There are 110 freelance sites on the web, all offering ways to reduce costs and opening up markets for service providers. And each one is creating a world where the market rules, writes Haydn Shaughnessy

When the dotcom era died, a number of the lucky, or savvy, companies left standing in the rubble continued exerting their influence on the way business is run. Online procurement is one of those areas. It continues to grow and to play its part in changing the way we work.

The website Entrepreneur.com estimates there are now 110 freelance sites on the world wide web, all offering ways to reduce cost and opening up markets for service providers. They each play a part in creating the flat earth, a world without hierarchy but one where the market rules.

Are they any good?

One of the most durable is Elance, an online market for buying services like web design, marketing, writing, consulting and software development.

Elance has competitors, one of which is Guru.com, a site that offers a wider range of services.

But whereas Guru.com stresses the niche and high status quality of its service providers, Elance is the marketplace for people who are seeking a benefit from the democratising power of the web.

Here the average Irish SME can buy services from an Indian, Russian or Chinese outsourcing company, and reap the cost savings in just the same way that a Fortune 500 company might leverage the low-cost labour of the far east.

Employing 80 people in the USA, Europe and India, Elance is now churning $20 million (€16.6 million) a year of purchases through its public marketplace, but more significantly, it sells its technology and business model to large companies, enabling them to run competitive markets among their service suppliers.

The company is definitely a dot.com success, says the vice-president of business and operations, Raul Mujica.

"We kept a low overhead business model and we continue bringing value to small companies," says Mujica, "outsourced services that previously only the big companies could afford."

A quarter of the services bought in the Elance public marketplace, where service providers from across the globe bid against each other for assignments, is software application development and a third of it is web development.

Service providers come with a rating or score from previous buyers and have very public reasons to keep their reputations intact. Everybody can read any buyer's opinions on the service providers they have used.

Bad suppliers exist, though Mujica argues they quickly drop out of the system because their feedback scores tell against them.

That is no consolation of course for companies that get caught along the way. When I posted a design project on Elance I got bids ranging from $300 to $10,000.

Intuitively the $10,000 bid seemed about right for a competent and talented individual. So why would anybody bid $300? Service providers seem to feel compelled to bid low to get their first few contracts and build up a reputation for quality.

Up to 357 buyers from Ireland have so far posted 1,097 projects and there are more than 40 Elance service providers based here.

The message that there are cheap services to be had, and perhaps a low-cost entry to foreign markets, is catching on. Elance is currently expanding in Europe.

The real impact of Elance though is being felt in the large corporate sphere, where senior director for marketing and business development Ved Sinha reports that one customer alone recently put over $1 billion of orders through the Elance system. Amex, Fedex and Motorola all now use closed online markets to procure services.

"It gets suppliers to compete more," says Mujica, though Sinha assesses the benefits slightly differently.

"Using an online market allows corporations to enforce common procedures across their organisation and to see more clearly what they are buying from the same supplier, across different markets," he says. That gives them more muscle to drive costs down.

Online procurement markets, or e-procurement, is witnessing the kind of growth levels that the technology upstarts of the late 1990s promised.

Guru.com saw a 70 per cent increase in freelance earnings on its site in fiscal year 2004, while Elance claims it is doubling service provider earnings year on year.

Customers of Ariba, the market leader in bespoke e-procurement systems, now spend over $250 billion a year through the Ariba system, the company claims.

The upside of services like Elance and Guru.com is that they give smaller companies access to the savings enjoyed by those who can afford Ariba or those that can afford to deal with the major outsource providers in India. The downside is risk management in the early stages of using these services:

"You can take a risk and see where it goes," says Mujica. "Take a real low bid from a company with no reputation."

I should report that my own project (I took one of the lower bids but not the lowest) is going at a snail's pace and if I had any real need of urgency I would be lost.

The initial designs created for me by a deign bureau on the other side of the world, are not that inspiring. But that could equally be the case if I'd chosen a designer here in Ireland.

The benefit of using the online marketplace could be that if the designs don't work out then I've lost comparatively little and ultimately the risk of using creative service providers is precisely that you might not like their work but still have to pay for it.

Finding that out for a total of $150 feels a lot better than finding it out for €500 a day.