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http://www.businessweek.com/print/technology/content/may2006/tc20060502_237154.htm

MAY 2, 2006

News Analysis
By Sarah Lacy

Homeshoring: Beyond Call Centers
Silicon Valley startup oDesk helps companies find — and monitor — at-home labor for a growing roster of jobs

Susanne Bullo is a capable software programmer who until recently had few job options. She is a stay-at-home mom who has three young children and helps care for an elderly father with diabetes. Although she lives minutes from the Redmond (Wash.) headquarters of Microsoft (MSFT ), Bullo's commitments keep her from pursuing a career at the software maker. It doesn't help that she's self-trained and female — traits viewed suspiciously in the geeky programming world. “I see tons and tons of men out there with four-year degrees getting different jobs and work,” she says. She managed to find contract work, but it wasn't easy.

That changed two years ago, when Bullo came across the Web site of a small Sunnyvale (Calif.)-based company named oDesk. The startup has built a business around making connections between companies that want outside help with tasks such as programming, graphic design, or technical writing and people like Bullo, scattered all over the world, willing and eager for work.

It's not an entirely new idea. The “homeshoring” revolution is already upending the call-center industry, enabling companies like Jet Blue and 1-800-Flowers to staff customer-care operations with people working from their own homes. More than 100,000 people are employed through such arrangements, and the tally grew 20% last year (see out interactive table).

Hiring people who need or want flexible schedules in an at-home setting gives groups such as stay-at-home parents or people with disabilities a way to earn money for their skills. Some see the trend as a way to keep from having more U.S. jobs sent overseas. Homeshoring lets companies save money on pricey urban salaries and attract workers whose language, culture, and working schedules mesh better with those of their own clients (see BW, 1/23/06, “Call Centers in the Rec Room”).

EXPANDING ON THE IDEA. But as Bullo's case shows, oDesk aims to push homeshoring well beyond call centers. Its success will depend on whether companies are willing to reshape whole businesses, such as IT, design, or writing, that are traditionally staffed at the office. It's a big risk. For one, it's a lot harder to track and monitor people working on what are often longer-term projects, many critical to a company's success, than it is to count how many calls an employee can log in an hour.

Some companies, such as Guru.com, have flirted with the idea. But it's hardly been a perfect system. Bullo, who used such job boards in the past, was lucky to get one 40-hour project a month and even luckier if she got paid on a timely basis — or at all. Now, she works at least 20 hours a week, or more if she wants to, and gets a check via oDesk every week. The company says more than 300 people now earn a full-time salary as a result of its services.

Though it's well-known to folks like Bullo, oDesk has been operating in stealth mode since taking in $6 million in venture capital in 2004. Rather than drum up publicity in the press or buzz throughout Silicon Valley, oDesk spreads the word through cheap Google (GOOG ) ads that say things like “$15/hour programmers; verified time logs.” The company posted its first Google ad in May 2004, almost on a whim. “We just tried it out with our Starbucks (SBUX ) budget one month,” oDesk founder Odysseas Tsatalos says. The company now gets thousands of leads a day from those ads, and the secret is getting out. It's getting several unsolicited calls from more would-be investors every week, oDesk Chief Executive Gary Swart says.

REMOTE, YET RELIABLE. Part of oDesk's appeal is that it's not just matching those looking for work with those who have it, but also helping employers overcome one of the biggest challenges they face when hiring remote contractors: trust.

oDesk starts with the resume. The company conducts tests and checks references to ensure applicants know all the languages and skills they say they do. Only about 20% make the cut, oDesk says. The company also uses a self-policing feedback system akin to one pioneered by auction site eBay (EBAY ) that lets prospective workers and employers vouch for each other when they've had a good experience and pan one another if they've gotten swindled. Contractors who get positive feedback have been able to up their monthly rates, oDesk says.

The bigger hurdle to scale was helping companies monitor worker productivity and time management. Companies have a hard time policing employees in the next office over, much less thousands of miles away. This was a personal frustration of Tsatalos, who founded oDesk. In school in his native Greece, he often worked alongside his best friend, Stratis Karamanlakis, also a programmer. When they graduated and Tsatalos moved to the U.S., he tried to convince a variety of Silicon Valley startups to hire his friend, who didn't want to move so far away but was amenable to working remotely, from home.

EYE ON EMPLOYEES. Would-be employers balked, though not because of Karamanlakis' skills. Tsatalos considered him better qualified than many local applicants. The concern was simple: Real life creeps in, and at-home workers can end up handling too much personal business while on the clock.

To keep everyone honest, oDesk takes random screen shots of what people are working on every 10 minutes. There's also a Web cam, so employers can physically see whether someone is at their desk, and a log showing how many mouse clicks or keystrokes are made per minute. It's not meant to be unduly intrusive, but rather to give the same degree of privacy — or lack thereof — people find in office settings where a manager can easily peer over a shoulder.

Finally, oDesk handles all the billing and payments — which can get tricky with overseas currency conversions. It takes an employer's credit card before anyone can be hired, and automatically cuts a check to the contractor every week unless the employer objects. Of course, it takes a healthy chunk of that, tacking on 30% to whatever price people charge for their services. For Bullo, it's about $4 of the $20 or so she makes an hour. “It's definitely worth it,” she says.

AT HOME ABROAD. Bullo's testimonial aside, oDesk's system may end up benefiting foreign workers more than those in the U.S. Coders like Bullo, who make in the neighborhood of $25 to $30 an hour, stack up against peers in places like Ukraine or India who make closer to $5 an hour. Some employers will pay a premium for better communication skills or for a person working in the same time zone. But many more just want cheap labor, and oDesk can act as a go-between for small- and midsize businesses in a way that big consulting and offshoring companies can't. Of those who work through oDesk, about 89% are from outside the U.S.

Consider Easan Katir, a portfolio manager who works out of his home in Davis, Calif. He wanted someone who could write a program that would let him test a trading theory. He tried several job-matching boards and Web sites and wound up getting ripped off. “Other companies didn't have the same quality control,” he says. Now, he has two overseas programmers working for him, one pretty steadily for more than a year.

oDesk stays out of the onshore-offshore debate. The company sees itself as giving people options no matter where they live. “I love fighting for the little guy anywhere,” Swart says. One of Katir's employees lives in Ukraine in an apartment so small he had to move his computer into the hallway when his wife had their first child. Katir pays the man $11 an hour, up from $9 initially. “I even sent him a little Christmas bonus to make sure I have a happy programmer,” Katir says.

INVESTORS' EXPECTATIONS. One debate oDesk can't sidestep centers on what many U.S. workers consider its meddlesome monitoring software. Even oDesk programmers revolted over it. After they built the system, Tsatalos tried to move them onto it and pay them hourly. All but one quit. Tsatalos shrugged and found more. He reckons demand is high enough that his company doesn't have to please everyone to make money. Sales are rising 20% on a month-over-month basis. That's off a small base, but the company is lean, with half of its employees distributed over the oDesk network. It's already cash flow positive.

Investors agree. It took them six months to vet the deal, but Sigma Partners and Globespan are finally optimistic they've got something that won't be easy to replicate by another Web site with the same idea. “Ideas are a dime a dozen,” says Greg Gretsch, a partner at Sigma. “It's implementation that's hard.”

And one person who can attest that oDesk is putting its ideas to work is Karamanlakis. Thanks to oDesk, he's finally able to work with his old college chum. Tsatalos walks around oDesk's sparse headquarters with his Web cam-enabled laptop in hand-with a live feed of Karamanlakis at his desk in Greece on the screen. “Wave hello to Stratis!” he'll say to employees.