Upwork to Charge Freelancers to Bid on Jobs, Further Squeezing Those Who Rely on the 'Gig Economy'
This story was updated on April 24, 2019.
Global freelancing platform Upwork announced a sweeping policy change on Tuesday that will impact hundreds of thousands of freelancers -- particularly new and/or low-earning users.
“Connects,” the virtual tokens freelancers use to submit proposals for jobs, will no longer be free beginning sometime between May and June 2019. Instead, Connects will cost $0.15 each -- and depending on the job they’re submitting for, freelancers will need between one and six tokens to apply. For the most in-demand jobs, that translates to a little less than $1 per submission.
That’s a significant departure from the old model, which provided 60 free Connects as part of the Freelancer Basic plan. In an economy where three in 10 adults take on freelance or “gig” work -- “generally as a supplemental source of income,” according to a Federal Reserve report -- it’s a tough blow, especially in states such as Georgia, where the minimum wage is just $5.15. Upwork says that on average, most freelancers will spend about $5 or less per month on Connects, but the company didn’t provide details on how it calculated that figure.
As for the reason? The freelancing platform, which counts companies including Dropbox, Airbnb, General Electric and Microsoft among its clients, wrote in an email to users: “We want to help professional freelancers like you win more jobs. With paid Connects, we expect freelancers will submit fewer proposals, increasing your likelihood of winning projects and making it easier for clients to identify high-quality talent.”
In the message, the company seems to acknowledge that the new pricing structure will deter a significant number of users from applying for jobs on the platform -- and implies that Upwork believes freelancers who can eat the new cost of tokens are inherently higher-quality talent.
In an online Q&A session about the policy change for users on Thursday, vice president of product Jessica Tiwari said, "I actually do not believe that this change will make it harder for new freelancers," mentioning that many of Upwork's clients had expressed feeling overwhelmed by the number of proposals they received in response to a posted project. Many projects receive between 50 and 100 proposals, she said, and many clients sort results to favor the amount of experience a freelancer has on the platform. Because of that, "those new freelancers are at a disadvantage immediately," Tiwari said. Upwork will also offer a free 20-pack of Connects to new freelancers on the platform.
In a statement to Entrepreneur, Upwork wrote, "It’s worth noting that when a freelancer is invited to a job, there is no cost to submit a proposal.” But there is a limit to the number of invitations that clients can send to freelancers. It's typically three per posted project, but Upwork says the exact number will vary based on the client and on the job itself.
The company’s decision has incited controversy on social media and among its freelancers.
So, #freelancers, now that @Upwork is charging fees to apply for work on top of fees for contracts, what are your favorite Upwork alternatives? Looks like I’ll be turning my attention to clients I can find elsewhere.— Holly Riddle (@TheHollyRiddle) April 2, 2019
Wow. @Upwork just decided to start charging freelancers to apply for jobs. So not only are they collecting on each contract, they're collecting just from the applications for each contract. Unreal.— Eric Fadden (@ericfadden) April 2, 2019
“When I was just starting out as a freelancer, I wouldn't have paid to apply for jobs because I had no leeway in my budget," wrote Jennifer Collins, an Upwork user, in a message to Entrepreneur, adding that the company already charges a 20 percent fee on new contracts. "Now, I have the luxury to walk away and not buy Connects, and I suspect that many expert freelancers are moving to do the same.”
In Upwork’s annual investor report, CEO Stephane Kasriel wrote that “now is the time for all of us to work together to ensure the best possible future for the billions of workers in the world, their families, and the generations to come. Having become a public company in 2018, Upwork is now privileged to play a larger role than ever in steering this future.”
The company’s 2018 public offering could be a driving factor behind the controversial change.
In the investor report, Upwork cites that it operates the largest online marketplace as measured by gross services volume (GSV), ending 2018 with $1.8 billion. But after digging into the concrete definition of that metric, Entrepreneur found that GSV doesn’t just translate to client spend on marketplace offerings -- it also includes “additional fees charged to both clients and freelancers for other services.” That umbrella clearly includes the new policy change charging freelancers for every proposal they submit.
Upwork also clearly states in the report that its marketplace revenue is “primarily comprised” of service fees paid by its freelancers. “Therefore, marketplace revenue is correlated to GSV, and we believe that our marketplace revenue will grow as GSV grows.”
One clear consequence of the change: Freelancers will likely increase their rates across the board to offset the new cost of submitting a proposal. That directly translates into more GSV -- and more revenue -- for the newly public company.
Upwork may have taken that into account in its financial projections for investors. In its full-year results for 2018, the company reported $253.4 million in total revenue. It projects revenues of $298 million to $304 million for 2019.
For its part, the company denies that the move is a cash-grab. In Thursday's Q&A session, a significant amount of users asked about Upwork's profits from the policy shift. Tiwari cited the current policy -- that after users run out of free Connects, they can purchase additional ones for $1 each -- and said that a significant amount of freelancers already pay for extra tokens. Therefore, Tiwari said the move is "revenue-neutral" for Upwork. "If this was a revenue play, I think we would've come up with something different."
When asked if other user fees will be done away with to compensate for the new policy, Tiwari said there were no current plans to do so.
Many users asked about potential alternatives to charging freelancers for every Connect. For example, why not cap the number of proposals for each job and have the client open up the project for another batch of submissions if they're not happy with the results? Tiwari said that incentivized speed rather than quality.
"I am definitely afraid of scaring off talent with this new policy," Tiwari said. But she maintained that Upwork will continue to aim to have the best opportunities on its platform in order to retain users. Upwork also invited users to share their opinions on Upwork's community page and said that the team reads every post.
One freelancer, Murtaza Amin, created a user survey about the policy change that's garnered 463 responses in just over three weeks. When asked to rate the company's new Connects policy on a scale of one to 10, 55 percent of all respondents gave it a "one." As for how Upwork fits into their future plans? Forty-five percent of respondents plan to explore other platform options after the announcement, but many freelancers lambast the lack of competition in the space.
"The major problem with this new pricing change is that freelancers literally have nowhere else to go," said Josh Reif, an Upwork user. Based on his experience, Reif guessed that Freelancer.com offers one-tenth to 1/100th as many listings as Upwork, depending on the niche. Another competitor, Fiverr, tends to promote quick or one-off projects at lower costs, shying away from longer-term or higher-earning freelance work.
According to Upwork’s own 2018 study, commissioned in partnership with Freelancers Union, Americans spent 1.07 billion hours per week freelancing. Now, those hours will come at a higher cost.