they one intention or the other web a formula to power staunch earnings? And they’ve, in actuality two or three issues they’ve got to resolve to originate that. #1, the shopper acquisition would possibly be very expensive, most of that customer acquisition is Google AdWords. They salvage got to advertise carefully in show to fetch firms to price that there’s a staunch opportunity, and it’s expensive. Apart from to, they use rather some huge cash on R&D, because they’re attempting to again the matches. Must you’re a platform, one amongst the serious points is, “How originate I fetch every facet of the market to determine who’s the supreme community to ascertain with?” You salvage literally thousands or thousands or tens of thousands of firms attempting to web a extremely explicit skill, after which you’ve got 12 million freelancers, and you’re attempting to determine which freelancer is the supreme one.
BRIAN KENNY: Let me valid interrupt for a second. So if I’m a customer, and I desire a symbol designed or one thing, how does it work? What are the steps I purchase, after which how originate I fetch matched up with any individual?
DAVID YOFFIE: You’ll put up on to Upwork what your job requirements are, what you should originate, then Upwork will strive to ascertain you with any individual whose abilities would appear to repeat what you’re attempting to originate. There’s a minute different of referrals that Upwork will give to the patron. Because they don’t must bombard them with thousands or thousands, because that will likely be…
BRIAN KENNY: Defeats the motive.
DAVID YOFFIE: So, it’s predominant for Upwork to determine: How will we fetch it an ambiance honorable trans