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Zero Balance

It’s been almost a year since my significant other and I started our database development business.  What helped us get started was going to one of those websites where buyers would post database jobs and developers submitted bids and proposals to do the work.  We bought a subscription and rolled up our sleeves, ready for all the work we would get.  We weren’t prepared for the level of competition.  We were trying to compete with people from all over the world and people who had been working through the site for years and trying to win jobs against people with various levels of experience.

We did our homework, we learned what buyers wanted to see in our proposal packages, and we slashed the price for our work to a point where we were literally giving our work away.  Brand new to the service we discovered that a lot of buyers would rather go with someone with a history than a new player and so we had to give people an incentive to take a chance on us.  The strategy worked.  We won our first job, completed it in record time, and got a glowing review.  We were on the board and other jobs soon followed.

Eventually we were able to become a top ten provider.  We were able to win jobs on a regular basis.  We were no longer giving our services away for rock bottom prices.  Our proposals were professional and well written.  With our lessons learned, we made the decision to leave the site.  My partner and I came to the realization that the environment we were operating in limited our success.  While we were able to charge a higher than average rate for our work compared to the other providers, the bidding process kept us from charging a real market rate for our work.  No matter our reputation, for most buyers to the site, a rock bottom price was the overwhelming factor for jobs.  We decided to go else where to find work for our business.

That was about six months ago.  While surfing the net for a little marketing research, I ran across an ad from a database developer that I recognized as a competitor from the old site.  I clicked on the link and I was directed back to the old website as a potential buyer.  I went back to the provider list to see who was still competing for jobs and what kind of work were they doing.  I was taken aback by what I saw.

The going rate for the providers had dropped significantly.  The average bid rate had fallen to little more than what it took for us to win our first job.  The people that we competed with for top spot were charging federal minimum wage rates to win jobs.  Buyers were putting jobs out for bid that required significant work.  One database from scratch job I saw I guesstimated would require a minimum of forty hours of work and the bids hovered in the one hundred to two hundred dollars range.  It was apparent that the site had become a race to the bottom.  Many of the provider names were new.  But the people who stayed there were doing what they could to undercut their competitors to win jobs.  The competition was cutthroat and people were desperate for work.  Desperation led people to bid anything in order to get work and keep their business going.

Our core business is database development.  Often, our customers need work that’s not our specialty.  We’ve had a couple of instances where we needed a web-scraper developed for a database project.  The web-scraper would efficiently populate the database with data straight out of a website or from a variety of websites, automatically paging through the list.  In the past, we have farmed out the development of a web-scraper to other providers from this site.

After seeing the current state of competition by the providers on the site, we doubt if we could get future work done with the same level of quality and professionalism that we enjoyed before.  While others might look at the offerings at an opportunity to strike a “too good to be true” bargain on getting custom software development work done, it’s been my experience that you really can’t expect good value from somebody charging less than three dollars an hour to develop software.  While it may vary from person to person, there is a point where you have to really wonder if the rate being quoted is coming from somebody who really can do the job.

I can appreciate a provider giving a low ball but still reasonable price to win a job.  But the lower the price gets, the more I should suspect that the work done may be lacking.  And with so many scrubby providers cluttering up the bidding process and running interference, real providers who know what it takes to get a job and maintain work will leave.  And what is left is a marketplace that cannot truly sustain itself.  For the time being the site continue to operate based on its reputation for being a source for quality help.  But I imagine it is only a matter of time before this site succumbs to insignificance based on its current mode of operation.

The problem is that the site did little to protect the interest of its providers.  The site didn’t charge buyers to post jobs but rather the providers through subscriptions for the privilege of bidding on jobs.  A buyer could post a job just to see what kind of bids would come up and providers, trying to get the job, would spend good money to submit a proposal.  And in cases of disagreement between a buyer and a provider, by using the site both parties agreed to resolve disagreements through arbitration, a process with its own dubious reputation for unfairness.  Using arbitration instead of a court system meant judgments could be rendered quickly and efficiently, but many providers complained that the arbitration process heavily favored buyers.  And while some providers stayed with the site despite its version of tort reform, others felt that they were better off seeking their fortunes elsewhere.

The site promotes itself as a source for buyers and providers to meet with.  At any given moment it will feature hundreds of thousands of jobs.  But not many providers are going to be able to make a decent living using this medium.  And it serves as the perfect model of what could happen if the focus is totally on giving one side of the business equation the advantage.

This site was a reminder that a business environment where buyers hold all the cards in order to create jobs might be wonderful for the buyers in the short run.  But it is nothing that will last for the long haul.  A marketplace full of jobs that don’t pay well cannot sustain itself.  A marketplace with tort reform that gives buyers every advantage isn’t going to attract the provider who wants to make sure that if a problem comes up he or she can expect fair and impartial resolution.  A marketplace that fails to protect and provide for both sides, both the buyer and the provider, is a marketplace that is doomed to failure.

Monday, September 19, 2011 - Posted by | Life, Thoughts

1 Comment »

  1. […] blogs I am not a business person, but this person’s story on how they got a service going is interesting; it talks about web sites that link people to services and how out of control pricing can get (when […]

    Pingback by 19 September 2011 « blueollie | Monday, September 19, 2011 | Reply

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