Upwork and Fiverr are growing, but Gen AI will change this
Upwork: $193M in revenue, up almost 10% year-on-year, a revenue beat of $9.78M
Fiverr: $99.66M in revenue, beat of $3.2M, up 8% year-on-year
Both companies have pushed take rates up over the past year, and both are seeing growth in average order price, thanks to AI. However, the gross merchandize value (GMV), or the amount of value of marketplace transactions on Upwork and Fiverr, has been flat for two years.
On top of the stalled GMV, traffic to both of these sites is declining. So far, both the stalled GMV and falling traffic have been offset by take rate increases, but Gen AI and, specifically, AI agents, will change this.
Gen AI initially made copy and image generation much easier, and those were categories Fiverr and Upwork called out as issues. However, more complex projects around Gen AI bolstered the sites, and Gen AI project work had higher order values. AI Agents are going to change this, though.
Gen AI has been going up the stack of task complexity
I have used Upwork since 2009, for development, marketing, and research projects. As recently as a year ago, I paid someone $25/hr to compile data on the gross services volume by quarter for Upwork and Fiverr. This involved multi-step research: finding the relevant documents, compiling into a table, and doing some calculations. Generative AI search (Perplexity and Gemini Deep Research) can do them both.
Gen AI’s ability to do chain-of-thought and executive multiple searches has been a game changer for research.
Market research improvements are not the only change. Image generation capabilities are getting embedded into software and advertising platforms.
Ad platforms are embedding Gen AI image capabilities
The ability for AI to do image and video generation is improving rapidly. These capabilities are getting built by foundational model companies, startups, and advertising platforms. Both Meta and Alphabet offer Gen ai image generation in their ad platforms.
Market research, copy, and images are important changes, but the biggest change for Generative AI is the coming agentic wave.
Software coding agents are coming for high end projects
Agentic development is starting to go mainstream Aider, OpenDevin, Cognition, Devin, Replit, etc all are offering various states of automated development. Have a task, describe it in natural language, get it built.
Agents already help for simple projects
I had a financial analysis project I wanted to do: pull in public market data, run somethings by openai, graph the results. Using replit’s agent I was able to build it while working out (between sets). What’s clear now is that when I think of development projects I want to do I can:
Try to code it myself
Hire a freelancer
Wait a few months until the AI agent technology gets better
Option number 3 looks better with every model upgrade.
Gen AI project growth is slowing
The rate of growth of Gen AI project demand is slowing. Looking at management commentary during earnings call, Gen AI went from a hot topic, with specific number call outs, to one that is mentioned, but in a more ambiguous way.
Fiverr on Gen AI during earnings calls
Q1 2023:
"The number of Al-related gigs has increased over tenfold, and buyer searches for AI have soared over 1,000% compared to six months ago, indicating a strong demand and validating our efforts to stay ahead of the curve in this rapidly evolving technological landscape."
Q1 2024:
"Demand for AI-related services remained strong, as evidenced by 95% year-over-year growth in GMV from Al service categories. Chatbot development was especially popular this quarter as businesses look for ways to lean into GenAl technology to better engage with customers."
Q2 2024:
"AI continued to have a net positive impact on our business. It is important to note that we are starting to see stabilizing and improving trends in simple services. As we mentioned in prior quarters, we believe the low-end transactions within the simple service categories were getting impacted the most. As the mix shift within those categories improves towards the higher end, we believe the overall durability of those categories shall improve over time as well."
Q3 2024: No specific revenue or order value call outs
Upwork on Gen AI earnings calls
Upwork shows a clearer, continued trend for Generative AI growth, but the rate of growth is declining. From incredibly high to merely good. At this current rate though, in a year or two, Upwork might exhaust its Gen AI growth train.
Q4 2022 to Q1 2023
"According to data from the Upwork Research Institute, the average number of weekly search queries related to generative AI increased 10 times from the fourth quarter of 2022 to the first quarter of 2023. The data also shows that in the same period, weekly job posts looking for generative AI skills increased by more than 600%."
Q2 2023
"AI was the fastest growing category on Upwork in the first half of 2023, with generative AI job posts on the platform up more than 1000% in Q2 2023 compared to the end of last year, while related searches increased more than 1500% in the same time period."
Q3 2023
"In particular, the AI & machine learning subcategory on Upwork saw 70% year-over-year growth in the fourth quarter of 2023, as clients and independent professionals collaborate on today's most cutting-edge projects."
Q2 2024
"Rise in AI work + adoption yielding 67% YoY increase in AI-related work GSV"
Q3 2024
"GSV from AI-related work grew 36% year-over-year in the third quarter."
Gen AI technology is improving significantly in capabilities, usability, and general knowledge spread.
It takes time for a technology to diffuse to general use. AI agents have a higher barrier to use than ChatGPT did. ChatGPT was accessible to anyone that wanted to generate some text. The blank box problem is even worse with software development. However, for people that want to create something and would have considered a freelancer, AI Agents will make a big difference.
Fiverr, Upwork, and Knowledge Work marketplaces, in general, will have to contend with this new reality. The question becomes when.