You're really just losing cheap customers. Cheap customers are not fun to work with.
Never ever compete on price. That's rule number one in the consulting industry. If there's a group of people racing to the bottom on price, then by definition they're not your competition.
Shit breaks when something's poorly coded, and has to be fixed (though, the DailyWTF would suggest otherwise). Whereas most people don't care if something's poorly designed and feel that a designer isn't necessary to just get it out there. Designers are fretting about losing mid/small-sized clients to stock templates, much in the same way that most businesses pre-DTP would buy stock letterhead and forms.
It's irrational, but when all of the clients talk about getting rid of the prissy designer one gets jumpy.
"We offer... consulting services at rates that are much less than you might find from other US based software firms"
You'll notice that nowhere do I say we're prepared to compete against teams of highschool kids in Bangladesh on price.
I still like to think I'm competing on quality rather than price. The fact that I bill less for my time when I've got sand between my toes is frankly a bit of a gimmick. Some clients see it as a positive that they're contributing to my suntan.
But cheap customers are often better than no customers, and a friend of mine picked up some of his larger accounts starting off with some loss leader logo design promotions.
It's galling for the UK government to promote a service to the exact types of businesses that you think that service is fine for?
I mean, didn't they recommend it on a resource dedicated to start-ups?
They also might take exception to the notion that race-to-the-bottom logo work fits under the site's "creating a brand" heading; 99designs is exactly the resource for businesses where visual branding doesn't matter much (which in fairness is a lot of them).
I considered a start-up roughly equivalent to the sort of cash-strapped small business you think 99designs is fine for.
Whereas you're primarily drawing a line between start-ups and those other businesses.
I have used 99designs and I didn't like it. My personal opinion, based on my little experience, is it is costly for the services offered. For the record, I have used ODesk, Elance and Freelancer too. When I use these outsourcing sites (including 99designs), I look at both cost and service. Quality, trust, dedication, promptness and professionalism are all part of service. Yes cost is a very important factor. When you have your own business and you need service, like me, you would be looking at these factors carefully too. You look at the service, compare and then you decide on price. It's a capitalistic free economy where no one can dictate a price. Price is dictated by the demands and what the consumers are willing to pay.
I will give you a real life example, my example. I needed some graphic designs for my iphone app. I posted the requirements on all 4 sites I mentioned. I received over 200 bids. Bid ranged from $1,800 to $5 (Yes $5!). I carefully verified all of their work/portfolios, exchanged emails and reviewed their responses (learned a lot from this experience, template responses or try to oversell with superlative words, etc.). Out of all, one designer from Argentina caught my attention. She kept telling how much she wanted to design my graphics. She didn't want anything upfront, in fact, she even said she didn't even want any money if I am not satisfied with her work. She gave me a framework on when and how she would submit her work to me for review and if I didn't like the work she would totally redo it. 6 screens with over 40 icons in 3 different resolutions and she was very happy with $238.
Cheap or bargain shoppers, yes, these sites are mostly for them but there isn't any site where shoppers will say something like... "yea, I am willing to pay $10,000 for 6 screens with over 40 icons in 3 different resolutions for my iPhone app." That doesn't make sense. We have always been creative in this country and we need to be even more creative now. Find ways to deliver quick and more with more options to consumers. If we complain about the labor or other costs, we fail to understand the free market and global economy. It also means we lost the race.
99designs is a very nice way to find someone to work with long term when you have limited design needs (and money) up-front.
Startups will then look at the fact that they spend more money on design than SW tools, yet their competitor just spent $1k for all the design on their site and is doing really well. The only ppl who know they were using 99designs are others in the industry.
Over time this will disrupt the design industry (at least for SW products) -- and I don't think it can be stopped. But I don't think its necessarily a bad thing at all.