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Everything You Wanted To Know About The Giant Elance, oDesk Merger & Ensuing Backlash (But Were Afraid To Ask)

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Augmented Reality Is Almost Everywhere

Earlier this year, Seamless and Grubhub announced that their companies would be joining forces in a blockbuster merger. Already two of the biggest names in online food-ordering, the prospect of a combined “Grubless” sent ripples through the market. Once upon a time, these kind of massive private mergers only happened once in a blue moon, but those were different times.

Last week, the online employment industry became the latest victim of this kind of blockbuster consolidation, as oDesk and Elance announced a deal that, pending regulatory approval, will see their two companies unite into the new online freelancer marketplace to be reckoned with. Like Seamless and Grubhub, up until pen hit paper, oDesk and Elance were considered rivals in the world of online staffing, but unlike the former, the response to the oDesk-Elance merger has been, well, less than positive.

While visions of strategic synergies and competitors running for cover danced in the heads of company executives, the scores of freelancers who use oDesk and Elance to find work or hire support don’t seem ready to break out the pom-poms. Angry customers let their opinions be heard en masse on Elance’s blog this morning, while oDesk’s Facebook page drew a similar reaction. And so did the announcement in its community portal.

In short, the consensus among oDesk and Elance users is that both sites are separated by some fundamental differences and that any integrations to result from merging the two platforms will significantly reduce their usability and overall value. Many said, for example, that they use the platforms exclusively and had a long list of reasons why they chose to use one and not the other.

One commenter, Moonsis Mansor, commented on both oDesk and Elance’s Facebook pages, saying that he had used both platforms and thought the merger needed to accomplish three key items to be successful: “Elance’s minimum hourly rate restriction ($3/hr) and Escrow Guarantee on fixed price projects do not change and oDesk platform also incorporates these policies, [second, that] oDesk’s team application is replaced with Elance’s tracker because oDesk’s software is way better than Elance [and, third that] Elance’s way of treating Agencies, a.k.a. companies, is far better than oDesk…”

And that being said, he continued on Elance’s page, if oDesk’s product were to be favored more after the merger, he would likely go elsewhere. The main gripe that surfaced again and again about oDesk centered around its reputation as favoring low-cost labor at the expense of quality.

In other words, an anything-goes approach in which oDesk eschews a minimum rate — with some freelancers offering to work for as low as $1/hour or $0.50/hour — and a model that favors the client at the expense of the freelancer. Ultimately, the most frequently-expressed concern seemed to be that, were the marketplaces ever to merge, oDesk freelancers would undercut pricing and dilute the quality.

Another commenter on Elance’s Facebook page said, in no uncertain terms: “This is awful. The monopoly created by the merger will significantly cost users.”

Of course, representatives from both Elance and oDesk were quick to assure users in social feeds and in comment sections of blog posts that the two companies planned to “continue to operate as separate, independent services … [and that] … as usual, and there are no planned changes to the fees.” The companies both pointed users to an FAQ section they added to their sites to address and flesh out specific questions about the merger.

One important point to note is that, in the wording of the FAQ, while it says that both companies will continue to operate as separate entities, they would do so “for now.” Those can be two very powerful, qualifying words, especially for the seemingly unhappy masses.

Conversation With Elance And oDesk CEOs

When I caught up with Elance CEO Fabio Rosati and oDesk CEO Gary Swart after the announcement and asked them about the backlash, both opted to explain the reaction as a function of the fierce loyalty that each user base has to its platform of choice. In fact, Rosati expressed pride in this loyalty and said that a certain amount of backlash should be expected as a result.

Screen Shot 2013-12-20 at 6.16.43 AM“We have two very distinct platforms, each of which has value to its specific user base … so, in our case, we’re not focused on the traditional synergies two mature businesses might have, we’re trying to approach [the deal] in a unique way,” the Elance CEO told TechCrunch.

In other words, rather than reflexively force the two businesses to become one entity across the board, which would be like forcing a square peg into a circular hole in many respects, the CEOs said they want to operate two micro businesses under one collective umbrella. Furthermore, instead of focusing on the “traditional” where merging companies might promote synergy, Rosati reiterated the language in the FAQ, saying Elance and oDesk would look to create synergies from their investments.”

With their combined financial resources and audience, it becomes a matter of finding areas where that bigger balance sheet can support investments that benefit both platforms, both models and both companies. On the one hand, this kind of thinking makes sense. There are ways to avoid forcing the issue, especially when the gulf between the two appears to be wide — at least in some respects.

The Realities

And, yes, one could say that the display of frustration among users is a heart-warming show of loyalty and that change is frightening and a small group of loyal and vocal dissenters will always react emotionally to the prospect of that change. Having gone through several TechCrunch redesigns, I can say that I’m familiar with this kind of adverse reaction to change, even if some of it may have been justified.

However, on the other hand, when this many users not only perceive but delineate some significant differences in the use cases, models and potential value of the two companies, there’s usually some truth to it. Which then begs the question, are the companies better off? Well, after the torch-and-pitchfork crown poked so many holes in oDesk, it seems they, at least, may be better off. And certainly, if their ambition is to build the next Google or Facebook-sized platform for freelancing and hiring, then they’re a lot closer today than two weeks ago — at least on paper.

But, as George Anders points out, unless oDesk/Elance can figure out a way to rely less on algorithmic matchmaking and more on building human trust and human relationships, it won’t matter whether they go forward as two companies or one.

Looking Forward

The prevailing model at work in staffing marketplaces needs to be optimized by, say, making it easier for employers (or clients) to connect with their regular and most trusted freelancers — or by giving freelancers the potential to, over time, be able to turn hourly gigs into full-time gigs (and incentivize clients to hire their favorite freelancers).

To a certain extent, it’s okay if the Elance and oDesk merger isn’t seamless right away, or that the synergies aren’t perfect, and maybe now together they can attract bigger customers and clients. In the end, whatever shape it takes, the company will have to prove that the new version has the ability to bring more business into the marketplace — and to its freelancers.

After all, in 2013, the average freelancer on Elance and oDesk made less than $100. Yes, there are ways to explain away that stat, and that will work for awhile, but those “8 million registered users” between the two companies aren’t going to stick around for less.

For more, find oDesk’s Merger FAQ here and Gary Swart’s follow up blog post here.