Among the Industry Cloud providers are a bunch that specialize in helping companies find contract laborers, freelancers, or even teams of people to perform outsourced tasks (crowdsourcing).  These companies are true matchmakers, or marketplaces, in B2B, as they exist to help build new buyer-supplier relationships, rather than automate existing relationships.  Regardless of industry, these providers have settled on similar business models. The matchmakers allow buyers to freely search a rich database and post RFQs for bidding by rated/reviewed suppliers.  The “matchmaker” monetizes these RFQs, or leads, often by simply marking up the winning supplier’s price.  These companies are the B2B equivalent of the eHarmony or Angie’s list.  (eHarmony charges a monthly subscription rather than per date, which would make it more like a pimp. And Angie’s list, rather unusually charges buyers an annual fee for access, ala Costco.  So much for my analogies!)

Earlier this week, two of the biggest players in this space,  eLance and ODesk announced their merger. To an outsider, eLance seemed to help companies find freelancers mainly in the marketing and web design verticals, while oDesk seems more oriented towards IT services, programmers, etc.  Combined, the two reported about $750 million in annual billings which would mean about $75 million in annual combined revenue. The companies also appear to have raised more than $100 million in capital collectively, so investors are hoping for a lot more throughput than what they have achieved thus far.

Consolidation of this market makes perfect sense, as the two have battled each other in a tough market.  This market has quite a few challenges:

• It’s expensive to change behavior and drive buyers to your site to search for freelancers.  We naturallly tend to use LinkedIn, Google, friends, moonlighters who work for our agencies, etc. before turning to one of these sites. Think of all the keywords that the matchmaking companies need to buy to drive traffic!
• Companies have a limited number of services for which they are search for new suppliers in a given year.  Once they have established relationships, they like to keep them.  Even when companies run reverse auctions for new providers, the incumbent usually keeps the business.
• This is a “spot” market for non-recurring services, and SaaS investors like recurring relationships.
• Once a buyer finds a freelancer on the marketplace, the pair can go “off system” and continue to work together, cutting out the marketplace all together.
• There are a lot of players in the space.  There are vertical matchmakers in: legal , repair and maintenance, logo and marketing specialists, video, metal benders, scientists, meeting space, a bunch of crowdsourcing players and even the temporary labor players such as Fieldglass and IQNavigator.  This list does not even mention the talent management/HR players like Taleo, SuccessFactors, Workday and many others.

I expect we will see eLance and Odesk  tackle more verticals, just as ebay evolved across collectibles to cars, to many other items and Amazon continues to do the same.  I also expect there will be process consolidation.  ebay, after all, had to buy Paypal to complete the process source to pay process.  I would not be surprised to see the talent management and the temporary labor providers eventually buy in to complete their processes and offer a more complete enterprise solution.

For years we have read about the “free agent” economy, the on-demand workforce, etc.  If that trend is really going to happen, the tools are going to need to become more comprehensive or connected.  Perhaps this merger is a small start.