Craig and that darn List

Inevitably, when talking about the newspaper business, craigslist will be mentioned as one of the things "killing" the business. It's one of the things where the conventional wisdom is spot on... craigslist and others have killed classifieds.

Again the big question is why?



Simple economics supply some insight into the answer. Monopolies and imperfect competitive forms have some degree of pricing power. In the best cases they can drive significant surplus profits and consume much of the economic benefit created.



However in perfect competition, prices are driven down to marginal cost, the amount of money it takes to produce an incremental product. For properties like craigslist, that cost is pretty darn close to zero. They've chosen to charge in a few selected categories, but generally everything is still free on it for this very reason.

Newspapers saw this and tried to imitate. Even ebay has tried to imitate, but none has had the success of Craig. It is simply too late to imitate free. Craig's list has too much traffic for others to succeed in its wake. It is the gold standard for low priced stuff that doesn't ship very well. Appliances, furniture, rentals, "escorts," work from home jobs, services. Most of these products aren't worth $49.95 to list in the paper, but free is quite valuable. Furthermore, the traffic that is generated is very valuable. It's a self supporting loop. Audience comes for the listings, and the listings go to the sites with the most audience. Imitators are on the outside of this loop, and will find it very hard to break in.

The only answer is differentiation. When a product is unique, an element of pricing power returns. Ebay knows this well, as the auction model offers value which can increase the price for a seller. It works best in things that ship well: electronics, handbags, collectibles, etc... It also has the audience loop on its side, although there are some indications that it might be slipping slightly.

Newspapers are stuck in the middle. They can neither offer the national exposure and price maximization of eBay, nor the low budget experience combined with audience of Craigslist. They have been stuck trying to salvage the print product which seems futile at best. For all of its design flaws, craigslist is easier to use than printed classifieds.

I propose that newspapers learn to work with the two dominant players in the space. eBay has never figured out how to do local items that don't ship well, and newspapers could help here by creating local portals for the right categories. Furniture would be my first foray, and I believe that the newspaper should be a full service reseller of eBay's platform. Arrogance on both sides has prevented discussions, but that needs to end. Craigslist is in need of reputable services to post and sell items for them. Instead of selling space, newspapers should be selling this service, perhaps including credit card billing and safe exchange locations.