BUSINESSWEEK ONLINE : JUNE 5, 2000 ISSUE
BUSINESS WEEK E.BIZ -- SPECIAL REPORT E-Marketplace: eLance In contrast to Covisint, eLance Inc. has already learned some critical lessons about building an e-marketplace--especially one attempting to go beyond cost savings to create something entirely new. The self-styled global-services marketplace has found that building critical mass is a painstaking, never-ending process--one that involves flesh-and-blood relationships more than anyone ever expected. When Silicon Valley's premier venture capitalist, L. John Doerr, visited eLance Inc. last October for the first time, he wondered what on earth he had just agreed to sink $12 million into. Crammed elbow-to-elbow into a 550-square-foot apartment in Jersey City were 22 people sharing four portable phones and using computer boxes as desks. Conference Room A was the kitchen, Conference Room B the Starbucks cafe downstairs. Recalls eLance co-founder Beerud Sheth: ''He was seriously concerned we were violating a bunch of fire laws.'' No, it wasn't the classic Silicon Valley garage, but eLance's ambition is pure Valley. The company aims to build a vast global marketplace for services. It's like eBay Inc., but instead of stamps and baseball cards, freelancers bid to do projects posted by companies or individuals needing everything from Web design and accounting to caricature drawing and songwriting. Some freelancers are even launching new careers on eLance: Roberto M. Galan of Argentina, for instance, is making $900 a month from eLance Web-site design work, more than he earns working for a local Internet service provider. Says Galan: ''I think I'll be a full-time freelancer soon.'' Like many e-marketplaces, however, eLance is still teetering between critical condition and critical mass. Its big challenge: gathering enough projects and freelancers to be self-sustaining, while fighting off a dozen other companies stalking the same plots of virgin ground, such as eWork Exchange Inc., Guru.com, and Opus360 Corp.'s FreeAgent.com. Right now, eLance has 3,000 projects listed at any one time. But new Chief Executive Eric Roach, who joined on May 16 to try to turbocharge the marketplace, concedes that's not nearly enough: ''The flag has not been planted on this moon yet.'' The company was conceived in mid-1998, when Merrill Lynch & Co. bond trader Sheth and his racquetball buddy Srini Anumolu, a New York Life portfolio manager, were working on Wall Street. After seeing electronic marketplaces for products surface in industry after industry, they figured services would be the next frontier. Shamelessly stealing the company name from an article on the ''E-Lance Economy'' by Massachusetts Institute of Technology Professor Thomas W. Malone, they started their company that December and raised $1.2 million from angel investors by March, 1999. Then came the bone-crushing part--getting freelancers to post their skills. They set the date for launching a test site for July 4--Independence Day. To avoid having a bare site that day, workers began on June 30 calling and e-mailing everyone they could think of--friends, family, tech-oriented college fraternities, and Net-message boards. One angel backer, Amazon.com Inc. executive Ram Shriram, had his doubts. He figured the site should list projects, too, since project issuers would be best to pay for the service, which was free. Sheth, however, had more up his sleeve. He aimed to launch the full site, with project listings, on Aug. 31, just before Labor Day. Still, the number of projects posted at launch stood at only four, all eLance's. They faced the chicken-and-egg problem that confounds all e-marketplaces: how to get buyers to come when there aren't many sellers, and vice versa. Thus began another frantic round of phone calls. Each employee was required to call 10 people a day and ask them to list projects they wanted done--friends, family, anyone! PowerPoint presentations, proofreading, anything! The affair took on the air of a PBS fundraiser. They hit a milestone four days later: their first outside project. Robert S. Baurys of Cleveland, who heard about eLance through a news story, needed a corporate logo for his equine-management software company, HorseTrak Software. They celebrated the occasion by loudly banging a pot in the company kitchen. People power. Surprisingly, the most critical factor in attracting folks was something Web companies often forget: people. At eLance they call up every project issuer to make sure the description is complete enough to attract freelancers, then call freelancers to get them to bid. For all the Net's automation, e-marketplaces often still come down to forging personal relationships. By then, it was clear that $1.2 million wouldn't last forever. So in October, Sheth and Anumolo made a two-week pilgrimage to Silicon Valley, hitting up several VCs using PowerPoint slides prepared by eLance freelancers. Another sneaky trick: They used their own site to commission a caricature of Kleiner partner Vinod Khosla from a photo--as well as a poem about his wife. ''Those are what really impressed me,'' recalls Khosla. Less than three hours before Sheth's and Anumolu's flight back home was to take off, they shook hands with Doerr on the $12 million investment. One big condition, though: They'd have to move to Silicon Valley, lock, stock, and laptop, to avail themselves of the breathtaking array of startup services there. The irony was delicious: Here was a company dedicated to helping people work wherever they lived, and they had to move to tap into Valley expertise. In a supreme bit of optimism, they installed an electronic ticker in the new offices that they dream will one day stream prices for services as they change constantly on the eLance site--''Java programming, up $2''--just like stock prices. The site began taking off. From 20 projects on Nov. 3, listings had jumped to 300 by Nov. 30, from all over the world. Hilary Krant, chief market maker, disabled her pager, set to beep every time a new project was posted, because it was driving her nuts. Some projects were bogus: A $10 million request to assassinate Bill Clinton was quickly removed. Another, for $60,000, appeared more serious: Design an eLance knockoff. It stayed. You know you've arrived when someone tries to use your site to put you out of business. Since August, eLance has hosted 24,000 projects worth a total of $24 million. Of course, none of that money went to eLance. And that's the biggest challenge yet. The company plans to start charging for its services by the end of May--probably a single-digit percentage of the project to the project issuer. Will people pay? Thomas Weisel Partners labor analyst Perry Boyle thinks buyers might balk at paying unless they get more services, such as guarantees of quality. Roach says pricing will be a work in progress. ELancers haven't stopped dreaming, though. They envision changing the nature of corporate structures. Already, says Roach, teams are forming by themselves on the site to get complex projects done. eLance hopes to lead the way internally. Says Sheth: ''Hopefully, we never become a really large company, just a few hundred people--and thousands of eLancers.'' By Robert D. Hof _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Who Will Profit from the Internet Agora? TABLE: Internet Marketplaces CHART: E-Market Pace E-Marketplace: Covisint E-Marketplace: eLance E-Marketplace: MetalSite INTERACT E-Mail to Business Week Online

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