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." It is not just securing the contract where the marketplaces come in handy for the small buyer. New marketplaces have enabled their sites with service-management tools too, which even in the simplest cases, would be beyond the reach of small companies. For example, oDesk creates filmstrips of the provider's online activity (screenshots and Webcam shots). The buyer can literally see what each of the team members is working on. oDesk claims buyers use this visibility to spot check code, see when the provider is working, and see if the provider is getting stuck on any tasks.

While these are improvements for seasoned buyers, most first-time buyers go to the marketplaces not with a big idea that outsourcing creates value for the company, but to somehow get the work done, when they are hard pressed for time. If they like the experience, they try a little more and get hooked. While the time-saving factor is often not highlighted by the suppliers, taken for granted as it is, a large number of buyers often come because of that.

However, the single biggest advantage of the online marketplaces for the small users is that they do not just allow them to leverage outsourcing, but as Radkevitch says unambiguously, they allow the users "to leverage offshore IT outsourcing." Without the online marketplaces, it would be virtually impossible for such small companies to use what the Fortune 500 companies are betting their future on-employing global labor.

The statistics shows that about 90% of the oDesk users are from outside the US. Guru.com, which started with a complete U.S.-based model six years back, today has more than one-third of its suppliers outside the US. More than half of the non-U.S suppliers are not from India. At Rent-A-Coder, where registered suppliers are from more than 100 countries, Romania features in the top three supplier bases almost every month, along with US and India. This has potential to upset the traditional outsourcing equation that attaches so much importance to location selection. "Vendor location is not so important in online markets, and location risks are leveled off by the controls of the marketplace," says Radkevitch.

While it is countries like the Philippines and China that often get discussed when it comes to offshore locations, in most marketplaces, it is the Eastern and Central Europeans who give the Americans and Indians a run for their money. Hypothetically, this has potential to even leverage manpower from countries that have the talent but do not meet the minimum criteria when it comes to many other parameters like political stability or infrastructure. Take Pakistan.

According to the BrainBench's 2006 Global Skills Report, Pakistan ranks #11 among all countries in terms of IT certifications. Yet, while many of the countries much lower in the list (like Brazil at 17 and the Czech Republic at 28) are often cited as hot offshore destinations, Pakistan never makes it to the list because of political instability. Online marketplaces would give the skilled Pakistanis a chance, even though the country may not emerge as a hot destination in near future. For buyers, it dramatically expands labor pool by freeing the individuals from the limitations of their location.

Threat to Big Outsourcing?
There seem to be unanimity that online marketplaces are no threat to traditional outsourcing. "I would say that direct competition with direct outsourcing is not here yet, as these markets primarily serve small firms and individuals who lack expertise and resources to engage in direct outsourcing relationships," says Radkevitch. "We cater to a different set of users. We are not the best place to come to if you want to ink a billion-dollar outsourcing deal," agrees Guglani. But what about the impressive list given at their site, that includes such names as Bristol-Myers Squibb, HP, Johnson & Johnson, Motorola, Pfizer, and Viacom? "Sometimes, for small, but time-sensitive projects, they find us more effective," clarifies Guglani. These companies use online marketplaces for small projects such as a local Website development or non-IT services like photography and editing.

That means the size of the market is still small. The combined business of the top three American marketplaces-Elance, Guru.com and Rent-A-Coder-is not more than $100 mn. That is sometimes the annualized revenue of an IBM or TCS from a single large contract. Rough estimates suggest that the total market size is not more than $200 mn-that is less than the revenues of a tier two Indian service provider.

However, Guru.com's Gugalni believes that they are still nascent. The market to reach one billion dollars in the next few years and accelerate from there, he expects.

While the size is still fairly small, does their mechanism of tapping global talent and "flatness" prompt the outsourcing heavyweights to target them for acquisition? "I will say that someone like eBay may be a more appropriate buyer, since auctions, though of a different kind, is its core competency," says Guglani.

Guglani disagrees fiercely. "I do not see the possibility of eBay coming in; services are very different from products. I do not know any company which has succeeded in marketing both."

The industry is unanimous that this opportunity is for the small, by the small and of the small. In the size-obsessed global business, it is interesting to see how long they remain so.

Shyamanuja Das
vndmail@cybermedia.co.in