Next-Generation Digital Service Providers: The Who, What and Why for Services Procurement

An increasing number of digital, platform-based service providers (defined in the section below) are appearing today, and while they now represent a small category far outside the scope of most contingent workforce and services (CW/S) procurement programs, the spend they account for is growing.

Back around 2010, traditional BPO providers sought to introduce clients to digitally turbo-charged offerings, called “Platform BPO.” Though similar in concept, the providers appearing today represent a whole new generation of platform-based service providers, many of which were startups or didn’t exist in 2010. They did not arise with the scale and legacy of the BPO providers, nor did they occupy the category of major service providers of which procurement was aware and already oversaw.

Far from a passing fad, these next-generation digital service providers will become an increasingly significant segment of services consumption and spend over the next 10 years. We base our projections on solid, long-term trends evidenced in both the consumer and business sectors.

This Spend Matters Plus article defines this new generation of digital service providers and poses the entirely open question of whether they require the attention of procurement organizations tasked with managing services spend at this time.  This question may be especially pertinent, given the significant similarities of digital service providers and traditional ones.

CW/S Procurement: Where Are We Today?

When we refer to next-generation digital service providers, we do not mean the now quite visible freelance marketplace platforms or other talent aggregation platforms through which organizations can directly source and engage one or more contingent workers to perform a specific project or task. Instead we are referring to certain kinds platform-based providers with which organizations enter some form of service agreement to buy/secure a service output (e.g., testing of localized mobile apps or websites).  The service output is produced by independent, online workers engaged from the provider’s online workforce network (ranging from highly vetted groups to somewhat vetted “crowds).

Significantly, organizational departments and individual business users in a number of large private and public sector organizations have already used these digital platform-based service providers for several years now.

CW/S procurement organizations today are predominantly focused on and configured to manage contingent workforce (temp workers) and their suppliers (staffing firms), whether directly or through a managed service provider (MSP). Procurement’s management of traditional service providers has increased over the past five years and is not insignificant within many programs today. Still, in some organizations, the majority of service provider agreements are entered into and managed by functional organizations, such as IT or marketing — often with little or any support by procurement.

While disputable, perhaps, and likely not the case for some organizations, CW/S procurement organizations are grappling with the ongoing challenges of existing programs, including:

• Instilling sound sourcing, management and measuring  practices in general, and especially in relation to services spend.
• Fully leveraging traditional suppliers/services providers
• Working with legacy, though in most cases modernized, tools (e.g., VMS solutions, most of which were not developed with the sourcing of services in mind)
• Going beyond traditional CW spend, and fully getting a grip on how to manage SOW spend (when it is not just a further means of creating distance from any worker classification questions)
• Dealing with how to manage the fast growing spend on digitally-skilled workers (e.g., UX designers, web or app developers, analytics specialists, etc.) that may be bought by many functions (e.g., IT, marketing, sales, et al) but generally are not optimally supplied by staffing agencies and do fold neatly into contingent workforce management categories and processes.

These efforts can prove all consuming. Our observations indicate that there are few organizations where CW/S procurement allocates any mindshare to non-traditional digital sourcing channels and intermediaries. (Exceptions include more advanced procurement functions within the consulting, IT services and media industries.)

This statement is not meant to be an indictment — or even a criticism — of CW/S procurement organizations, which are fully anchored in the above priorities. But it does lead back to the provocative question of whether next-generation digital service providers—not on the procurement radar now– merit any attention now or in the future.

Digital Platform-Based Service Providers: A New Species

As noted above, next-generation digital service providers are not the platforms through which organizations can essentially hire independent talent. Instead, these are platform businesses with which organizations enter some form of service agreement to buy or secure a service output.

Within our typology of work intermediation platforms, these platforms are defined within the “Service Provider” category as follows:

• Business users directly source a project or other service output from the platform; the projects or service outputs are delivered by the platform (owner) under a (simple to more complex) service agreement with the business. Examples include a software testing project, a graphical marketing video or infographic and a translation.
• Buyers can consume the services in the form of an agreed upon fixed-price project outcome (e.g., deliver a complete website) or as a service output measured and priced in units (e.g., deliver a translation measured and costed by word count).
• Digital Service Provider platforms are defined by a number of characteristics, including:
  • By the very nature of these platforms, with a few marginal exceptions, work is always performed online/remote, and sometimes with enabling tools on the platform (e.g., software testing platform Applause provides a software testing suite for its testers).
  • By the very nature of these platforms, workers are to some degree vetted to ensure they are adequately skilled and well suited to work through such a platform, or at the least have been rated for reliability and performance. Translation platforms, for example, must vet for skills, as well as whether the translator is willing and able to work through a platform. Vetting is typically the work of both humans but also, in some cases, algorithms (e.g., microtask platform Amazon Mechanical Turk).
  • What happens on service platforms is always managed, typically by personnel in the platform service provider’s organization. Production and delivery processes, no matter how automated, require some level of management. Management is usually the work of both humans and algorithms.

The diagram below summarizes the Service Provider category of platform and provides a few examples:

Below are some examples of the types of services currently delivered via platform-based service providers and examples of corresponding providers:

In contrast to online marketplaces for the most part, platform-based digital service providers vary greatly in form and function. It is definitely noteworthy that many of these service provider platforms engage workers through crowdsourcing, something we will investigate in greater detail in the second part of this series.