“We React to the Customer’s Demands”

December 1, 2008 • Business Models, Digital News • by

Neue Zürcher Zeitung, August 22, 2008
How Craigslist Revolutionised the Classifieds Business in the U.S.
Some count him among the gravediggers of the daily newspaper, but for many he is the benefactor of all those who are buying or selling, searching or finding, leasing or renting through the classifieds and who, so far, have had to pay quite dearly for it – whether they post their small ads in traditional newspapers or on the Internet.

Craig Newmark, inventor of Craigslist, has revolutionised the classifieds business in the U.S.  In 2004, his company entered the European classifieds market, which, so far, still forms part of the lucrative core business of daily newspapers, advertising journals and city magazines, as well as websites such as Auto or Immoscout.It’s not necessary to memorise Craigslist’s offline address, but the location is quite an impressive case of understatement: 1291, 9th Avenue, San Francisco is the postal address of a rather shabby old building set within a quiet area bordering downtown San Francisco. In other words, it’s a building that would be deemed exceptionally modest by even the smallest of local advertising journals.

Once past the iron fence guarding the main entrance, visitors are greeted by a pair of blue garbage cans. Next follows a narrow flight of stairs which leads to the first floor, where one finds an “office environment” that looks rather like a shared flat inhabited by a bunch of students. No receptionist, nor a chief secretary shielding the company’s CEO from unwanted visitors.  Instead, one is greeted by said CEO himself, a lanky, youthful man who stands two metres tall. Jim Buckmaster is “probably the only CEO” who has ever been described by journalists as “anti-establishment,” and a “communist and a socialist anarchist.” He views himself differently, of course, but doesn’t seem deeply offended by the epithets (otherwise you probably wouldn’t find them on his website).

The Internet certainly opens new possibilities. Today, any individual can post an ad for free on craigslist.org, while real estate agents and employers who want to promote their house and job offers have to pay fees. Fees, mind you, which still lie far below the rates that used to apply to the classifieds section before the Internet revolutionised this segment of the advertising market, and before Craigslist revolutionised the Internet.  In the U.S. alone, an impressive 40 million people visit the website each month – almost twice as many as the country’s most successful news website, nytimes.com, manages to attract. The company, which is headed by its founder Craig Newmark, generates annual revenues between $80 and $100 million – according to an estimate by the New York Times (official figures are not available) – and has a staff consisting of a mere 25 people. In the U.S., Craigslist has become the largest platform for small ads in existence, and in terms of visitors it’s the eighth most frequented English language website in the world.

The earnings lost by Craigslist’s competitors far exceed those gained by Newmark’s successful start-up.  By how much is hard to calculate, since not even the Newspaper Association of America (NAA) gives out specific numbers. To give a rough indication at present the combined classifieds sections of the world’s newspapers generate annual sales in the amount of $14.2 billion. However, almost a third of this business has already deteriorated since the all-time high of $20 billion that was posted in 2000. The statistical records reach as far back as 1950, and they indicate that in no other year were the losses more dramatic than in 2007 when, according to the NAA, they reached a staggering 16.5%, which translates to a sales decrease of $2.8 billion last year alone.

That Craigslist might actually be responsible for a large part of this downward trend is not something Mr. Buckmaster cares to discuss in any detail. “We are merely reacting to the wishes of our community,” he says before outlining the service-orientated nature of his company and enumerating the many advantages Internet-posted small ads have over their paper-based counterparts. The company’s founder Craig Newmark, according to a quote published in the New York Times, also regards the accusation as an “urban myth.”

The company began as a private non-profit initiative launched 13 years ago by Newmark, whose main purpose was to inform friends and acquaintances of events taking place in San Francisco. The subsequent rise was impressive, and over the last two years Craigslist has seen a rapid expansion. Today the company is present in 500 U.S. markets, among them communities with less than 20,000 inhabitants, which means that Craigslist no longer only threatens the big city newspapers, but their small town cousins as well. Moreover, the company seems poised to conquer Europe too. In 2003, a Craigslist branch opened in London, followed by offices in Amsterdam and Paris (2004) as well as in Zurich, Rome, Frankfurt, Madrid and Munich (all 2005). In 2008, 120 cities have been added to this list so far, among them Basel and Bern. In Switzerland, where the company has been active since 2005 (in Zurich and Geneva), Craigslist generates 1 million visits a month.  In the UK, this number already stands at 20 million.

Practically all Craigslist employees devote a large portion of time to the task of keeping the website free of unwanted content. Buckmaster admits that they are not always 100% successful in doing so, given the millions of ads that are posted on Craigslist. While it’s true that a centralised control of the website seems impossible, the CEO stresses that the website’s users are acting quite efficiently as “Internet police” themselves, discovering many ads that run counter to the spirit of the Craigslist project. Once an ad is bookmarked, sophisticated software checks it again and permanently removes the content, if necessary, from the website.

Newmark and Buckmaster seem to embody the symbiosis between counterculture and cyberculture which Fred Turner, a young Assistant Professor in Communication at Stanford, has recently identified as a sign of our times in his commendable book*. Buckmaster is advocating a “low stress business model” based on word-of-mouth and snowballing effects. Hence Craigslist’s refusal to invest in advertising or marketing, of which Buckmaster responds to saying, “People don’t like commercial brakes on television, and they equally don’t like Internet pop-ups or calls by telemarketers. We can afford the luxury to do totally without it.”  Similarly, the company doesn’t have PR consultants on its payroll but, instead, it is ready to answer specific questions when contacted by journalists, Buckmaster says.

But aren’t they missing out on many golden opportunities by handling things like this? “If your annual sales increase reaches 100%, growth is no longer one of your top priorities,” the CEO explains. And both he and Newmark seem to agree that their company should remain “low key,” meaning that they’re content with offering Internet users a valuable “community service” without being too keen on building up any kind of “corporate culture.”

Whether they will succeed, however, depends on one of their co-owners who has recently fallen out of favour.  Twenty-eight percent of Craigslist is owned by eBay, and a fierce legal battle has flared up between the two companies, with the eBay management accusing Buckmaster and Newmark of deceptive manoeuvres. Neither Buckmaster nor anyone at eBay are ready to discuss the current state of this legal dispute, but eBay has set up a website www.kijiji.com that functions along very similar lines as Craigslist and is active both in and outside of the U.S.  At present, the two rivals continue their battle for supremacy by invading each others’ markets.

Like so many successful businesspeople in America, Newmark acts as benefactor by donating money to a variety of projects, specifically those aimed at supporting journalism. Among them you will find websites such as factcheck.org, PRWatch.org, NewsTrust.net and publicintegrity.org– all of which are initiatives designed to keep a watchful eye on politicians and their spin doctors, and to make the media more accountable. “Every democratic society relies on a strong free press that is capable of confronting politicians with critical questions and exposing any misuse of power,” Newmark says. Media companies and in particular bloggers often lack the resources that are necessary for serious research and fact-checking, which is why Newmark supports groups “which help preserve a strong journalism.”

Unfortunately Craigslist is making newsrooms everywhere lose more money than Newmark could ever hope to give back to them. On the other hand, anyone in favour of a free market economy will think twice before blaming Newmark and Buckmaster for destroying the former quasi-monopoly of the large publishers and their classifieds sections. Rather, Craigslist’s success is likely to further bolster Buckmaster’s position and his strong belief in the flexibility of small companies, a belief that regards the business behemoths as fundamentally “dysfunctional”.

*Turner, Fred (2006): From Counterculture to Cyberculture, Chicago: Chicago University Press

Translation: Oliver Heinemann

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