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Valuing Human Capital

(September 06, 2005) 
The web has a knack of flattening, globalizing and deconstructing things we assume are normal and resistant to change. It happens in a fairly subtle way. One day, you wake up and things have changed. The changes themselves become a part of the fabric of living long before they are recognized as "trends".

 It will be 10 years until the labor statistics reflect the huge migration to ebay as an employment alternative. That's just the tip of the iceberg of  employment alternatives that have erupted into the marketplace over the past decade. We routinely cover the impact of this process on the old fashioned big media industry. Recruiting itself is rapidly changing in tone and price as the result of the at-home Internet worker and the move towards "Recruitment Process Outsourcing"

It takes a while for users to understand what's possible. Then, the change rips through the niche. Then, sometime later, the documentation falls into place.

These days, it's happening to the core process of recruiting. Sourcing, which used to be the hidden backroom sleaze of competitive intelligence and phone directory grabbing has matured into a professional discipline virtually free of the stink of the past. Networking services and personal publishing decrease the distance between candidate and recruiter.  As things flatten, the labor market becomes more  transparent.

One of our industry's core assumptions is that the "product" has no (or very little) "cost" until the point of purchase. In other words, we routinely believe that the data that drives the recruiting business will always be "free" from the candidate (no money will go to the candidate). In other words, the supply is so inexhaustible that word of a "job" is sufficient value with which to purchase attention. Most of the new offerings in this current market uptick perpetuate this notion that labor is in infinite supply.

The good news, however, is that the individual candidate (passive soul that she is) is the object of many of the new tools. They're just missing the value equation. Jobster, for example, should work well until network members become aware of the financial value of their time, information and connections.  We anticipate a demonstration of the famous "Sumser Law"* at a rate that surprises the entire market.

Sumser's Law suggests that new tools have a relatively short half-life in which they produce competitive value. The value comes from removing a friction point in an old equation. The savings are one-time cost reductions, not repeatable processes. The value disappears once the original investment is removed from the workflow.

Or, more simply, you have to pay people to work for you. This is not news. The money just needs to be spread further than into the coffers of the company sponsoring the network. In this regard,  Linkedin's service offerings to individual members is a far more sustainable business model than Jobster.

The Jobster approach is misleading in the long run. Its introductory cost advantage is really just a spend-down of human capital investments already made. Once a client exceeds the capacity of the network (or brand) to supply "free" referrals, the client will have to start paying for information, eyeballs and bodies. This might explain why Monster is so surprisingly quiet during the roll out of all of these new services. They understand that there is only a one-time cost benefit that network companies can deliver before they revert to the eyeball-information acquisition model.

We're confident that the folks at Jobster understand this inevitable development problem. Figuring out how to explain  cost increases that are faster than inflation is a separate  problem. The underlying approach to business modeled by Jobster offers an opportunity to collaboratively encounter this problem with their customers.

Another way of thinking about it is "How do you continue to make money on ebay after you've sold everything in your attic?"

Meanwhile, we see a flock of competitors emerging who go directly to pay for performance whether the product is data and data reduction (the RPO world), fee based candidate acquisition (mkt10) or agency based "people-management services" as provided by the newly energized Bernard Hodes folks.

Expect an explosion of opportunities to "pay to play" just as the labor shortages kick in.

* Sumser's Law: For every doubling of Internet population, the experience level of the average user is halved.

Don't forget to check out the blogs on bert.

- John Sumser

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Materials written by John Sumser © TwoColorHat. All Rights Reserved.

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