Fiverr’s Q4 2023 shareholder letter reveals an ambitious company doubling down on its upmarket aspirations and championing a mix of AI and humans as the future of work. However, despite these positive signals, a storm continues to brew among its selling community.
This article isn’t intended to be an analysis for investors. Instead, it’s a look at the key points of interest from a seller’s point of view. Fiverr’s Q4 2023 focus indicates a strategic focus on AI and targeting higher value clients, offering opportunities and challenge for sellers who want to thrive in the freelance marketplace in 2024.
This article represents my personal opinions and assertions and should not be taken as any type of expert financial reporting. I do not own any stock in Fiverr.
All figures and quotes in this article have been taken from Fiverr’s Q4 2023 shareholder letter. Before jumping into the article, here are the key points of interest:
- Fiverr is increasing its focus on complex services where AI is used
- Fiverr will continue to focus on attracting more high value clients
- Fiverr is will continue to research and develop proprietary AI tools
- Fiverr needs to address its transparency and communication issues
And if you’re just here for the statistics:
- Buyers are spending more, with a 4% growth in spending over $500
- GMV (Gross Merchandise Volume) saw a 29% year-on-year growth for complex services
- Promoted Gigs delivered an 80% increase in revenues, despite seller complaints
- Fiverr estimates that AI contributed 4% to Fiverr’s GMV in 2023
There are no big revelations or shocking insights in Q4, especially for people who closely followed Fiverr developments over 2023. The company’s strategy largely remains unchanged from the groundwork laid in August 2023 and first observed in Fiverr’s Q3 2023 report.
Fiverr Has Big Plans Plans for 2024
“Entering 2024, we expect to continue executing the strategy we set in 2023 and further expand our leadership as the destination for digital services”
Micha Kaufman, Fiverr CEO
Fiverr’s 2024 priorities are very much building on the successes of 2023, with a strong focus on growing the company’s market share in complex service categories and expanding the Fiverr Business Solutions catalog.
It’s also committed to continuing its extensive investment into developing proprietary AI applications, which it hopes will improve the Fiverr experience for sellers and buyers. Finally, it is continuing to build out platform features for its higher value users with the introduction of Fiverr Agencies and a new Consulting category.
On paper, it all sounds good for freelancers who choose to use the platform. What’s not to like about higher value clients and more features? Nothing – these introductions have passed with little attention as the community has angrily reacted against the platform over a core change, introduced just last week.
And yes, AI is at the heart of this storm – among other things.
Why Are Fiverr Sellers Angry with the Platform?
“It is often under-appreciated the tremendous value our e-commerce model provides to freelancers in reducing their unbillable hours and increasing their net earning power. It is a significant barrier for other players to provide similar values and hence command such take rates”
Micha Kaufman, Fiverr CEO
Visit the Fiverr Forum or the r/Fiverr subreddit, the two largest online Fiverr communities, and you’ll notice that leadership’s vision and positivity is rarely shared by the platform’s users. The past week has been an exceptional one, since that gulf grew even wider.
Fiverr’s new approach to its levels and rating system lies at the heart of this seller dissatisfaction, with issues over Fiverr’s perceived lack of transparency and fairness being two core issues. Fiverr’s use and support of artificial intelligence has also raised genuine fears. Sellers are worried about generative AI’s encroachment on jobs as well as Fiverr’s use of AI technology to govern its marketplace.
This unrest existed long before the Winter Product Release, but have climaxed in the past week. It’s a curious juxtaposition against Fiverr’s otherwise promising financial and strategic developments, but one that reflects the gulf between corporate success and the everyday struggles of individual workers in the gig economy.
Since Fiverr is unlikely to change the core mechanisms of its new ranking system, it would be better for sellers to focus on opportunities for growth that Fiverr is planning to provide over 2024.
Fiverr’s Marketing Continues to Push Upmarket
“In terms of acquisition, we are shifting more budget towards acquiring higher lifetime value customers. Together with continued expansion into more complex projects from both the catalog and product fronts, we are seeing a meaningful uplift in the type of buyers that come to our marketplace.”
