Craigslist: The remarkable but potentially obsolete success story of the “ultimate platform”

Craigslist, the largest classified advertisement platform in the world, has enjoyed over two decades of largely free offerings connecting "providers" and "seekers" of services and products. Craigslist has long resisted innovation and change to stay true to its simple and free offering, yet as new entrants build competitive value propositions, such mindset and strategy will not only hamper its growth but threaten its very existence.

What is Craigslist?

Craigslist, founded in 1995, is a well-known global online platform for classified advertisement to connect “providers” of jobs, housing, products, and services, among others, with “seekers” of those same offerings. Unlike other advertisement platforms, Craigslist is free for all users -both providers and seekers- with few exceptions. Craigslist, although less known, also hosts a large community section with local news and events, political forums, as well as discussion forums connecting users on any number of topics.

The platform has consistently ranked in the top 20 most visited websites in the U.S. and among the top 118 websites globally with an estimated 50bn views per month, all essentially without advertising or marketing since its inception.

 

How does Craigslist create value?

Most prominently, Craigslist creates value for its users -companies and individuals- by providing a platform to post advertisements with images and text largely for free, the exception being very low fees ($10-$75) for a relatively small group of advertisements in select areas and categories in the US. The advertisements can list anything from jobs to the sale of furniture and gardening services, and much more, allowing the “providers” of services, jobs, or products to avoid the fees that otherwise would go to middlemen coordinating connections. Craigslist’s success is much attributed to being “globally locally” based, i.e. Craigslist is available globally, in ~70 countries and ~700 cities, but users enter their approximate location and can only see and post ads that are available in their near proximity, visualized on a map. This facilitates and expediates coordination as users can from start eliminate contact with anyone outside of their willing “transportation zone”. Over time, Craigslist has been able to capitalize on its cross-side positive network effects among users – the more providers there are, the more seekers are drawn to the website, and vice versa, and the more difficult it will be for new entrants to gain market share.

Another important although lesser known aspect of Craigslist’s popularity is its discussion forums, started and developed organically by users on any topic of interest ranging from “death & dying” and “money” to “science & math” and “bisexuality”. It provides an opportunity for users to find friends with mutual interests, giving them an avenue to express themselves and engage anyone in the forum in dialogue. An increased user base in Craigslist’s discussion forums enables wider and more diverse interest groups, a same-side positive network effect Craigslist yet has room to experiment with.

Craigslist, simply put, is a go-to one-stop-shop for anyone providing or seeking a service or product and has since inception prospered upon its first-mover momentum. By keeping Craigslist’s offerings consistently (largely) free on a website clear of annoying 3rd party sponsored advertisement, the company has established loyalty among its users who trust it to be a platform for them as intended beneficiaries rather than exploited subjects.

Nevertheless, Craigslist has received continuous and harsh critique for its notoriously poor UX design and prevalence of scammers, the latter destroying the critical trust between the platform and users. Yet despite its challenges, it has not been visibly successful in improving its user experience, opening doors for competitors who have noted a window of opportunity to create a superior platform.

 

How does Craigslist capture value?

Craigslist is and has always been a private company, ~40% owned by its founder Craig Newmark, and has as such not disclosed any financials or information on investments, past performance, or strategy for the future. Nevertheless, analysts estimate that the company could be worth anywhere from ~$5bn to ~$10bn, hosting an estimated ~100m classified advertisements at any time with yearly revenues of ~$1bn, despite offering almost exclusively free services without sponsored advertisement.

Remarkably, Craigslist’s entire revenue comes from a handful of exceptions to their otherwise free offerings, including small and affordable fees for e.g. job postings of $10-75 in selected areas, broker apartment rentals in NYC of $10, and few other postings – largely only applied to professional dealers (rather than individuals).

Craigslist in 2017 had a surprisingly meager 50 employees to support its operations, sufficient considering the company neither offers customer service to its users nor invests in any form of marketing or advertisement – making its successful journey all the more impressive. Apart from server costs and legal bills, the company has few other operating costs, boasting profit margins of 79% to 84% as estimated by AIM in 2013.

