What strategies can Upwork use to improve their margin profiles - is it about take rate, expansion into enterprise, or including additional services?

The question around expanding margins and achieving profitability in labor marketplaces can be a long haul. You’ve got to grind your way to getting to the scale. For labor marketplaces, like an Upwork, the opportunity of margin expansion simply by expanding take rates is absolutely there. Because the status quo competition is a staffing agency. The staffing agency take-rates are, as I said, around 60 to 75 percent compared to a take rate of 15 percent on the labor-platform sites.So there’s absolutely an opportunity to simply increase the take rate, whether it's adding onto the base rate or adding different fees to it etc. 

My sense is that all of the platforms want to build that scale first. The penetration is so low right now. If you look at staffing alone, that could be over $500 billion in spend in the US alone. And the penetration of these platforms is so low, sub one percent, and that doesn't even account for the expansion of the TAM, because of COVID surge in remote work. So they're focused on just expanding their market share before extracting more of the take-rate. Number one is simply increasing the take rate, and a few percentage points itself is massive, because the competition ultimately is charging a huge amount more. 

The second thing is payment processing costs. When you're taking only 15 percent of payments and the payment processing costs are two to three percent, that's a huge chunk, again, that can be reduced. Just making that direct deposit or other ways of getting that money, that's a substantial margin expansion, using payment processing. 

Then, you have the traditional benefits of scale, where the platforms can scale and expand using the same technology. The cost structure is ultimately going to help over time. 

You can also add more upmarket services, higher margin services on top. But even these first three opportunities are so huge. The payment-related products are certainly an opportunity, because it’s billions of dollars that are going through in payments to contractors, freelancers, and providing a financial services layer totally makes sense. My sense is that the companies will want to focus and invest first in the matching and hiring value proposition, and just getting that at a sufficient penetration before extracting value from the payment processing. But the option is there.