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Moving Down the Value Chain is Not a Bad Place to Be



Bill Gates wrote a famous essay back in 1996, published it on the Microsoft website, and 24 years later people still quote that "Content is king." This was during the early days of the Internet, and the concept was spot on. He went on to say that "Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting." He backed up this belief by successfully partnering with NBC.


In my freelance business, content is most certainly the featured product. Content is so important these days, it has almost replaced what we think of as traditional marketing. Seth Godin wisely said that "Content marketing is all the marketing that's left." Interesting, my position in the content value chain has shifted slightly over the last few months.


Yes, value chain happens to be one of my favorite concepts. It's such a simple textbook concept that leads to truly interesting real world applications. We define value chain as a series of activities used to produce something of value for a customer.


So where do I sit now in the content value chain? Take this article, for example. It was written, edited, and published by me. I suppose we could include my web site hosting company in the chain, but its a fairly compact example.


However, the exciting development of late is that I have been growing my editing business, primarily through engagements on freelance marketplaces. In this capacity, I help other authors produce content. Thus, I have moved further down the value chain.


You may think, well that doesn't sound like a good thing. You have moved farther away from the customer, the end consumer of the content. There is certainly some truth to that. Articles I have edited may do well with readers, but it doesn't proportionally add to my revenue. I don't add subscribers to my distribution list through these efforts. I don't have interaction with the end customer.


Nonetheless, this work also has a number of positives. My potential customer base is vast and I have a reduced level of risk. Many people are getting into the content business. This makes sense during a pandemic as people are systemically forced to work from home or change employment. This also means there is a large and growing customer base for my services.


I happen to have a knack for editing. I enjoy doing it, and am finding my client base. My job is to help clients be successful in their content businesses, and I do everything I can to help them all succeed. But I don't directly take on the risk of marketing and customer engagement. My position further down the value chain helps to spread out some of the risk. This is an important concept for small and medium-size businesses to consider.


Even lower in the value chain are the Freelance marketplaces that facilitate this work. These sites include FiveRR, Upwork, and Freelancer.com. Every time freelancers on these sites make money, the marketplaces make money as well.


There are many of them these days. Sites are using an increasing degree of specialization in order to differentiate themselves. For example, Design Hill focuses on creative services. There are also a number of different operational models for sellers to be found.


FiveRR allows sellers to list packaged offerings while UpWork uses tokens (called connects) as a virtual currency to throttle how many proposals can be submitted. FlexJobs has an interesting model in that sellers pay to be listed on their marketplace. For this membership fee, the site curates projects and vets clients resulting in higher-quality, longer duration type projects being listed.


These marketplaces are where many freelancers get started. However, there are an increasing number of voices calling for freelancers to get off of these marketplaces. Consider this, for every $5 I earn from editing projects on FiveRR, they get $1. Yes, 20% of the revenue from my gigs goes to the marketplace. Once you add in taxes, freelancers are approaching a point where half of their revenue is gone before it even reaches them.


This is quite a business model. For FiveRR, not me, that is. They are even farther down the value chain than I am. Now, because of this, I do own FiveRR stock. At the time of writing, the company's stock (FVRR) was up 32% over the previous month and 717% over the previous 12-month period. That is quite an impressive return. The company has been in business since 2009, is headquartered in Tel Aviv, Israel, and has over 400 employees. Israel has a great tech environment. Wix.com is located there as well, a fantastic service that I use and highly recommend.


So why should freelancers stay on these sites? Why am I giving FiveRR 20% of my revenue? There is a tremendous degree of competition on price, especially during this pandemic as the market is flooded with supply.


Yet, I'm still relatively new in the content editing business. I don't have the clientele built up to the degree I'd like. So I need a marketplace to find my clients. It also enables me to strengthen my portfolio.


When you are starting out growing your business, getting your first client is the most difficult. If you haven't done something before, why should customers believe you can do it now? Looking ahead, once I have a good amount of repeat customers and word-of-mouth marketing, I will re-evaluate my decision. But currently, these marketplaces offer an avenue for customers to locate me and conduct business on a trusted platform. Payment systems and privacy are baked into the service. So although I am giving up a decent portion of my earnings, it looks like I'll be continuing to use them for the foreseeable future.


What is your take on freelance marketplaces? Where is your business located within the value chain? If you find an area you are passionate about but are struggling with your current offerings, take a look at different levels just above and below you in the value chain. You just might find your next big business model.



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