Gig workers, encompassing a diverse range of roles such as independent contractors, online platform workers, contract firm workers, on-call workers, and temporary workers, have become an integral part of the modern economy.
These individuals enter into formal agreements with on-demand companies to provide services tailored to the needs of the company’s clients. This flexible workforce has gained prominence in recent years, particularly during the COVID-19 pandemic, when remote work and freelance opportunities surged.
However, as the world shifts back to traditional work environments, the dynamics of gig work are changing, prompting platforms like Fiverr and Upwork to reassess their strategies and focus on profitability in an increasingly competitive landscape.
Micha Kaufman, CEO of Fiverr, noted the “lapping effect” that follows periods of rapid growth, indicating that the slowdown was somewhat expected. In response, both Fiverr, valued at $853 million, and Upwork, valued at $1.43 billion, are now focused on demonstrating profitability to their investors. Upwork’s CEO, Hayden Brown, emphasized the need for a “laser focus” on profitability goals during a recent investor conference.
To counteract the decline in individual service transactions, these platforms are increasing their “take rates”—the percentage of each transaction that they retain. Fiverr recently reported a record take rate of 33% for the three months ending in June, while Upwork achieved an 18% take rate, also a record for the company. This shift towards higher take rates is complemented by a push for subscription-based services and premium listings, which are designed to enhance revenue streams.
In a bid to attract larger clients and foster long-term relationships, Fiverr has introduced new features, including an hourly-pay option for vendors with premium subscriptions. This move marks a transition from a purely services-based marketplace to a more comprehensive hiring platform. Similarly, Upwork is promoting value-added services and subscription programs, including access to AI tools, with a goal of achieving a profit margin of 35% by 2029.
Despite reporting their first net profits since going public last year, both Fiverr and Upwork have seen their stock prices decline. Analysts suggest that the dramatic growth experienced during the pandemic has set high expectations, and any slowdown feels like a shock to investors. Rania Stewart from Gartner noted that the initial surge in attention for these platforms has made the current challenges more pronounced.
Private companies in the gig economy are also facing similar hurdles as they strive to prove the sustainability of their business models in a post-pandemic world. The surge in venture capital funding that these companies enjoyed between 2020 and 2021 has now receded, falling below pre-pandemic levels in 2023.
Adding to the complexity of the situation is the rise of artificial intelligence (AI), which has raised concerns among investors about potential job displacement for freelancers. However, both Kaufman and Brown argue that AI is currently serving as a tool to expand their businesses rather than replace them. Upwork is reportedly seeing increased demand for freelancers who can add a “human layer” to AI-generated outputs, while Kaufman believes that AI is only replacing “small and cheap work” at this stage.
Ultimately, the biggest challenge for online gig platforms may not be technological but rather a matter of changing entrenched work habits. Kaufman acknowledged that the pandemic-era shifts in work culture have not proven as durable as anticipated, stating, “It’s hard to change people’s minds. Work is just one of these very old systems that are hard to change.”
As Fiverr and Upwork navigate this new landscape, their ability to adapt to changing market conditions and redefine their value propositions will be crucial in maintaining relevance and profitability in the evolving gig economy.