Micha Kaufman, Fiverr CEO
In 2023, Fiverr changed the focus of its marketing and customer acquisition strategy to target buyers with a higher lifetime value. At the same time, it deliberately reduced its investment in channels that attract low-value customers. Over the year, this has resulted in a 4% growth in buyers who spend over $500 on the platform while driving the average spend up.
The numbers tell their own story:
- Average buyer spend increased to $278
- Active buyers decreased to 4.1 million
- Revenue grew by 10.1% over the financial year
While Fiverr may be losing buyers, sellers are making more money per order. The average spend suggests that sellers in the Pro catalog may be benefiting the most from this, particularly as Fiverr promised in Q3 that it would be driving more buyers to its premium service marketplaces (Pro, Enterprise, and Certified).
Fiverr is also actively “improving seller quality” which should make vetting Fiverr sellers a lot easier for the platform’s buyers. These efforts have not gone unnoticed in the seller community as people have posted complaints of Fiverr rejecting their seller profile, their gigs, or both. Below is an example of a typical email:
I anticipate that Fiverr will continue to drive the base quality of its sellers upwards in 2024. Despite calls from freelancers, Fiverr will probably not adjust its commissions and fees model, the highest in the freelance platform industry. The new levels and rating system will almost certainly play a key part in this over 2024. It remains to be seen if Fiverr can smooth out the current issues and finally drive out the majority of the platform’s worst sellers.
Q4 2023 Shows That Fiverr’s Take Rate Continues to Increase
A take rate is the percentage of each transaction that a marketplace keeps as its revenue – on Fiverr, the take rate is covered by seller commissions (20%) and buyer service fees (5.5%). Thanks to initiatives like Promoted Gigs and Seller Plus, Fiverr’s take rate is an industry-leading 31.8%.
Although sellers love to hate Promoted Gigs for its lack of targeting, it hasn’t stopped them using the feature to get an edge in a crowded marketplace. Fiverr’s revenues from Promoted Gigs increased by an impressive 80% alone, while Seller Plus grew by 2.5 times compared to 2022 (although a shock price increase announcement in April 2024 has turned many off the program since this article was published).
Fiverr has said that it expects momentum to slow down on Seller Plus – possibly due to restrictions in the new levels and ratings system.
Fiverr Has an Aggressive Focus on Growth and Development
Sellers often complain that Fiverr does very little with the 20% (another industry-leading statistic!) they pay in commissions, especially when clients are low quality and thin on the ground. However, that’s simply not true: in Q4 2023 alone, $22.1 million (24.1% of revenue) was spent on R&D along with $39.8M (43.5% of revenue) on marketing.
Sellers who are seeing their numbers falls should be looking at the wider picture and adapting, especially if they are targeting the lower end of the marketplace. More complex services that use AI and target businesses are a good bet for 2024, since this strategy aligns with Fiverr’s own marketing strategy.
Why do I recommend this? It’s simple: new buyers coming into Fiverr are likely to match the profile that Fiverr is targeting – not to mention that Fiverr has already confirmed that its algorithm gives more weighting to orders completed with new buyers. In other words, if you deliver a great service to these new buyers, you’ll be rewarded with more visibility.
Are Complex Services the Future for Fiverr Sellers?
Complex services are defined by Fiverr as those where human skills are essential, even if AI is used to improve some aspect of that service. In contrast, simple services were those where human talent is most prone to disruption.
Examples of simple and complex services that can be offered on Fiverr include:
| SIMPLE SERVICES | COMPLEX SERVICES |
|---|---|
| Voice-Over | Mobile App Development |
| Translations | Financial Consulting |
| Logo Design | AI Development |
| Data Entry | Cybersecurity Analysis |
| Social Media Posts | 3D Modeling and Animation |
Fiverr estimates that AI had a net positive impact of 4% on its business in 2023. This shift emerged with a noticeable marketplace shift from simple to more complex services over the year.
