Deal Radar 2010: 99designs, Australia

99designs is a marketplace for crowdsourced graphic design. The company runs contests through which clients submit design briefs to the site along with how much they want to pay. Designers registered with 99designs submit their entries, and the client chooses which design they want and pays the winning designer. This approach has proved popular among entrepreneurs, given the proliferation and profitability of sites like 99designs, but it has often passionate critics.

Australia-based 99designs.com was founded by Internet entrepreneurs Mark Harbottle and Matt Mickiewicz, who are also founders of SitePoint.com, a publisher of educational resources and an online community for Web developers and designers. The pair also launched Flippa.com in 2009, a marketplace for buying and selling Web sites online.

99designs charges small businesses a $39 listing fee to post their design projects on the site and a 10% payment processing fee. So, for example, the total cost to launch a $300 design project would be $369. 99designs takes this from the customer up front. The company then passes on the final designer payment to the winning designer when the project is completed and the finished design handed over. Customers set their own price in terms of they want to offer the designers for a finished design. The company has minimum amounts that can be offered, such as $150 for a logo, $250 for a single Web page, and $100 for a button or icon design or a Twitter background.

The company also has a variety of premium upgrades such as highlighting, listing in bold, or listing in orange. The most popular upgrade is a featured listing, which sells for $49.

The company estimates the small business graphic design market to be several billion U.S. dollars a year. 99design’s top targets are small businesses (from restaurants and lawyers to plumbers and real estate agents); freelancers (99designs.com allows them to focus on their core strengths and outsource other parts of the project); Web shops, which act as middlemen for clients outsourcing custom design to 99designs.com; startups, which are often price-sensitive; nonprofits; and ad agencies, which tend to outsource banner ad creation, landing pages, and so forth.

Most of 99design’s customers are small businesses, but the company has also done projects for adidas, DISH Network, Dictionary.com, SXSW, and New York Times best-selling authors Rick Warren (“The Purpose Driven Life”) and Tim Ferriss (“The 4-Hour Workweek”).

Competitors include elance.com, designbay.com, logotournament.com, logosauce.com, crowdspring.com, freelancedesigners.org, and The Logo Factory, among others. Some of these sites post jobs, projects, or contests in all areas, from programming to editing to design. Others deal solely with the graphic arts. 99designs believes that one of its strengths is that it was founded by designers, and design remains its focus.

99designs makes $12 million in annualized revenue. It has been bootstrapped and profitable since founding. There are over 150,000 registered members who have completed over 34,000 projects. The company says that between 50 and 100 new projects are posted to the site a day, with a new custom design uploaded to 99designs.com every 10 seconds. The company pays out over $500,000 to its design community every month. 99designs.com says that it has over 1 million visits and 12 million page views per month. According to compete.com, there were just under 93,400 unique visitors in December 2009.

The 99designs gained early traction from the design community of SitePoint.com, many of whom moved over to 99designs.com when it was launched. On the customer side, word spread organically. Word of mouth has been the company’s largest driver 99designs has not done much marketing or advertising. The growth strategy is to extend organic growth with proactive sales and marketing. 99designs also recently launched its first distribution partnerships with Intuit and Network Solutions. The company plans to continue to identify similar partnerships through which it can leverage large pools of small business customers. Finally, it plans to offer additional related products and services and to launch a sister site in February or March.

The founders invested the initial seed capital to start the business, which is cash flow positive and funding its own growth. The founders may consider raising money in the future to accelerate growth, but 99designs believes that since it is profitable and growing, there is no need to rush.

The company’s approach is not without controversy. Some designers remain firmly against spec work — defined by the American Institute of Graphic Arts (now AIGA) as “work done prior to engagement with a client in anticipation of being paid,” and the institute officially cautions against it. Others say call the company’s approach “poison” to design and say that low costs are that encourage clients to find the cheapest design possible without taking into account the skill, time, and effort involved in a professional design project. Designers have also raised concerns that winners of 99designs contests must surrender their copyright and have criticized 99designs and its competitors for not taking the proper legal precautions to prevent these sites from taking design ideas free. 99designs, which has a money-back guarantee, says that clients that choose to get a refund because they do not want any of the designs submitted for a contest they hold are not legally entitled to use those designs.

Other designers feel less strongly about spec work and crowdsourcing and say that companies such as 99designs are particularly useful for young designers who are building their portfolios and startups that may not have the money to hire a design firm. The amount of money to be earned on 99designs varied greatly. A search of logo design contests running on January 25 showed that most clients (contest holders) were offering $295 or more for the winning design, almost twice the $150 minimum. The most valuable prize for a logo was $795 and the least valuable $150.

The company has no plans for an exit at this time, saying that its goal is “crea[te] an offering the likes of istockphoto.com orthreadless.com, sites that change an entire industry and become a household name.”

Recommended Readings
Design Your Way Out of a Downturn
Deal Radar 2008: Elance
Design Can Carry A Brand

This segment is a part in the series : Deal Radar 2010