Killing the Golden Geese

How content-marketing startups squeeze their freelancer ecosystems.

Flickr/homethods

The past decade has seen the rise of a number of “content marketing” firms. The business model for these startups is pretty simple: Connect clients with a need for customized content (such as Microsoft or Walmart) with freelance writers and other content creators who will do the actual work. In exchange for facilitating this relationship, the companies generally take a cut of the freelancer’s earnings, and/or charge the clients an additional fee of some sort.

For freelance writers, these startups promise a ready-made marketplace of hungry clients; for the clients, the allure is an easily accessible pool of talent (and the ability to scale up as much content as they need, provided they have the budget). Which brings us to Contently, a content-marketing platform that has traditionally taken 15 percent of its freelancers’ earnings. Those freelancers received an email this week that sent many into a froth of pure rage:

“Contently has always been a place for freelancers to connect with the world’s best brands and find opportunities for high-value work. Now, after nearly nine years delivering products and services to the freelancer community at no charge, starting April 2nd, Contently will institute a 4.75% fee on all cash outs.”

This fee, the email added, will allow Contently to “further develop our services for writers, photographers, videographers, and designers, and falls well below the service fees charged by other freelance marketplaces. We’re excited to continue building a platform that makes Contently the best place to freelance.”

Over at Inc., Erik Sherman jumped into the proverbial breach with a hard question for the company: Does that new 4.75 percent fee come in addition to the 15 percent already charged? Contently told him:

“Brands pay a variable fee based on the type of project, which is added on top of the agreed-upon ‘price’ for the project. To this point, we’ve asked them to shoulder the load on behalf of our freelancers who make Contently what it is. This is a transparent change to payment terms that is meant to help cover transaction costs historically footed by Contently. As you note in your article, agents fees tend to be larger, but just to clarify, the cut is from our customers, not the freelancers.”

But as Sherman pointed out, and should seem obvious to anyone with a handful of working brain-cells, Contently is still biting off an additional chunk of freelancers’ take-home — and it’s unclear at this point whether clients are really going to pay more for content.

As the rage among freelancers built online, Contently CEO Joe Coleman issued an additional statement on the company’s Twitter page. The key paragraph is the third one:

“As we’ve scaled the business, the day-to-day service costs have increased. However, continuing to subsidize 100% of these services for our freelancers will cut into our ability to keep securing high-paying work for our network. We want to be as transparent as possible. The cash-out policy will go toward offsetting costs for paying freelancers immediately upon submission and developing more services for them.”

Contently is shifting the burden of its in-house processing and transactions onto its freelancer base. In rough terms, it’s equivalent to a restaurant including a surcharge on your dinner bill for a portion of the gas and electricity needed to power its kitchen, or your employer forcing you to give up a portion of your paycheck so that HR and Accounts Payable can keep operating.

When a freelancer responded to Coleman’s statement by asking about alternatives that would limit administrative overhead — direct deposit, paper checks, and so on — Contently shot back a Tweet:

Freelancing is a hard, low-margin business. While some writers make a good living (often by working the B2B and technical-writing market), many barely scratch by, and supplement their income in other ways. When marketplaces begin adding on fees, it’s death by a thousand cuts — that 4.75 percent is the difference between groceries and starvation for some folks.

Meanwhile, these content marketing firms charge quite a bit — I know, because in my day job as an editor, I’m constantly pitched on their services by an unending flood of sales associates. In order to generate the revenues necessary to satisfy their investors — especially the early ones who would like to cash out after five or ten years at a healthy multiple — these firms must keep their freelance costs suppressed while charging their clients as much as possible.

In this equation, the freelancers have the least power. By definition, they’re a fragmented group, and they don’t have much bargaining leverage; if they decline a job, there’s always someone else to take their place (even if the quality of that ‘someone else’ varies). Fees are already pretty low for many kinds of work (and getting lower, if you ask around among working freelancers), so you can understand the anger when a firm like Contently says it needs another 4+ percent for vague “services” and “costs.”

And the last thing that these firms want to do is anger their corporate clients. If you want to see a sales associate or an executive launch into panic mode, order them to call a publicly-traded mega-client and tell them that content fees are rising 25 percent because margins need to be made, and the freelancers aren’t willing to bear the burden on their end. They’d never do it; and with the investors pushing for the best possible numbers, there’s only one solution: Squeeze the freelancers.

But in an ecosystem with many content marketplaces, freelancers do have some other options. If a Contently rival was smart, it could take some market-share by offering a lower fee structure or additional incentives to dissatisfied Contently freelancers. Those freelancers could also attempt to develop direct relationships with their clients, although existing Contently contracts might make that difficult in some cases.

In any case, the struggle for adequate margins and profits, combined with the inherent fickleness of the freelancing business, means that some of these content marketplaces will inevitably fold or be absorbed into other firms. It’s not quite analogous to ride-share startups, but some of the gig-economy DNA is similar; in this sort of vicious environment, there are relatively few winners among workers… or companies.