One potential service to avoid would be anything related to NFTs (Non-Fungible Tokens), one of the hottest trends of 2021. Fiverr’s NFT-related categories saw a decline of 80% from 2022 – and they expect that decline to continue.
On the other hand, GMV from complex services grew by 29% over 2023, with the average transaction size being 30% higher than simple services. Complex services now take up 32% of GMV, up from 25% in 2022. So, if you’re a new Fiverr seller wondering what the best services to sell are, there’s you answer.
Fiverr’s Love Affair with AI Is Getting Serious
“This is just the beginning. We believe that AI will be a multi-year growth driver for us as we continue to innovate and unleash its full potential”
Micha Kaufman, Fiverr CEO
Fiverr estimates that AI was responsible for 4% of its uplift in GMV over 2023. While the huge global interest in AI played its part – just as it did NFTs in 2021 – Fiverr has been no slouch with integrating AI into its marketplace.
In its Q4 2023 report, Fiverr emphasized four areas of development on the platform with AI:
- AI-driven levelling system (the new levels and ranking system)
- Fiverr Neo (the new AI matchmaking chatbot)
- AI-powered personalization (customized seller listings in the Fiverr marketplace)
- AI-assisted briefing (Fiverr Pro feature for buyers for detailed brief creation)
Fiverr said that AI had helped it to reduce frictions in the ecommerce model, addressing challenges that were previously impossible to solve. It also underlined that AI had led to category expansion over the year in respond to the growth in demand from buyers seeking to shore up skill gaps as a result of technological advancement.
The majority of sellers will almost certainly disagree with Fiverr’s assertion that their use and deployment of AI on the Fiverr marketplace has boosted productivity and creativity, but the numbers do seem to support Fiverr’s argument.
If nothing else, sellers should be looking into developing more complex services that use AI, preferably focusing solving the problems of business. This has already been discussed, but it’s worth bringing up again. The reason is simple: Fiverr’s own marketing is targeting those same, high value buyers – and the report promises an “aggressive” strategy pursuing an expanded market share of complex services over 2024 and beyond.
That’s not to say that all is lost for sellers and buyers with smaller jobs who would rather do things the more old-fashioned way. 44% of Fiverr’s GMV came from services that mostly remained stable and largely unaffected by AI over 2023.
For now, Fiverr is a marketplace that has something for (almost) everyone – but as AI continues to develop, sellers offering simple services will need to adapt or die. Not just on Fiverr, but everywhere.
Fiverr Is Going for the Big Prizes: Sellers Should Join Them
“It is often under-appreciated the tremendous value our e-commerce model provides to freelancers in reducing their unbillable hours and increasing their net earning power. It is a significant barrier for other players to provide similar values and hence command such take rates”
Micha Kaufman, Fiverr CEO
We’re only two months into 2024 and Fiverr has already made huge changes to the way its platform works. Sellers may revile the new levels and rating system, but it’s clear that Fiverr is building a new framework that tries to reward its best sellers while pushing the worst out.
This isn’t just through a tough new rating system. It’s also through limiting new seller access to the marketplace and slowly moving away from lower value buyers. AI’s ability to complete many simple services is an external factor that is only helping the freelance platform to squeeze out the sellers it no longer wants.
Levi Newman’s meeting with Fiverr the day before Q4 results were announced also indicated some interesting changes on the horizon, particularly the idea of some sort of seller representative who might work within Fiverr. It’s clear that Fiverr has put a lot of thought, time, and money into its strategy, but its communication remains a weak point.
There have been clear winners and losers in recent months, but not a lot has been said of another group: the middle. These sellers may not shine as brightly as the platforms best or fail as hard as its worst, but they’re also a largely competent and quiet majority.
Overall, there’s nothing particularly radical in the Q4 2023 report for anyone who has been closely following Fiverr’s development over 2023 and its August Product Release. As I concluded for the Q3 report, sellers who want to succeed on Fiverr should be focused on integrating AI into their services and joining Fiverr on its great march upmarket. Otherwise, they may find themselves lost in the middle or worse, left behind by an AI rating system that demands nothing less than their best at all times.
