A New Pricing Model for Freelancing Platforms based on Financial

and Social Capital

Stefan Kambiz Behfar

and Qumars Behfar

Digital Lab, CGI Consulting, Stuttgart, Germany

Neurology Department, Cologne University, Cologne, Germany

Keywords: Pricing Model, Freelancing Platforms, Financial and Social Capital.

Abstract: Over the freelancing platforms, there is usually disagreement on the price between project owners and

freelancers. Usually project owners do not know what price to offer to have the project done with excellence

within the allocated time, and freelancers do not usually know what price to offer in order to win the project

in the competition. What we propose is to calculate and offer a realistic value to project owners based on

financial and social capital. In this way, the company would be able to attract more clients with upscale

projects, because 1) Both the project owners and freelancers become satisfied with the offered price, 2)

There will be less negotiation on how much a project really worth, and 3) Have the clients more segmented,

therefore the company can attract high value customers from the competitors. In our methodology, social

capital is calculated via different approaches such as embedded resources. At the group level, capital

represents some aggregation of valued resources such as financial resources as well as social connections.

1 INTRODUCTION

There has been much research in defining theory of

social capital (SC) in physical communities. Prusak

& Cohen (2001), Putnam (2000) and more have

shown that social capital requires interaction among

people in order to achieve common goals and

understanding and build trust, and indicated that

positive interactions among network elements could

lead to social capital. Furthermore, SC could be

developed when each member of the network or

community thinks that they can meet expectations,

and their actions will be reciprocated. Some items

such as trust, expectations and obligations are very

significant in developing social capital according to

Putnam (2000). In collaborative environment, SC

can be utilized for sharing tacit knowledge, better

knowledge sharing, when trust among members is

established. Individuals with well connections can

benefit from shared value and support. Also,

members with well connection usually offer support

to other members due to sense of obligation. These

have been all investigated in physical communities,

however there is a lack of research in this regard

within virtual communities, where most members

barely know each other; therefore there is less sense

of trust relationships. However, there are other

variables involved such as being aware of each other

background, nature of relationship, and community

goals.

Although there have been many researches

seeking to understand the nature and value of SC in

physical communities, there have been very few to

none research done to investigate SC in virtual

communities. Unlike other forms of capital such as

financial, human and physical capital, social capital

relates to connections among people or members.

The difficulty has been always how to translate this

into dollar value. In fact, social capital could be

translated into how to put value to connections

among people. Portes (1998) indicated that

individuals interacting in social networks seek to

produce profit. This profit could be caused by three

reasons including 1) facilitating flow of information,

where social ties in some strategic locations could

provide useful information about possible

opportunities, 2) these ties could carry more valued

resources due to their location (e.g. structural hole)

or power asymmetry in decision making , and

therefore carries a certain weight in the process of

decision making, 3) social ties could reflect the

agent’s accessibility to resources through social

networks, which adds to the individual’s personal

Behfar, S. and Behfar, Q.

A New Pricing Model for Freelancing Platforms based on Financial and Social Capital.

DOI: 10.5220/0006757001090112

In Proceedings of the 3rd International Conference on Complexity, Future Information Systems and Risk (COMPLEXIS 2018), pages 109-112

ISBN: 978-989-758-297-4

 2019 by SCITEPRESS – Science and Technology Publications, Lda. All r ights reserved

109

capital. In this study, we propose to calculate and

offer a realistic value to project owners based on

financial and social capital.

2 THEORY DEVELOPMENT

Researches in literature have focused on significance

of both resources and relations in social capital. Burt

(1992) is the typical focus on location of individuals

in a network and its relationship to social capital.

Bridges indicate individual’s competitive advantage

in access to more and diverse information. In

addition, strength of ties as shown by Granovetter

(1973) is a well-known concept on network location

measurement which indicates bridges usefulness.

Other measures such as density, size and

betweenness are also key elements specifying the

social capital.

Another focus on how to measure social capital

is via embedded resources. Wealth and power are

indications of embedded resources in most

communities (Lin 1999). Therefore, social capital

could be analyzed by the amount of such resources

that an individual or a community member has a

direct or indirect relationship with. Embedded

resources could be in one’s ego network or via one’s

contacts used as helps such as in job search.

Assuming that bridges link to different information,

it will be useful if that information links to resources

valued by individual. For example, a bridge helping

an individual looking for a job to people who have

strategic positions in the firm is more significant

than bridging to other people who are members of a

club.

As indicated in Table 1, the first approach to

measure social capital is via measuring embedded

resources. In this approach, measurement focuses on

valued resources such as wealth, power, and status

within one’s ego network or contacts. These could

be measured by 1) the range of resources among ties

or distance between highest and lowest valued

resources, 2) best possible resource in the network,

3) variety of resources, or 4) composition of

resources. After all, these 4 measurements could be

combined in one single factor, because they are

highly correlated. Another approach or measurement

strategy focuses on network locations to determine

the social capital. Granovetter (1973) was first to

express the notion of bridges in the strength of weak

ties; afterwards Burt (1992) elaborated it by

introducing notions of structural holes and

constraints. Other measures such as size, density,

betweenness and centrality could be also used to

specify the social capital.

Table 1: Two principal approaches in measuring social

capital as assets captured by individual (Lin, 1999).

