Most marketplaces provide the following:

• Registration of buyers and suppliers

• Search facility to find the right suppliers

• Categorization of suppliers based on their paying a fee and/or activities

• A mechanism to facilitate auctions

• Basic contract-management ability

• Basic control through services-management facilities like online document management, message boards and milestone tracking

• Feedback system

• Payment facility through credit cards, Paypal and other such online payment options

• Risk management by providing escrow accounts

• Dispute resolution by mediation and arbitration.

Some of these facilities are the bare minimum to make any online marketplace work. For example, registration, search, auctions, feedback, payment and risk management are concepts taken straight from the eBay model, and have been improved upon by these marketplaces in the service context.

When Elance Online started, it was a replication of the eBay model. So, there were no invite-only auctions, escrow accounts and many such similar facilities, which challengers like Rent-A-Coder and Guru.com started offering, and are today available in all the marketplaces.

At that time, these players were struggling to prove that services could also be bought and sold online in an equally, if not, more efficient manner as products. So the thrust was on making the systems reliable in terms of trustworthiness and, of course, efficiency. This was based on the assumption that services are also getting commoditized like products.

However, despite the drive towards commoditization, services remain essentially different from products in two major aspects: Control is still important; and delivery quality is more important than the transaction itself. Both these are soft issues that cannot be so easily commoditized.

Latter entrants like oDesk, a freelance-staffing marketplace, and Freelance.com, a Europe-centric marketplace, have tried to leverage this gap. oDesk has been able to differentiate by attracting a set of buyers who would like to hand over projects that they would pay for based on the progress — the equivalent of time and material-based pricing in traditional outsourcing. That has resulted in those suppliers flocking to the site who want the comfort of home but do not have a huge risk appetite. They get paid on a weekly basis. In essence, it has become a homeshoring facilitator rather than a marketplace like Elance or Guru.com.

Freelance.com’s approach is extremely interesting. Its core users, Europeans, are far more conservative than the Americans. The marketplace has hence been trying to blend some of the traditional outsourcing practices to the online marketplace. It has introduced the concept of project managers who screen the suppliers on behalf of the buyer and supervise the project through its entire lifecycle. Many believe this will encourage the buyers to outsource larger projects using this marketplace. The jury, though, is still out.

While each player claims to have some differentiation, there is still not much of a difference between the marketplaces in their tangible features. “The fact is that there are not too many differences between one another in positioning,” admits Guru.com’s Guglani.

However, based on the type of users and their activity, some marketplaces have built reputations for themselves. Any good forum discussion in small IT users’ site would tell you that how Elance is good when you want to run a small business around services; how Guru.com’s interface makes it easy to search; how oDesk is the place to go if you are primarily looking at offshore providers and so on. The very fact that basic features are still discussed by users who have used it multiple times means that they have not yet been able to build a clear differentiated positioning.

“That,” Guglani believes, “is because the market is still nascent. We are still evolving and are in very early days yet.” He does not rule out clear differentiations in the future.

The Oasis for the Small

“Online marketplaces have given the small buyers a place to go shopping for outsourcing services,” says Ulad Radkevitch, Research Scholar, Erasmus University, the Netherlands, and Co-author, Leveraging Offshore IT outsourcing by SMEs through Online Marketplaces — a research paper. Online marketplaces for IT services reduce costs of contact, contract and control for small buyers, argues Radkevitch in the research paper.

“The contract is secured by the marketplace via a number of mechanisms, rather than the buyer himself as in traditional outsourcing,” says Radkevitch. “That can be an ideal solution, if you are a small company.”