ODesk Charts the Future of Distributed Work

2/15/11Follow @wroush

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it’s already operating extremely efficiently—its last venture round was almost three years ago, and Swart told me in September that the company still had $15 million in the bank.

ODesk’s business model is simple: it adds an 11 percent fee on top of whatever rate contractors charge employers. In January payments to contractors totaled more than $13 million, and oDesk expects that they’ll surpass a cumulative $200 million for 2011, meaning the startup’s top-line revenue should exceed $20 million.

A few big companies use oDesk, but Swart says the startup’s sweet spot is actually with small and medium-sized businesses (SMBs), especially in the U.S., the United Kingdom, and Australia. Such companies are even more reluctant than big, Fortune 500 companies to hire more full-time employees—and just today, oDesk released a report showing that many are turning to long-term contractors instead. Today’s SMBs are handing out 6.4 times more long-term contracts (lasting 6 months or more) than they were in 2008, according to data oDesk compiled on its more than 1 million contractors and employers. “The world of work is changing,” Swart observed in an announcement about the report. “SMBs are tapping career contractors because they need a scalable, customizable workforce in order to grow, and workers want flexibility in order to manage and grow their own careers.”

In fact, oDesk came into existence precisely because of a worker who wanted some flexibility. Greek native Odysseas Tsatalos had co-founded a San Jose, CA, company called Intacct, which makes cloud-based accounting and financial management software. He wanted to hire his software-engineer friend Stratis Karamanlakis, who lived in Athens and didn’t want to move to the U.S. But Intacct’s CEO vetoed the idea, saying it would be too hard for the company to oversee Karamanlakis’s work remotely.

Tsatalos took that as a challenge, and started building a diary system that would help remote workers document their progress for verification by supervisors. “He kept building this and showing it to the CEO, and eventually the CEO ran out of objections and said, ‘Okay, let’s hire Stratis,’” says Swart. But by that time Tsatalos’ software was looking like a commercializable product. So he left Intacct in 2005 to start oDesk, and brought on Karamanlakis as co-founder.

Sigma Partners managing director Greg Gretsch, one of oDesk’s first investors, recruited Swart about five months later to be CEO. Swart was a Pure Software/Rational/IBM veteran who’d gone on to work at New York startup Intellibank. Arriving at oDesk, Swart says he realized that the Tsatalos’s platform for managing contract talent needed to be paired with a system for finding the talent in the first place, and then paying for it. “So we started out our service, five years ago, saying, ‘We are going to enable companies to hire, manage, and pay remote workers’—we wanted to be a global employment platform.”

And that’s what it’s on its way to being. To be truly global, of course, oDesk would need to have operations in 190-some countries, and so far it’s in only 10, all with a high quotient of software engineers doing freelance work, including the United States, the United Kingdom, … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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