Focus Measurements Indicators

Embedded

resources

Network

resources

Range of resources, variety

of resources, composition

Contact status Contacts’ occupation,

authority, sector

Network

locations

Bridge to access Structural hole, structural

constraint

Strength of tie Network bridge, intimacy,

intensity, interaction

3 ANALYSIS

In order to estimate intangible assets, we have

determined a set of explanatory variables which

influence on financial and social capital. There are

input variable selected such as book/set value, net

income, market value, number of customers (for

each freelancer), and profit per freelancer or project

(for each project owner). We finally choose those

variables which significantly influence the output of

the financial network. From the other side, defining

the effect of social capital on some individual

outcome SC(i), we develop a linear model for the

total capital (Siderska, 2017). We show each ego

network information set by ego(i), and each

individual independent variable is denoted by X(i).

An individual’s expectation of the average financial

capital represented by E(F(i)|Ego(i)) is made

conditional on ego network i information set Ego(i),

whereas the expected social capital per ego network

is represented by E(SC(i)|Ego(i)). Total capital per

network node is obtained as below:

Capital

= a + b Xi + c E(F(i)|Ego(i)) + d E(SC(i)|Ego(i))

+ εi (1)

where Ego network entails all the network

information such as degree centrality (project

owner’s number of previous/current connections),

betweenness, size and density. The only method that

ensures the best choice of a set of input variables is

to try all the possible sets of variables and all the

possible types of network architecture. After all,

some input variables are adopted among all for the

construction of the model. Finally, the calculated

value including both social and financial capitals

will be utilized as a proxy for the price of a new

project.

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4 DATA AND MEASURE

We contacted the company, Freelancer.com, to

collect data for a reasonable sample of project

owners and freelancers. At the time of writing this

proposal, freelancer.com has almost 25 million

registered users and about 12 million posted jobs.

Types of jobs range from IT, website design,

product sourcing and manufacturing, data entry,

business services and marketing, language

translation, sales and marketing, and engineering

and science. Freeleancer.com website says: “We

have experts representing every technical,

professional and creative field, providing a full

range of solutions: Small jobs, large jobs, anything

in-between, fixed price or hourly terms, Specific

skills, cost and schedule requirements. Just give us

the details of your project and our freelancers will

get it done faster, better, and cheaper than you could

possibly imagine. Your jobs can be as big or small

as you like, and be fixed price or hourly. You can

even specify the schedule, costs, and milestones.”

There is usually disagreement on the price

between project owner and freelancer. Usually

project owners do not know what price to offer to

have the project done with excellence within the

allocated time, and freelancer does not usually know

what price to offer in order to win the project in the

competition. What we propose is to calculate and

offer a realistic value to project owners based on

financial and social capital. In this way, the

company would be able to attract more clients with

upscale projects, because

1. Both the project owners and freelancers become

satisfied with the offered price.

2. There will be less and less negotiation in

regards to how much a project really worth or

take time.

3. Have the clients more segmented, therefore the

company can attract high value customers from

the competitors like upwork.

We measure project value based on different

variables including relevant projects sold value, and

the value of individuals who have completed those

relevant projects. At the same time, we measure

freelancer value, based on both financial and social

capital, i.e. how much in dollar was the value of the

relevant project sold, and what is the social capital

of that freelancer within the ego network.

We compute the network measures by creating a

social network topology of the projects and

individuals using a two-mode affiliation network.

Examples of affiliation networks that have been

studied in the past include e.g collaborations among

Broadway artists (Uzzi and Spiro, 2005) and co-

authorships (Newman, 2004), in which the groups to

which actors belong are respectively the groups of

actors appearing in a single show or the groups of

authors of a scientific article. Following the same

approach, we create an adjacency matrix.

We compute a measure of how well connected

the freelancer is in the network. There are several

approaches to computing the centrality of

individuals in networks. Different measures should

be more or less appropriate depending on the

assumptions made (Borgatti, 2005). Some centrality

measures account only for geodesic paths like

closeness and betweenness, whereas the eigenvector

measure does indicate that the traffic will not only

flow via shortest network path.

5 CONCLUSION

In this study we aim to calculate the financial and

social capital within freelancing platforms, and

specifically we focus on the website of

freelancer.com, and attempt to determine both the

offered project and freelancer values based on social

and financial capital within the affiliation network.

Social capital could be calculated via different

approaches including embedded resources or

network locations. At the group level, capital

represents some aggregation of valued resources

such as financial resources as well as social

connections. There are different measures associated

with network location of individuals within the

network including centrality, betweenness, size,

density and more. In order to estimate the intangible

asset, we have determined a set of explanatory

variables which influence on financial and social

capital. There are input variable selected such as

book/set value, market value, number of customers

(for each freelancer), and profit per freelancer or

project (for each project owner).

REFERENCES

Cohen, D. and Prusak, L. 2001. In Good Company.

How Social Capital Makes Organizations Work.

Massachusetts: Harvard Business School Press.

Putnam, R. 2000. Bowling Alone: The Collapse and

Revival of American Community, New York: Simon

Schuster.

Portes, A. 1998. Social Capital: Its origin and applications

A New Pricing Model for Freelancing Platforms based on Financial and Social Capital

111

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Burt, R.S. 1992. Structural holes: the social structure of

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Granovetter, M. 1973. The strength of weak ties.

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Lin, N. 1999. Building a network theory of social capital.

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Siderska, J. 2017. Neural Model for Assessing the Value

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Uzzi, B. and Spiro, J. 2005. Collaboration and creativity:

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