After BPO & KPO, now comes PPO

You have heard about BPO (business process outsourcing) & KPO (knowledge process outsourcing), but it’s time now to add a new word to your vocabulary: PPO.

Coined by Alok Aggarwal, chairman of Evalueserve Inc, PPO means person-to-person outsourcing. The US-based Aggarwal, who is the co-founder of the global research and analytics services firm, says offshoring is now beginning to go mainstream and is touching the upper class and working class alike.

“This is very reminiscent of 1991-92 when manufacturing in China and other low-wage countries began to impact the lives of the rich and the not-so-rich in developed countries,” he says.

Here’s how: small offices, home businesses and even individuals are utilizing PPO services everyday through various means such as online tutoring and home & landscape design services. Even invitation cards for weddings and other parties, personal assistant secretarial services like scheduling appointments and maintaining calendars are now being outsourced.

Many of these professionals work from their homes with a broadband connection and given the low overhead, vendors and freelancers can charge fairly low rates.

A few companies, such as Future Net (a subsidiary of the Alaphuza, India-based Future Groups) are also experimenting with providing ancillary and concierge services from low-wage countries.

In their model, the end-client registers on their website and agrees on a price. Future Net then provides property deals for customers or for their family members and friends. Other services would include payments made to utility service agencies, educational or other institutions; and purchase of simple items such as movie tickets, personal computers, and electronics equipment.

Apart from online tutoring, for instance, companies such as Transtutors, Career Launcher, Educomp Datamatics, and Tutor Vista also offer one-on-one “live” homework assistance over the web and provide essay-writing guidance and help with educational content. Most Indian tutors charge between $8 and $40 per hour - a pittance by US standards.

If you thought the PPO market is too small and hence insignificant, Aggarwal has an answer. Individual contracts are often of low value - between $100 and $5,000 - but since the number of end consumers and small businesses is enormous, the total addressable market in the US alone easily exceeds $20 billion.

Evalueserve’s research and analysis shows that between April 2006 and March 2007, the revenue from this sector was more than $250 million and it is likely to grow to over $2 billion by 2015 - a cumulative annual growth rate of around 26 per cent. The growth rate, Aggarwal says, is likely to be much more in the future as many of these PPO offshoring trends are at the beginning of their lifecycles.

According to Evalueserve, PPO services follow two business models: the direct interaction model where the individual client signs a contract directly with a vendor in a low-wage country, whose employees (tutors, admin etc) work on a full-time or a part-time basis, or as sub-contractors.

Since these contracts are of low monetary value, the individual client cannot usually travel to the offshore location or perform a costly due-diligence process, and is therefore exposed to some risk.

Although payments can be made through cheques or wire transfers, since the cost of individual projects is fairly low, clients usually pay the vendors with credit cards, which can help offset some of this risk.

The second is the online marketplace model where the vendors providing PPO services enrol in an online marketplace by paying a monthly subscription fee plus a fixed percentage of the revenue if they win the project through this marketplace. So, when an individual client posts requirements for a new project to be conducted on the online marketplace, the marketplace communicates these opportunities to the selected vendors and freelancers and requests proposals to be delivered to the client.

The client then awards the work to the appropriate vendor depending on price (which may be on a per hour or a fixed cost basis), delivery time and a quality score provided by other clients who have been served by this vendor.

In this model, the online marketplace typically earns between 5 per cent and 15 per cent of the contract price in return for an assurance of a minimum service level from the vendor, thereby reducing the risk for the client.

Evalueserve’s research estimates that there are currently more than 90 online marketplaces on the World Wide Web and projects that they have involve over 500,000 vendors and freelance professionals who are providing these services from low-wage countries.

Some of the prominent online marketplaces are Guru.com (the largest marketplace with more than 625,000 registered vendors and freelance professionals), California-based Elance.com, Florida-based RentACoder.com and GetAFreeelancer.com, owned by Sweden-based Innovateit.