Many outsiders question why Craigslist is not monetizing further on its popular platform through sponsored advertisements or further fees, as most of its competitors do, believing it could be done without a significant loss in its user base. One argument is that the company believes such changes would risk being perceived as exploitative to users, consequently eroding trust critical to the platform’s success. However, the more comprehensive answer is likely another: Newmark, now committed to philanthropy through his own foundation, is not and never has been interested in maximizing revenue for Craigslist. Rather, he views Craigslist as a way to “give back” as a “good internet citizen”, according to a Forbes article in 2017. Without a maximizing approach, providing a consistent, simple, and reliable service to the people is supposedly sufficient, without the need for innovation and a fiercely competitive agenda.

 

Craigslist’s potential for sustainability and scalability

Being one of the most trafficked classified advertising platforms in the world, Craigslist has huge potential to capitalize upon its over two decades’ long success. Not doing so will not only hamper scaling but also risk simply sustaining the company’s global and local presence.

The first and most obvious growth obstacle to address is its chunky, confusing, and arguably unattractive and outdated UX design that deters many potential users that today expect a more intuitive and visually pleasing websites. Considering Craigslist’s high profit margins, investment in significant although gradual (as to not deter existing users resistant to change) improvements are likely feasible as well as financially and otherwise desirable from all aspects.

Second, Craigslist must significantly reduce or ideally remove the number of scammers on the website. Although requiring additional resources by the company, this could be addressed e.g. through stricter user identification to increase accountability in combination with constant AI and human monitoring with possibility of repercussions for offenders.

Without taking the above two actions, Craigslist inevitably will be threatened and possibly overtaken by new entrants copying the same concept but with improved user experiences, including start-ups such as Letgo and OfferUp. Further risks for Craigslist’s sustained position are posed by emerging niche players with improved user experience and a proposition that make users question the value of a one-stop-shop, leading to user erosion. With multi-homing highly prevalent, constant comparisons in experiences and results are made by users, enhancing the speed at which users shift preference from one website to another.

The strongest and most worrying competitor -so far- is likely Facebook Marketplace, which has gained strong momentum in recent years, backed up and strengthened by Facebook’s continuously expanding unparalleled and trusted user network.

Craigslist currently claims profits that allow for plenty of room to experiment and innovate to sustain its powerful position as the go-to platform for classified advertisement, with high potential for growth and revenues to compensate for its investments. Not doing so may risk their eventual downfall. If investments requiring additional financial and operational resources are considered, Craigslist has the option to further monetize on their website through additional small fees across more categories, likely without much loss in its user base considering its improvements.

Beyond the obvious improvements of existing offerings, Craigslist could hugely benefit from finding possibilities of strengthening their global network effects to decrease the threat of losing market share both in new and existing markets. Without losing its intended design of creating local clusters of networks, it could potentially enhance its value offering of connecting users across markets (beyond postings attractive largely to those moving or transitioning from one local market to another). Worth considering is whether it can leverage its popular global discussion forum to more aggressively strengthen the sustainability and growth of its local advertisement platforms.

Lastly, although Craigslist is present in ~700 markets across ~70 countries, 99% of its revenue comes from the US and its brand recognition is significantly weaker outside of the country. There are likely attractive opportunities to enter new and uncrowded markets as well as potential to increase its presence in existing markets, particularly if enhancing its offering to create global network effects, in all instances adding potential revenue sources.

The main obstacle to sustainability and growth at Craigslist is likely the company’s and its founder’s strong principles valuing customer offering over monetization, trusting consistency over innovation. Although admirable in many ways, the issue is that without innovation, the company’s customer offering will soon no longer be strong enough to stay relevant, undermining its very well-intended purpose.

 

Sources:

https://www.forbes.com/sites/ryanmac/2017/05/03/how-does-craigslist-make-money/#264691c727b1

https://craigslist.org/

https://www.businessinsider.com/craigslist-facts-2019-5

https://www.cnbc.com/2019/01/24/craigslist-posts-annual-revenue-of-1-billion-study.html

https://www.businessinsider.com/network-effects-2011-5

https://www.zdnet.com/article/nbn-rollout-map-adds-rsp-network-connections-timeline/

https://www.userzoom.com/blog/craigslist-success-without-design/

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