The way it was and remains to be, the freelance labour market resembles in some ways Akerlof's "Market for Lemons". In such a market, information asymmetry surrounding the reliability and quality of the product or service limits the price that a buyer is willing to pay. This reticence in turn deters quality providers of "peaches", leaving only those who would compromise in price or quality, leading to a downward spiral such that only "lemons" remain. This includes friction facing both buyers and sellers; such as pricing uncertainties, missed deadlines, payment issues etc. The final effect is a suboptimal market which does not serve and attract maximum participation. Fiverr (NYSE:FVRR) provides a solution to making this market work and stands to profit from it. However, whether or not to hold shares in Fiverr is a different question altogether, and in this piece, I evaluate the company as an investment.
Business Model
Fiverr's key value proposition is its Service-as-a-Product model in which it distills the attributes of freelance services into easy-to-process parameters, allowing them to be listed like SKUs on a catalogue. Through that, Fiverr connects businesses with talents from around the world and freelancers with clients beyond those who can be informed by organic marketing. It also provides end-to-end services from payment to delivery for freelancers and businesses alike. Fiverr earns its revenue by taking a cut of 5% of the transaction value from buyers and 20% from sellers and does not require sustained high capital investments beyond the near to medium term. Cursorily, it does seem like Fiverr has a simple and effective business model.
The Fantasy of a Big Market
However, as if from the same script, Fiverr, like every recent IPO, is touting the immense market that it is in the running to capture. Word for word, it even heralds the 'Future of Work' that WeWork
