Outsourcing the eBay way

SMBs are increasingly turning to eBay-like IT services brokers

Increasingly, small and midsize businesses are turning to eBay-like IT services brokers to hire technical talent for projects -- both within the U.S. and offshore.

Such users are seeking the same advantages that large companies hope to get through IT services deals: flexible workforces, lower-cost labor and access to the right skill sets for particular projects.

Using an online job marketplace was the direction that Giancarlo Fiorarancio took Betsey Johnson, a New York-based chain of women's designer clothing stores with nearly 50 outlets, after he was hired as its IT director about nine months ago.

Previously, Betsey Johnson's store managers would contract with local IT services firms for upgrades and repairs of desktop systems and their networks. But that approach was costly, and the abilities of the technical help varied, Fiorarancio said. So he began relying on New York-based OnForce, which acts as a kind of a middleman between corporate users and freelance technical talent.

Fiorarancio said that through OnForce's Web site, he can prescreen available IT help by geographic area, review the skills of prospective contract workers and see how they were rated by other customers. He can also offer to pay people different rates based on the job at hand.

The new approach has cut Fiorarancio's remote support costs by half, he said. And through repeated use of some freelance technicians, his company is essentially developing its own remote IT workforce. "I view them as an on-site extension of our IT department," he said, adding that as Betsey Johnson further develops working relationships with the hired hands, "they become even more valuable to me."

The kinds of services offered by vendors such as OnForce "have a disruptive potential" for U.S.-based temporary employment agencies and IT services providers that charge higher labor fees, said Gard Little, an analyst at market research firm IDC.

But the job marketplaces may have their largest impact because of their ability to connect IT managers with offshore help. While Congress debates whether it should raise the annual cap on H-1B visas, global job-matching services such as one offered by oDesk are showing that companies of any size can hire offshore IT talent to work on projects.

The shift of technology work to offshore locations, free of any H-1B constraints, is an economic reality that the Committee on Science and Technology in the U.S. House of Representatives began examining this week. Rep. Bart Gordon (D-Tenn.), the committee's chairman, opened an initial hearing on Tuesday by warning that "the best jobs may soon be found overseas."

But if it wasn't for access to offshore IT help, Aaron Smith wouldn't be in the position he is in today. Along with his wife, Smith operates a small company called Chiron Data Systems, a developer of diabetes management software. He has been using oDesk's online service to find development help and said he works most closely with a programmer in Russia who is paid US$15 per hour.

A U.S.-based programmer doing similar work would expect hourly rates of $60 to $120, Smith said. Without access to the global talent pool, "we would still be in business, but our software would be far more limited than what it is," he added. "Outsourcing gives us a chance to compete."

A year ago, oDesk had a roster of about 5,000 available service providers and a list of advertised jobs that numbered in the hundreds. Last month, it listed 1,153 jobs and about 13,000 service providers, said CEO Gary Swart.

Many of the firms offering to do work via oDesk are small software development outfits that are spread among about 60 countries, Swart said. The largest concentrations are in India and eastern Europe, which both account for about 30% of the total. But oDesk said it also lists many services providers that are based in North America.

Pay rates vary by skill as well as geographic location, the type of project involved and recommendations from earlier customers. For instance, on a worldwide basis, AJAX developers currently are being paid hourly rates of between US$15 and US$83, according to oDesk.

Development work and the number of hours spent on it can be monitored and evaluated on an ongoing basis through a central project management repository and the use of tools for tracking technical issues and different versions of software programs. In addition, oDesk provides screenshots of a programmer's work so IT managers can do spot checks of code.

As with eBay's online auction site, recommendations from customers give service providers on both the oDesk and OnForce sites evidence of a successful track record, which can help them earn higher fees. As a result, developers have to deliver more than good technical services, said Shane Bell, whose Midland, Texas-based company, ITechWest Solutions, runs on orders he gets via OnForce.

"Ninety percent of it is relationship, and that willingness to go the extra mile," said Bell, who had a full-time job at a telecommunications company when he started doing some extra work through OnForce about two years ago. Now ITechWest is a full-time occupation for him. The firm employs five other people as well, and Bell projects that it will gross about US$1 million in revenue next year.

A dependable technician with good people skills can earn between US$35,000 and US$50,000 per year through sites like OnForce and oDesk, said Crisantos Hajibrahim, who started doing IT work after being discharged from the Marines several years ago.

Hajibrahim has since set up his own business, Los Angeles-based Virus Woman Inc. He said the company is a hybrid operation that continues to take assignments via OnForce but also solicits its own business directly from customers.

TopCoder uses another approach to connect employers to overseas tech workers. Users of TopCoder's Web site submit development projects that are used as the basis of coding competitions between developers. The top developers are paid by the customers, while TopCoder officials assess the work of other programmers and give them feedback on it.

Tiffani Bova, an analyst at Gartner, said demand for services such as OnForce, oDesk and TopCoder is increasing -- especially as smaller companies become more reliant on technology. "It absolutely fills a need for a specific type of customer," Bova said. "And with the number of small businesses in North America under 100 employees, I expect it to continue to gain momentum."

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