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.