Craigslist: The dawn of the pioneer in network effects?

Craigslist has been offering a low quality service for twenty years, though it has huge network effects. It is now losing its dominance to smaller niche players. It was about time.

Craigslist has been around almost twenty years now. Although there are countless things we can say we hate about it, we’ve all visited the site at least once and many of us have had to recur to its services out of lack of a better option. I could even dare to say that Craigslist might be the precursor of many popular businesses that are part of our everyday routine.

 

Craigslist, a classified advertisements website where you can buy and sell (or for that matter, “trade”) pretty much anything, started as an e-mail distribution list and became a web-based service in 1996, very close to when amazon and eBay where launched. With more than fifty billion monthly page views, they have built a profitable business, capturing value by charging fees on high-demand selected services, such as job postings or brokered apartments in New York City. They have undoubtedly build a huge network across 70 countries around the world, with more than 60 million users only in the U.S. Their direct network effects have kept them alive for so long, in spite of their inferior functionality and design, lack of customization and propensity to fraud. Nevertheless, entrants in different markets have consistently challenged their dominance.

 

How can entrants take over market leadership when competing with a giant like Craigslist? The answer is: through specialization. It is very unlikely that any new player can build a platform of comparable scale and gain traction through frontal competition. Regardless of how much better the new entrant’s functionality might be, Craigslist already has too big of a network to compete head to head with it. However, niche platforms have proven to be very successful by addressing their target’s specific needs with a better, tailored service. Such are businesses like Airbnb, Tinder, Etsy, Linkedin, Streeteasy, among others.

 

The entrance of specialized new platforms does not only incentivize current Craigslist users (both on the consumer and on the supplier end of the marketplace) to switch to a better service and increase their transaction volume, but it also caters to current “non-consumers”. People who might actually be in need of any of the services offered in the spider web like platform might not even try to transact on the web due to Craigslist’s cumbersome user experience. Having a new, user-friendly platform will incentivize that underserved audience to enter the market, growing the network of the small new entrant and reinforcing its position to disrupt the incumbent.

 

Unconfirmed sources state that Craigslist traffic has already plateaued. Having been target of multiple scammers and unsolicited offers myself, I believe there is huge opportunity for new entrants to continue to take little pieces of Craigslist service lines and develop a superior experience very easily. It won’t be long before it becomes obsolete.

 

What I can conclude from this example, thus, is that although network effects are incredibly powerful, they can’t sustain a business indefinitely on their own. A well-designed user experience is vital to maintain and grow your user base.

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3 thoughts on “Craigslist: The dawn of the pioneer in network effects?

  1. Nice post, Andrea! I completely agree with you that Craigslist needs a new user interface. I still use the website, but am usually daunted by the number of options and honestly the poor design. Given its competition and their heavy investment in user interface design, I’m surprised Craigslist has not made an overhaul sooner. I do believe there are many features of Craigslist that are still useful, such as buying or selling used furniture or renting an apartment. The company has a ton of data, so it might be prudent to use that data to figure out what users value most from Craigslist and cut out the noise. While I’m sure the user base has plateaued, I still feel like it might not be too late for the platform to make a come back. Data can be its friend here.

  2. Although I agree that specialization is taking market share (and rightfully so) from a lot of Craigslist’s offerings, I also agree with HBStudent2016 that this doesn’t necessarily mean the end for the company. Although the user interface does need work, I actually find it extremely easy to use. Just last week I sold two concert tickets over the site. I didn’t care about getting the highest price possible and didn’t want to spend a lot of time dealing with it. It only took a minute to put the add up, I had multiple responses within minutes and the tickets were sold and picked up within the hour. I didn’t have to go through some formal ticket selling site and I preferred that. That’s what the site does best and if they can fix the UI I think there is a place for Craigslist in the future.

  3. Good old Craigslist! Great choice of a subject. I agree with some of the above comments, including the opportunity for specialized sites with modern UI to gain market share. Yet, I don’t think it is the end of the road for Craigslist at all. In fact, I am amazed by the site’s resilience! It is truly incredible that they were able to maintain a massive market share and remain relevant over the years, despite doing a lot of things that should seemingly prevent them from succeeding. Just to mention a few: a simple UI that remained largely unchanged since its early days, low threshold for posts’ quality, absence of prestigious VCs (the only major investor appears to be eBay and that round was completed more than a decade ago), among other.

    What if Craigslist’s scrappiness and simplicity is exactly what attracts users and creates strong network effects? Do you really need all the bells and whistles of a specialized site to sell an old IKEA table? In my opinion, this organic feel and authenticity is what makes Craigslist attractive. After all, its founder never wanted to build another billion dollar company; he was just looking to create something useful for its users. This is a good lesson for future founders: first and foremost, create something that is truly relevant for users; bells and whistles will be the creme on your cake.

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