Job sites need to make money too.

oDesk wouldn’t exist if it didn’t make money, and neither would its competitors.  The business model is simple, connect buyers and providers and take a cut off the top.  There’s more to it, but that’s fundamentally how they all work.

It’s much like an agency relationship and it works very well.   Most sites take between ten and fifteen percent and provide various services ranging from escrow and payment through oDesk’s time management software.  The benefit to this method of payment is that it’s performance based and so sites make more money by getting more work for providers.

Some sites have a second revenue stream–

Paid Memberships

Providers pay the site a monthly fee in return for additional benefits over the standard free membership.

On the surface it doesn’t sound like a bad idea, but in practice it does have one major drawback.  It’s a significant change to the business model.  It’s often easier to get a new provider to pay $10-15 per month than to get a buyer to pay $100-150 for a project.  It also extends the site’s revenue stream to include funds form unsuccessful providers as well as successful ones.

Businesses reinforce success.  This means that if they’re getting more money from subscription fees than project fees that’s where they will focus their money-making efforts.

There’s nothing wrong with this from a business perspective, but from a provider’s perspective there is a problem here:  it dilutes the focus on getting new jobs.

Before we go further, let’s look at some examples of membership systems:  eLance and GetaFreelancer both use paid subscriptions, but they take very different approaches.

A free member on eLance gets three bid points per month, and depending on the size of the project it can require anything up to four bid points to put in a bid.  An individual membership is $9.95/month and gives the user 20 bid points and a lower commission percentage rate in addition to other benefits such as a greater number of keywords and more contact options.

A free member on GetAFreelancer has more bid points (I have 25) and pays a 10% commission on all jobs.  The paid membership costs $12 a month, and not only provides more bid points, but also eliminates the commission.  I’ve also never seen a job on GetAFreelancer that required more than one bid point.

Here’s where I see the difference:  GetAFreelancer is rewarding paid members, while eLance is penalizing free members.

I’ve had a paid membership on GetAFreelancer, and only let it lapse because I haven’t been working there lately as my oDesk clients are taking up the majority of my work time.  Should I shift focus back toward GetAFreelancer I will definitely restart my membership.

I haven’t gone for a paid membership on eLance, and part of that is because the free one is so restricting.  My preference is to bootstrap my first job on a site to getting a membership, and with the restrictions on free members, I don’t spend much if any time applying for work on eLance.

That’s the real pitfall of paid memberships, they often make it hard for new providers to get started on a site.

Some might argue that it separates the serious providers from the frivolous but I’m not so sure.  There are other ways to limit bids that don’t involve paid memberships and they seem to prevent frivolous and spam bids just as well as the memberships do.

Alternatives

oDesk uses a combination of skill tests and buyer feedback to limit the number of bid points available to a provider allotting anywhere from five to twenty points a week.  The big benefit of this is that it’s possible to get to the maximum number of bid points right from the start just by taking skill tests, which helps new providers get started.  Once a provider builds up a history it’s all based on feedback, but the skill system really helps get people in the door.

Rentacoder allows people as many bids as they can reasonably make.  I don’t have a lot of experience at the site but I haven’t seen any complaints about spam bidders there.
Personally, I prefer the oDesk approach, but I don’t have a problem with the idea of paid memberships that reward paid members.

Just remember, it’s your time and your money, so be careful.

And for writers remember Yog’s Law.

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