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Summary:

Online classifieds have been at once among the most disruptive of Internet sectors and the hardest to break into. Google and Yahoo set up initiatives there, only to see them grow ever more marginalized. Now eBay’s Kijiji, having polished its act for more than two years […]

Online classifieds have been at once among the most disruptive of Internet sectors and the hardest to break into. Google and Yahoo set up initiatives there, only to see them grow ever more marginalized. Now eBay’s Kijiji, having polished its act for more than two years outside the U.S., has set up shop on turf long dominated by Craigslist. The news got me thinking about why no one has been able to stop Craig Newmark and his skeleton-crew staff. There are some lessons there that apply to Internet business in general.

Kijiji’s extremely low-key launch last week was greeted with pokerfaced analysis by more mainstream outlets and by snickering from some blogs. And there’s reason for both. If eBay can interlace Kijiji with its marketplace business, it has a strong base from which to compete against Craigslist. On the other hand, eBay is now competing with itself – it owns a 25% stake in Craigslist – and that is just the kind of thinking that has gotten Yahoo in trouble.

One analyst, Ben Schachter of UBS, was optimistic, but only over the long term. I think he’s right. There are short-term nuts to crack first, such as: How do you make money at this? If you charge a fee for listings, everyone will head straight to Craigslist, which is free. And if you rely on ads, then those ads are competing for attention with the people who put the listing on your site.

Moving into the online-classifieds business is a bit like being in a pickup bar around closing time: The opportunities that stand before you often look much more enticing than they may be in reality. We keep reading about how newspapers are starving to death because the Internet – especially online classifieds – keep eating their lunch. And their dinner and breakfast.

So it’s reasonable to think, in a Tony Robbins kind of sunny logic: “If newspapers are losing money on classifieds, then someone must be making money – why can’t that someone be me?” But the thing is, no one is really making all the money that the newspapers are losing. And there’s one reason for it: Craig Newmark.

I like reading about Newmark in the business press, which simply doesn’t get him. He’s referred to with bizarre labels like socialist (whether Stalin-style socialism or Swedish-style socialism depends, I guess, on whether or not you’re in print). Nevermind that Newmark has painstakingly nurtured his list into one of the most essential properties on the Web, succeeding where many others failed.

No, Newmark is an oddball because he leaves money on the table. If Wall Street were a church, that would violate a sacred commandment. Craigslist reportedly made $25 million last year, which is really nothing next to its potential. With one phone call to Goldman Sachs, Newmark could launch the biggest tech IPO of the next year or so and make enough money to built a rocket to fire into orbit, where it would bump into all the other rockets built by tech billionaires. But he doesn’t! It’s just so … so … socialist!

Actually, Newmark is not so much a radical as a hard-core traditionalist, harking back to the days when people created something on the Internet because they thought it would give other people what they needed. And that is the reason behind Craigslist’s success, its secret sauce.

In the years since those early days, the Internet has become a big, honking, disruptive, money-creating machine. Not only was this inevitable, it’s become necessary for people (like me) who make a living off the Internet. By holding out, Newmark isn’t rebelling against Internet business as he is offering a key lesson. Imagine a line running between two poles, one of which is a Newmark-like devotion to the consumer and the other a desire to make money. There is overlap, of course, but not enough: Move too close to Newmark’s user focus and shareholders get antsy; go too far in the other direction and your customers will look elsewhere. A smart company is constantly assessing where it stands on that line.

There are people at eBay who understand this, which is why the company may emerge as the first real competitor to Craigslist. That would be good for Craigslist, since it would spur it to better address some of its weaknesses: spam listings, fraud, unethical sellers. But to do that right, it would help for eBay to sell its stake back to Craigslist. At this point, the two are better off as competitors than friends.

  1. Jesse Kopelman Monday, July 9, 2007

    frenemies?

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  2. i love it – there is at least one person i can count on to remember my only moment of clarity in past 12 months. thanks jesse.

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  3. Steve Stroh Monday, July 9, 2007

    Well… Kevin doesn’t quite get it either. The purpose of any business is to make money for its stakeholders. Craigslist does that handily – Newmark has said that Craigslist makes a lot more money than is needed for covering the actual expenses, including reasonable salaries.

    In short, the Craiglist financial model WORKS for those who have a stake in it… and that’s all that really matters in the end.

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  4. Exceptionally well written article. I look forward to reading more of them.

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  5. All of this analysis presupposes that eBay makes good business decisions, executes well and rolls out quality products, none of which is the case.

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  6. If you look at the money-happiness curve, Craig obviously does not need much to enjoy his life. Why bother competing in the crazy rat race? Money is just not that important to him. Social capital is much more important. Benkler calls it peer production. Some call it socialism (related to, but not necessarily), which i guess is a hard thing to understand living in the the hardcore “survival of the fittest” money-driven US.

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  7. Kevin Kelleher Tuesday, July 10, 2007

    Steve, you misread me if you think I am being critical of Craigslist’s business model. I agree it makes more than enough money. However, I can’t abide by your use of the term “stakeholder” – it’s evolved to include everyone, not just shareowners (including rival eBay) and employees, but also customers, and the customers of customers (the people who buy from those who post on Craigslist) as well as the broader community, which in the case of Craigslist includes the newspapers it’s “competing” against. So how can you say it’s truly making money for all its stakeholders?

    Dustin, thanks!

    James, I agree with your sentiment. It’s one thing to work like hell, it’s another to do so in a rat race.

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  8. Kijiji might make a significant impact, but it’s very doubtful. The online recruitment space, for example, is incredibly cluttered, making it nearly impossible for newbies to make an impact. Most Internet recruiting experts put the number of online job boards at 40,000 and growing globally. The typical HR person simply ignores most of the noise. I’ll be surprised if 1/4 of recruiting pros can spell Kijiji in 5 years, let alone use it.

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  9. Kevin, I couldn’t agree with you more. I think eBay wanted to buy Craig’s List and came up against a guy with principals. Once they learned how Craig’s List works from the inside, via a board seat, its now time to compete. A flip on the old saying “If you can’t buy em’, beat em’”

    If eBay wants to make a serious move they have the resources to do it.

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