In my last few posts I’ve been focusing on how you can make money on oDesk.  However, as I read the oDesk community I’m coming more and more to the conclusion that not all the providers really understand how oDesk works.

Let’s start with what I consider the three most important factors:

oDesk is a free market

oDesk costs money to run

oDesk only makes money when providers make money.

Understanding those three points is vital if you want to understand how oDesk works.  Yes the oDesk Readiness Test is important, as is knowing how to work the oDesk Team, but there’s nothing really all that hard about either.

So, join me on the other side of the fold and we’ll discuss our three factors:

Glad you made it across safely.

Now, where were we?  That’s right, we were discussing how oDesk works, and to start at the beginning let’s talk about a free market.

When I call oDesk a free market I mean that it is free of artificial constraints on the cost of services.  Every provider is free to set their price and every buyer is free to set their budget.  Providers are not required to take a job if they don’t think the pay is worth it and buyers are not required to select a provider if they think they are too expensive.

I’ve seen people work for $0.50/hr and I’ve seen people work for more than $100.00/hr.  I’m not talking about posted pay rates, but about amounts that people have actually been paid for jobs they have done.

That’s a huge range, and the free market is why it’s so large.

We all know that data entry rates are the lowest on oDesk.  There are a number of reasons why that’s the case.  One reason is numbers, there are just under 33,000 providers who list data entry as a specialty.  That’s second only to web programming with just under 34,000.

At first glance you might think that would put the pay rate for web programmers into the same ballpark, but if you do you’re forgetting the other half of the equation:  Job availability.  According to the most recent oConomy figures, there were 4725 web programming jobs, and only 1035 data entry jobs listed.  That means there are seven web programmers for every job, while it’s close to 32 providers for every job in data entry.

Another reason why it’s low-paying is that for the most part any two data entry professionals are pretty much interchangeable.  Yes there are differences in speed and accuracy, but the final product from two top-ranked data-entry people should be identical.

This means that the only things a data entry professional can use to distinguish themselves from the crowd are quantitative factors, not qualitative ones.

If you combine the fierce competition for a limited number of positions with the interchangeability of providers on a qualitative level you have a recipe for low rates.  That’s how the market works.

It may just be a coincidence, but the average rate for web programmers is about five times that for data entry, and they have one fifth as many providers for each opening.  Data entry is very much a buyer’s market.

The above should show why data entry in particular has such low average rates, but what about other fields?

Providers in other fields have something else to distinguish themselves:  Quality.

Some coders are better than others, so are web designers and writers.  This level of ability gives them something else to distinguish themselves.  They can say that the reason they are worth more than their competitors is because they provide a better product.  That gives them something else to set themselves apart and another way to justify higher rates.

Again, it’s the free market at work, this time in the other direction.  Good providers who are in demand can charge more because people want those providers specifically, and they only have a finite number of hours.

The next thing to remember is that oDesk has expenses.  oDesk Team cost money to write, and the servers cost money to keep up.  Then there are other expenses such as paying the staff and interest on financing.  The details and the amount are unimportant for our purposes, all we care about is that they exist.

Finally, we come to to the point that oDesk takes a proportion of what each provider bills.  Their earnings go up at the same proportional rate as each provider’s do.

These last two give oDesk the strongest incentive possible to drive provider rates up rather than down.  They’re in business to make money.

If you’ve followed the community for any length of time you know that people are always complaining about pay rates.  This is usually followed by a request for a minimum wage.  Unfortunately what seems to be forgotten is that this would simply be the first constraint on an otherwise free market.

Constraining a market is never a step to take lightly.

The first problem is that oDesk doesn’t exist in a vacuum.  If oDesk constrains its market, then people looking for a free market will simply go elsewhere.

The second is that it’s impossible to constrain the bottom of the market without constraining the top of the market as well.  Setting a wage floor makes it harder for people to rise above it.  They can still do it, but neither as quickly nor as easily.

Many of the arguments for a minimum wage on oDesk have to do with questions of social justice, saying that people are worth more than some arbitrary minimum.  Other arguments have to do with people saying it’s uneconomical for them to work for less than said minimum.

In the latter case the answer is simple, don’t apply for jobs you cannot afford to do.  Buyers are not responsible for your financial health.

The first case is a little more difficult:  Questions of social justice tend to move the argument outside the boundaries of pure economics.  Most countries do have minimum wage laws in place, and many of them invoke either basic human rights or the social contract to do it.

Let’s start by making one thing clear:

A minimum wage is irrelevant because we are talking prices not wages.  oDesk providers are contractors selling services, not employees earning wages.  So what people are really discussing are price controls, not minimum wages.

Remember that.

Once people accept that the discussion is about price controls rather than minimum wages, it becomes easier to understand why the various issues of social justice don’t apply to oDesk.

People don’t live on oDesk.  They live in cities, towns, states, provinces, and countries.  All of those places have their own jurisdictions and the right to set minimum wages for people working there.  They also collect taxes to pay for services and implement programs of social justice.

Don’t conflate a marketplace with an employer.

You can make money on oDesk.  If you’re good at what you do and know how to sell your services you can make quite a lot of money.

If you understand how it works you’ll make more.

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