While managing to escape without any mainstream press coverage, the collapse of Freelancer’s share price has been a rapid fall from grace for former BRW Rich Lister Matt Barrie. Shares in Freelancer, Barrie’s tightly held outsourcing marketplace, are in free fall, dropping more than 70% from a high of $1.80 in early 2016 to only 52 cents today. The former market darling’s value has slumped to $238 million, a far cry from $800 million around 18 months ago.

There wouldn’t be any shortage of schadenfreude among Australian tech insiders, many of whom openly questioned Barrie’s business model and his seemingly lofty view of his own abilities. Your correspondent repeatedly questioned Freelancer’s prospects shortly after its 2013 float and again a few months later.

However, fund managers, enticed by Barrie’s confidence in the tightly held business (Barrie and long-time partner Simon Clausen still own 76% of Freelancer shares), ignored the warnings and pushed its valuation to $800 million. In 2014, BRW would even value Barrie’s wealth at $255 million. But there were a few problems with the market’s rosy view of Freelancer.

First, there was a big question mark on the sustainability of the freelancer marketplace model. That is, if you find a good freelancer and hire that person for years, it makes far more sense to employ the person directly and cut Freelancer out completely. It’s not an inherently “sticky” marketplace like Seek.com and has no genuine network effect benefits. This means the lifetime value of its customers is lower and required higher marketing costs (to keep acquiring new customers to replace the old ones). This is what venture capitalists refer to as the unit economics of a business — and in Freelancer’s case, they don’t seem too flash.

There’s also the pesky issue of competitors, with Freelancer competing with the US-based Upwork. Upwork was formed after the merger of two of Freelancer’s competitors, Elance and oDesk. Generally, the largest marketplace in a sector will obtain the highest relative valuation, while smaller competitors tend to usually discounted as they lack pricing power. Crikey noted in 2014 that:

“Not long after Freelancer listed, two of the biggest players in the outsourcing space, oDesk and Elance, announced they were merging. This was quite big news, as the combined businesses generated US$750 million in payment volume in 2013. By contrast, Freelancer’s annual report noted that despite growth of 66% during the year, it had generated only AUD$84.4 million in sales during 2013. Not only is Freelancer not the largest marketplace globally, it is around one-tenth of the size of the dominant player.”

Two years later, and Freelancer’s gross payment volume for the first half of 2017 was only $82 million — a fraction of the size of Upwork. Although strangely, Freelancer’s ASX announcement this week still noted that it was the “#1 Online Services Marketplace”.

[Is Freelancer a $600m company? Behind the online market splash]

But Freelancer has bigger issues than being a distant No. 2 in a competitive marketplace. On Tuesday, the company reported that gross revenue across its Freelancer and Escrow.com businesses together slumped by 18%. It also reported a lower gross profit and margins. Its earnings before interest and tax (EBIT) also worsened, from a loss of $260,000 to a bigger loss of $560,000. It is hard to find many positives in that announcement.

For a mature business, these results would be disappointing — for a high-growth, loss-making business like Freelancer, trading on an eye-watering multiple, the announcement was an unmitigated disaster, and Freelancer’s share price promptly fell by around 25%. While most of the drop came from its Escrow.com business (which appears to have been a terribly timed purchase), the core Freelancer business showed virtually no growth. Freelancer’s woes also extend to its job size, which appears to have decreased since 2012.

[Will Freelancer’s fortunes float?]

This isn’t the first time Barrie has courted controversy. In 2007, Barrie quit as CEO of Sensory Networks after a disagreement with shareholders (the company’s performance appeared to improve after Barrie’s departure, and would be sold to Intel for in 2013 for US$20 million). In 2016 Barrie launched a scathing criticism of Sydney’s controversial lockout laws, singling out St Vincent’s Hospital emergency doctor and former Senior Australian of the Year Gordian Fulde for criticism. Given Fulde spent his lifetime saving people’s lives and Barrie runs an internet business that has lost money for a decade, the criticism appears misplaced.

Given Freelancer has practically never made any money and, in the last year, has become smaller, it would appear difficult to justify even its current, shrunken $238 million valuation. Although given Barrie and Clausen own more than three-quarters of the business and dominate its non-independent board of three, it’s unlikely the colourful former Rich Lister is going anywhere.

Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed, published by John Wiley & Sons in 2010