The Myth of Free Classifieds
My friend Jeremy Philips wrote a great review for the WSJ recently of The Curse of the Mogul, a new book on the plight of the media industry by Jonathan Knee, Bruce Greenwald and Ava Seave. I recently started reading the book, and it’s quite a good read. But I want to focus here on one very insightful point Jeremy made in his piece:
For an example one need look no further than online classified advertising—which, the authors say, was the “first killer moneymaking application” on the Web. Leading online players around the world, charging fees, have withstood challenges from rivals offering listings free—suggesting significant competitive advantage. Craigslist, mythology aside, has been charging for job listings in its home market of San Francisco for more than a decade.
With all the (deserved) hoopla around the ”free” craigslist and its tremendous success, it’s important to remember that craigslist actually charges for key categories (e.g. jobs, real estate) in big markets (e.g. SF, NY). Not only is this where they make their money, but its also how they make the site useful. Without separating the wheat from the chaff in these key markets, the service would likely be overrun by spam and unusable for consumers.
This reality is consistent across all classified category leaders on the web. Leaders in Jobs (Monster, CareerBuilder), Personals (Match), Autos (AutoTrader), Real Estate (HomeAway) all have paid listings model that drive their business.
There are current attempts to buck this model, most notably Zillow in real estate and OLX in international markets.
Early on in the life cycle of a business such as Zillow, having a free platform is key to amassing listings and eyeballs. I’m very curious to see how their model evolves over time though, as they continue to drive audience and scale of listings.
OLX doesn’t suffer from some of these issues in their smaller markets with low supply volume. And it is my understanding that they are moving towards a paid listings model for exposure in key scale markets.
The only solution to this problem as I see it is a technical one that can separate the relevant listings from the noise for each unique end consumer. This is seemingly a very challenging data normalization and search/algorithmic (or potentially social data/behavioral) problem that I haven’t seen a great solution to yet. If you are out there cooking one up though, I’d love to hear about it…
First Destruction, Then Creation
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place…And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won’t break before new systems are in place. They are demanding to be told that ancient social bargains aren’t in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
Clay Shirky, Newspapers and Thinking the Unthinkable
Since I read these lines from Clay Shirky’s brilliant piece on the decline of newspapers, I can’t seem to get them out of my head.
Recognizing destruction when it’s occurring takes a tougher emotional toll on us than an intellectual one. We may be acutely aware of what’s happening, but we still cling to familiar institutions. It’s a very natural human reaction. But once we begin to loosen our emotional grip on the past, we can break free.
Understanding what is to come in the wake of a revolution is an entirely different story. It is what venture capitalists attempt to do every day. But in reality, while we may be right on certain trends we certainly cannot predict the future with any degree of accuracy. We therefore bet on talented entrepreneurs going at big markets in the hope that *they* will figure it out.
Many markets are being completely upended today. The combination of increasing broadband penetration and speeds, rapidly declining personal computer costs, information and services moving to the cloud and recessionary pressures on many high cost traditional businesses has created the perfect storm.
But what will come in it’s stead? What businesses will be built? What models will be employed?
These are the questions being asked across a number of media and advertising markets today — the music business, the publishing business, the classified advertising business, the yellow pages business, the banner advertising business, the video business and the list goes on.
We have to change the way we think. We have to ignore old models and old cost structures. Forget the labels. Forget the printing presses. Forget the banner ad.
We have to start by asking what does the consumer or customer *really* want? How can we deliver it to them as efficiently and effectively as possible? What is the least it can cost us to deliver? What can we fairly charge for it?
Let’s take the classified ad business as an example. While the largely free craigslist has gone a long way towards annihilating a good portion of that market, does that mean there will be no value created in the future servicing local businesses looking to acquire consumers?
Certainly not. But with our limited current view, we often fail to see the possibilities or even what’s happening right under our nose.
First of all, old school classified categories such as recruiting, autos and personals have all seen hugely profitable businesses built on the web (e.g. Monster, Autotrader, Match). Now these businesses, or at least their current models, are themselves likely to be upended by better, more efficient models over time. But new ones will certainly be built in their stead to service the same needs but with very different business and economic models.
Secondly, while craigslist is incredible at inventory and demand aggregation, it has other holes in its offering for local merchants. Social marketing and payments solutions are just two examples where innovation has barely scratched the surface.
I continue to be intrigued by vertical content and marketplace businesses starting anew in the wake of the creative destruction we’re experiencing. The businesses of tomorrow are being created today. Keep ‘em coming!
