If Google disavowed making money, the entire online advertising industry would crumble. That’s not too far from what Craigslist has done with classified advertising. The website—whose chief once insisted that making a profit has “never been a goal”—only charges for a tiny fraction of its services. This has killed the economics of the business for many others.
Now, a lawsuit raises questions about whether Craigslist’s founders are really all that Maoist—and it could be a good thing for its competitors. In 2004, online auctioneer eBay purchased a 28.4% stake in Craigslist from a former employee. This week eBay sued the company for diluting that stake by 10%.
Named for its founder Craig Newmark, the website hosts over 30 million new ads each month, making it the leading classified service in the world. It receives somewhere around 9 billion page views per month, or about half as many as Google’s YouTube. Yet it only charges for job listings in 11 US cities, and apartment listings in one. As a result, its expected revenue for 2008 will only be around $80m, according to research firm Classified Intelligence. But that underplays the extent to which Craigslist has destroyed value in the media business. By charging for few of its services and attracting huge crowds, it has decimated a once highly-profitable part of the newspaper industry. It has had a similar effect on dating and real-estate listing services.
So why did Craigslist decide to issue stock? The company won’t say. But the most likely explanation is that it issued options to its employees. That would suggest Craigslist is turning more capitalistic. For rivals who have struggled to combat its strategy of giving most of its services away for free, any sign that the firm has embraced the profit motive would be cause for celebration.
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