Junk You Don’t Want Anymore…… Now Online!

Let’s imagine that to kick off the 21st century you are moving……. into a new swanky apartment. The question is what do you do with the 3000lb piano that your parents insisted you took when you moved away from home? You don’t even play the piano, so no way it is coming to the new apartment.

Let’s imagine that to kick off the 21st century you are moving……. into a new swanky apartment. The question is what do you do with the 3000lb piano that your parents insisted you took with you when you moved away from home? You don’t even play the piano, so no way it is coming to the new apartment.

Since it’s the year 2000 and you don’t want to muscle that piano down three flights of stairs. You call your local newspaper and buy a Sunday classified ad in the free stuff section for about $35. After buying the classified ad you hope that someone in the market for a free piano will read your ad on the particular Sunday that you ran it, have at least 6 strong guys handy, and actually show up to pickup your piano. Slim chance.

What if there was a better way to get rid of the piano?

There is thanks to Craig Newmark, the founder of Craigslist. He made it possible for you to put your crap (the piano) and about anything else you can imagine online. It all started in 1995 with an email list about local events in the bay area. By 2000 the service was hosting online classified ads of all kinds in San Francisco[1]. 16 years later, Craigslist operates in 70 countries, accepting 80 million new classified ads each month[2]. Not only are the ads easier to post but also easier to find.

Back to the damn piano, there is snowball’s chance in hell that someone is going to read your ad in the newspaper and want your piano. If it was only 2016 you could post the piano on Craigslist……. Not 20 minutes later some guy smelling like Marlboro cigarettes with a Movember style mustache would show up, he would somehow get the piano down the stairs and proceed to tie it on top of his Geo Metro. This is a far superior experience to the printed ad.

Let’s break it down. Your printed ad is expensive; in 2000 the newspaper industry generated $19.6 billion in classified ad revenue[3]. The printed ad will run for a limited time like 1 to 3 days, so the chance of the right person seeing it are low. To lower the probability of success further, it is likely that your ad will be one of about 2000 other classified ads in the newspaper that day. Unless you are the rain-man it is impossible to search all the ads in the paper that day for specific content or keywords, like “free piano”.

Craigslist addressed these frictions by making most ads free to post, available for 30 days, and searchable. By digitizing the classified ad, Craigslist disrupted the $19.6 billion industry. In 2015, US newspapers reported revenue from classified ads of only $4.6 billion[4]. It is unclear exactly how much of the $15 billion decrease in ad revenue over 15 years can be attributed directly to disruption from Craigslist.

Two business school professors, one from HBS and one from Stern, attempted to quantify exactly how much Craigslist cost the newspaper industry. They found that between 2000 and 2007 newspaper revenue decreased by $5 billion due to direct competition from Craigslist[5]. The new competition caused the newspapers to reduce classified ad rates while increasing subscription and other printed ad rates. These price increases resulted in newspaper subscribers getting an even worse deal then when they had to crawl through thousands of classified ads to find pianos.

What may be unfortunate for the newspaper industry is your windfall, without Craigslist you would still be the proud owner of a 3000lb piano on the third floor.

(600 words)

 

[1] Diamond, Erica. Huffington Post, “The Interview With Craig Newmark,” http://www.huffingtonpost.com/erica-diamond/erica-diamond-interviews-_b_1364628.html, accessed November 2016.

[2]Craigslist, “Factsheet,” https://www.craigslist.org/about/factsheet, accessed November 2016.

[3] State of the Media, “Newspaper: By the Numbers,” http://www.stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfully-slow/newspapers-by-the-numbers/, accessed November 2016.

[4] State of the Media, “Newspaper: By the Numbers,” http://www.stateofthemedia.org/2012/newspapers-building-digital-revenues-proves-painfully-slow/newspapers-by-the-numbers/, accessed November 2016.

[5] Bercovici, Jeff. Forbes, “Sorry Craig, Study Finds Craigslist took $5 Billion from Newspapers,” http://www.forbes.com/sites/jeffbercovici/2013/08/14/sorry-craig-study-finds-craigslist-cost-newspapers-5-billion/#324834c47bc4, accessed November 2016.

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6 thoughts on “Junk You Don’t Want Anymore…… Now Online!

  1. After reading your post, I have three questions about how companies like Craiglist operates and interact with the industry:

    1. Many tech companies are generating disruption in established industries like news & media, pushing revenues and profits down. But, what is their business model? how are they generating profits?
    2. What do you think is Craiglist competitive advantage? Can an online newspaper give the same service, with a more reliable platform?
    3. We know that Craiglist effect broke a 19.6 billion business, which now is worth 4.6 billion plus potential revenues from Craiglist & other similar platforms. But, how do we now if at the end this effect created or destroyed value for the society? Is there any way to measure it?

  2. KFH,

    Thanks for this entertaining and interesting post. Agree with your assessment that the Classfied’s model was a broken one, and a model like Craiglist does create value for society on balance (to the point raised above by Bernadita, although it would certainly be interesting to quantify that). I’d also argue that the main competitive advantage here is having a two-sided network of users who alternate acting as buyers and sellers.

    My real question is around the business model for Craigslist. It seem the operating model is superior, but were they able to disrupt the traditional Classifieds model for that reason—or just because they were willing to accept worse economics than newspapers? I’m not sure I fully understand how (if?) they make money, and how their economics compare to the players they disrupted.

    Overall, great post, and thanks for sharing!

  3. KFH,

    If ever there was a business that survived purely on network effects, Craigslist has to be it. I’m not sure why, after 20ish years, their user experience is still so bad, but it’s almost impossible to replace the company.

    I wonder if they could offer a paid service to increase revenue. A service that gave users a better, more manageable CList experience.

    -JP

    -JP

  4. Flint, sounds like you’ve had some personal experience with a piano. I did not realize Marlboro cigarette-smoking, Geo Metro-driving people go for 3000 lb. grand pianos, but I will take your word for it.

    I have the same questions as the posters above. I am not sure how Craigslist monetizes their business model, and perhaps they have not determined that either, as it doesn’t appear the Craigslist team has spent much money to improve the awful website layout. Do you know if Craigslist allows posters to pay to have their ad show up higher on search results?

  5. I wonder if, at this point, there’s any way for newspapers (or another website) to counter the impact of Craigslist–certainly, no platform has the ease of use and name recognition. eBay comes close, but doesn’t facilitate smooth transition of goods between people in the same geographic area. I think it’d be interesting to see eBay take Craigslist head on–it wouldn’t be a huge leap for the website to go down that path.

    A major issue is the security/safety of Craigslit, given that it’s also a forum where murderers have been able to find victims. Do you think there’s any way to decrease the risk of buyer/seller in the future, without sacrificing the website’s value proposition?

  6. Craig-list is a beast. It allows its customers to basically buy and sell anything from an old piano and used bikes to services of any kind. As someone who spent sometime on the site looking for an apartment and some furniture, I am a bit concerned about the company’s ability to control the quality of its ads.
    In the apartment housing sector for example, one can search for a “no broker” listing and still find himself speaking with a broker at the other end of the line. This is exactly the kind of “quality controls” the company lacks. The thing the company has right now is scale. The network effect, as mentioned above by others, has made Craig-list the beast it is today. I believe that long term, if the quality issue of the lists don’t improve, customers will just move to different platforms that are built in a way that provides quality adds and scale.

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