What the Elance-oDesk Merger Means for Freelance Writers

Let's look at the Elance-oDesk merger

You may have missed it in the holiday crush, but a big deal went down right at the end of the year: oDesk announced it is merging with Elance.

Yes, I spend most of my time discouraging writers from hanging around these sort of race-to-the-bottom, bid-site platforms. But they’re mighty popular — 8 million freelancers are registered between the two merger partners — and their plethora of dirt-cheap gigs has posed a challenge to freelance writers striving to earn more than mad money.

I wanted to stop and talk about the Elance-oDesk marriage, because it signals some important changes coming down the pike, whether you use bid sites or not.

Why the merger happened

While the two companies have mouthed the usual reasons why mergers happen —  “We think we can do a better job this way,” the press release says, for both freelancers and the companies that hire them.

In reality, there are several big reasons why mergers usually happen:

  1. One of the companies is or will soon be out of money
  2. One or both of the companies is losing the competitive/branding war
  3. One of the companies covets the technology, executive brainpower and/or client list of the other
  4. One of the founding teams wants to cash out
  5. The market opportunity is shrinking and combining forces increases odds of surviving a shakeout

Any of 1-4 might be in play here — the companies are privately held, so their financial details aren’t public knowledge. oDesk’s CEO is the one stepping down, so that tells you who the weak sister is in this deal.

The one new fact they released: The two companies have $750 million in combined annual billings. That’s not what they make, but the total freelancers billed on Elance and oDesk combined in 2013.

I’m sure you can do that math: With 8 million freelancers, that means the average freelancer on Elance/oDesk makes under $100 a year. Before the platforms take their cut. Hopefully, if you ever thought these platforms were a place to make a living, you’re now cured.

But I digress. Let me draw your attention to #5 there. Because that’s the one that is a sure thing here.

A shrinking marketplace

It’s not a fluke that Elance and oDesk decided to combine forces. This merger is evidence of a sector implosion that’s happening for two reasons.

1) Junk content lost the Internet

It sucked, no one read it, and then Google did several updates to penalize keyword-stuffing content, culminating in last fall’s final blow: the Hummingbird update.

Now that cheapie content can’t get sites traffic, demand is plummeting for $5 articles. That’s why the call for quality content is skyrocketing, while demand for “link building” type articles sinks, as Google recently reported in this chart:

That’s bad news for bid sites, where scads of junk articles were commissioned at appalling rates. Let’s face it, startup websites commissioning keyword junk made up the bulk of the writing gig listings on places like oDesk, and were what fueled the growth of these marketplaces. Now, that fuel is vanishing.

2) The downturn ended

While demand for SEO articles is shrinking, my bet is that supply is, too. While many writers still gripe to me about “these tough economic times,” in fact, the U.S. economic downturn ended a couple-three years ago (depends on which economist you ask). The unemployment rate today is dead even with pre-recession late 2008.

Know what that means? Lots of freelance writers who turned to places like Elance out of desperation are gone. They’ve gotten jobs again.

There were a few years there where we had both huge demand for cheap SEO-focused writing, and a huge pool of writers hard-up enough to do it. Now, that moment has passed.

What’s next

I don’t have a crystal ball to tell you exactly what Elance and oDesk will do in the coming months as they integrate their merger and put the two companies together.

OK, I kind of do, because I spent 20+ years covering mergers and acquisitions.

The outcomes of big, high-profile mergers like these tend to follow a few pretty well-worn paths. Here’s what you will likely see:

Confusion and fear

Elance and oDesk freelancers seemed not to buy the happy talk. Both companies were flooded with hate mail from their member freelancers the minute the deal was announced.

The first comment on oDesk’s community site seems to sum it up: “This announcement fills me with dread.”

The initial phase of a merger is always marked by chaos and the wastage of huge amounts of time on speculation and gossip. Freelancers have been told everything will continue as it has been, with the two sites operating independently as before.

But everybody knows if that were true, there wouldn’t be a point to merging. This makes everyone anxious about how the merger will really shake out.

This feeling usually lasts a few months, and then everyone gets lulled into thinking maybe the status quo will maintain. As soon as writers start to relax, it’ll be time for the next phase.

Change

It always takes merging companies a few months to get the lay of the land, analyze the assets, assess the weak spots, and decide on a plan of action. Then, they start changing things.

There must be changes because the point of any merger is to create a larger, more efficient company with higher profits, so that the owners get even richer.

If the two companies were to go on as before, there would be no efficiencies realized and no additional profit. So steps will be taken to streamline the company.

Usually, one company’s technology and systems will be chosen and their team will run both brands, while the other team is laid off to save money. That will leave freelancers at one of the sites to learn new systems. Sooner or later, there will only be one headquarters. Cuts or changes in editorial staff are likely as well.

Often, in the end, they will loot one brand for its technology or client list, gut it, and then close it down to give the winning brand more combined power. Could happen eventually with oDesk.

It’s also more efficient to have one set of policies for how to operate — and that’s what’s got a lot of freelancers worried. Elance has a floor of $3 an hour, while oDesk has none, to name just one of their differences. Which philosophy will prevail?

My money’s on Elance’s, given the trend away from super-low paying gigs. Whichever way it goes, freelancers at one of the platforms will be unhappy to see their boat rocked. Employers may likewise drift away if they dislike the new regime.

One final point: Many mergers fail. If they can’t find efficiencies, Elance could decide to try to sell off oDesk, triggering another round of uncertainty and change. It happens.

More mergers

In the wake of this merger, other players in the cheap-hiring online space will be compelled to merge to compete with the combined Elance-oDesk behemoth.

When two of the biggest players join forces to form an 800-pound gorilla (so big it requires a federal review to ensure it’s not creating a monopoly), that sets off a consolidation cycle among smaller players that must scramble to fortify their resources and stay competitive in this new landscape.

With rapidly shrinking demand for junk content, expect to see some cheap-hiring bid sites go bust and disappear. This will be a smaller sector by year-end.

Takeaways: If you rely on any bidding sites as a major source of leads, beware. Changes are coming, and despite the press release happy-talk, they may not benefit you.

Diversify your sources of clients, ideally by prospecting to find your own clients and cut out the middleman, not by signing up for more bid sites or content mills. As Demand Studios’ parent Demand Media’s implosion shows, that sector is facing many of the same challenges as the bidding sites.

If you are earning pro rates and staying off these sites, rejoice. The coming year will be one of increasing opportunity for more sophisticated gigs. Sharpen your skills, up your marketing, and get ready for the boom.

What’s your reaction to the Elance-oDesk merger? Leave a comment and give us your own trend forecast.

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