Tuesday, July 5, 2011

The Economics of the Sealed-Bid Auction in Online Translation Databases, or Why Petitions Against ProZ.com Are Useless

A staple of the freelance translation market in the early 21st century is the petition by freelancers against online job auction sites such as ProZ.com and Translatorscafe.com. The objective is usually to get them to introduce some kind of change or regulation that forbids cheapo outsourcers from posting projects at very low rates. While I sympathize, I don’t sign these petitions for a series of reasons I hope to sketch out here. I am a member of both websites, the former as a paid subscriber and the latter as a regular (i.e., non-dues paying) member after several years as a paid subscriber, but that is not the reason.

No, the main reason that these sites tend toward dirt-poor rates is that their job platforms are structured as a “sealed bid” auction. The low rates are not the product of any conscious policy on the part of the creators of these databases, but rather a byproduct of the way in which the online job platforms are designed. The problem with sealed-bid auctions is that they are organized, right from the start, in such a way as to favor the person or company buying services. Right from the moment you agree to participate in an auction of this type, you are already losing as a service provider. There is nothing wrong with this per se; indeed, this type of “request for proposals” is mandated by many governments as a way to cut down on corruption, increase transparency and get the best deal for taxpayers. (Note: the charge that ProZ.com is a reverse auction site has been leveled frequently, and the site’s owners and employees are very quick to refute the claim vigorously. They are correct, but only in a very technical and narrow sense: in reverse auctions, the bids can be lowered further as the auction proceeds. Moreover, the bids are public and can be seen by both the buyer and the competing sellers. That is not the case on ProZ. On ProZ, you submit your bid and that is final. Furthermore, the bids are sealed. You cannot see what other competitors have bid before you or after you.)

 Now, the sealed bid is fine for governments, but you are a profit-maximizing freelancer. Or you should be, regardless of your politics. (Let me put it this way: if you are not, why the heck are you complaining about low rates?)

In discussions of this topic, ProZ founder Henry Dotterer claims that the lowest bids don’t always or even frequently get the project. Some research about these auctions tends to bear this out. I give him the benefit of the doubt, despite the absence of any corroborating data. But, still, even if the people charging $0.02 are getting laughed at by outsourcers, the people in the next rung in the ladder—i.e. the “pros” who charge double ($0.04!)—probably don’t provide the prettiest snapshot of the profession either. Dotterer wrote in one refutation of the “reverse auction” charge:

If you examine ProZ.com a little more carefully, you find that not only are there no "reverse auctions", there are no auctions at all. When a member quotes, the rate entered, if there is one--it is optional after all--is not shown to others. This makes ProZ.com equivalent to "real world" directories like the phone book.

That may be true, but, again, only in a very technical, hair-splitting sense. I think he means that in order to bid there is no obligation to quote a rate. However, even if there is no compulsion to pencil in a rate, it is very likely that most bidders will be submitting rates regardless, making it a de facto sealed-bid auction (although not de jure; as Bill Clinton famously said, it all depends on what your definition of “is” is). The blank option on the bid page where you can pencil in a rate (but only if you really, really want to) is a classic (and powerful) example of the nudges studied by behavioral economists.

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in Spain.


Kevin Lossner said...

It's tricky generalizing on this subject, Miguel. My general experience of the past ten years of the "sealed bid" auctions at ProZ is that, for serious customers worth having, the project very often goes to someone bidding on the higher end. As far as I can tell, the presentation carries the most weight in my language pair. But I'll grant that this may not be true for pairs with Spanish, Russian or other languages. I think the main problem with crappy rates on ProZ is the number of "emerging world" outsourcers, who also include most eastern Europeans. Why anyone in their right mind would want to send a German text to a Czech or Romanian agency for translation into English is beyond me, but when these usually very nice people contact translators in a German or English-speaking country, their notion of rates are inevitably only good for a laugh. The same applies to most French or Italian agencies dealing with language pairs that do not involve their national language. And don't get me started on the Chinese.

The key for me, at least, has been to filter out all the "noise", i.e. nearly anything from a country where one of my languages isn't a national language, and then be very selective about what remains. Eventually you develop a nose for the ones who don't have a problem with rates in excess of 20 cents a word or 60 to 100 euros an hour or more.

A professional presentation can be quite effective at getting good rates from those sealed-bid portal projects or sometimes taking an offer from those who approach you via that venue and increasing it by some integer multiple. Couple that with a developed sense to distinguish between real prospects and time-wasters, and you can do well in those channels if you have something good (and specialized) to market.

Financial Translator said...

Interesting. So you say you can actually find good leads on the auction platform if you do a little pruning? Perhaps that might be worth looking into. Maybe my view of the auction mechanism is biased: I never found a single client through the auction platform. I'll be going into more detail about my experience of bidding on jobs in a couple more posts this week.

Kevin Lossner said...

A little pruning? More like a lot, Miguel. But there are some gold nuggets in the mud. I just have to filter out about 98% first.