eBay's Craiglist Deal Classified As A Horror Story

On Friday, Aug. 13, eBay announced the purchase of a 25 percent stake in closely-held online classifieds giant Craigslist, from an unidentified former employee for an undisclosed amount. While eBay's intentions for striking the deal remain murky, the news left media publishers with classifieds businesses feeling apprehensive, to say the least.

According to the Classified Intelligence Report (CIR), "Craigslist-eBay Deal 'a Learning Experience,' Unnerves Newspapers," one online publishing industry newsletter drew an analogy between the eBay deal and "Friday The 13th" killer Jason Vorhees of the horror-movie series.

"Like a certain hockey-masked stalker from Camp Crystal Lake," the newsletter said, "Craigslist threatens to slice into newspapers' employment and real estate advertising strongholds. Add the huge promotional power of Meg Whitman and her team and this is one horror flick you don't want to see."

Craigslist, for those living in a hole or abroad, is an online local classifieds marketplace that-to the chagrin of online publishers that sell classifieds-offers free postings and transactions, but with one caveat: it charges for job postings in San Francisco (and only recently) New York City and Los Angeles. It operates 45 city or regional Web sites, all of which have been developed primarily through word-of-mouth, as Craigslist does not advertise. The company reports more than a billion monthly page views, and 5 million unique visitors.

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When asked if he understood how newspapers feel threatened by Craigslist, site founder Craig Newmark told the CIR, "I know they're worried about us; I wouldn't say threatened. If they're worried about us, they're worried about the wrong thing." Newmark later added that he would like to place Craigslist "everywhere on the planetary surface," a feat that most local newspaper publishers would surely rather not see happen in their lifetime.

"Really and truly, [Craig] is right," noted Peter Zollman, founder and principal of CI. "Craigslist is not the threat; it's a symptom or a reaction to the threat," which he noted is the fact that younger readers are using different media, and newspapers continue to suffer from declining readership and circulation, not to mention several recent high-profile circulation scandals involving major publishers. "Newspapers have lost their role as the marketplace [for classifieds]," Zollman added. "Craigslist is the new marketplace."

Zollman said that to compete with compelling consumer services like Craigslist, newspapers need to become the most potent local resources they can be. This means having a substantial Web presence, and while very few have no online presence, he said that many are following poor strategies, such as locking out non-paying subscribers from their classifieds sections.

In the United States, classifieds represent a 40 to 45 percent of a newspaper's advertising revenue, according to CIR, making it a $15.8 billion business at U.S. daily newspapers alone, with an added $28 to $30 million coming from other classified providers such as weeklies, trade publications, and dot-coms.

Because Craigslist is a closely-held private enterprise, it's anybody's guess as to what eBay had to pay for its quarter stake in the company. The CIRreports that Wall Street analysts have estimated the selling price at anywhere between $4 and $25 million; CI's estimate is between $10 and $12 million, which would value Craigslist at upwards of $50 million. Its annual revenue is estimated between $7 and $12 million; CI guessed $7 million for 2003, and $9.5 million for 2004.

According to eBay spokesman Hani Durzy, the company bought the minority investment in Craigslist to learn more about online classifieds and how to reach local markets. We're learning more about the classifieds market... what these are, what it is that makes them tick," Durzy told theCIR.

Zollman believes that in the short-term, eBay's involvement in Craigslist will be minimal. In the mid-term, he said he expects eBay to aid the classifieds provider in its expansion efforts, eliminating the scams that permeate the service, and implementing new technologies. Zollman doesn't expect eBay to fund promotional efforts, at least in the near future.

Altamonte Springs, Fla.-based Classified Intelligence, publishes the Classified Intelligence Report twice monthly in association with the Advanced Interactive Media Group LLC.

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