WSJ on CraigsList and Zen of Classified Ads

prostoalex writes "Wall Street Journal profiles one of the Valley's most mysterious and secretive Web companies. A leader in online classifieds space and by some measures one of Web's top sites, CraigsList is ostensibly anti-ad and anti-self-promotion. From the article: "One industry analyst has estimated that Craigslist could generate 20 times that $25 million just by posting a couple of ads on each of its pages. If the estimate is to be believed, that's half a billion dollars a year being left on the table. What kind of company turns up its nose at $500 million?""

Hey! We were gonna milk that for all its worth!

What kind of company turns up its nose at $500 million?

The kind of company that companies which wouldn't turn up their noses at $500 million doesn't want you to believe exists.

Companies can exist, thrive and even excel without taking advantage of every opportunity to maximize profit. This sort of company tends to be discomfiting to the type of company which would gladly throw some ads at you for extra revenue.

Companies like Craigslist and Costco--places that thrive on word of mouth, putting people ahead of profit, and genuine goodwill--tend to make "normal" companies uncomfortable. How do you compete when your competition has justly earned and kept the trust of the marketplace? How are you supposed to "optimize profits" with a consumer who knows what it feels like to be respected?

Re:Hey! We were gonna milk that for all its worth!

What kind of company turns up its nose at $500 million?

The kind of company that companies which wouldn't turn up their noses at $500 million doesn't want you to believe exists.

And in fact they pretty much don't exist. Craigslist was founded by one guy, Craig Newmark, entirely with his own money. He still owns most of the company, except for one small chunk that he gave away, and that later was sold to eBay.

Craigslist is the exception that proves the rule. Consider the following facts:

• Craigslist has no investors or debtors to satisfy.
• Craigslist has lucked into a large and loyal customer base built entirely on word-of-mouth..
• Craigslist costs very little to keep running.
• Craigslist has goals set entirely by one individual who has no desire to make more money than he needs to live off of.

If any of these factors didn't apply, Craigslist would be just another company that would be utterly incapable of turning its back on that half-gigabuck. And yet each of these factors is extremely rare.

I actually find Craigslist's money policies a little short-sighted. Not that I'm entirely against them providing free ads. It's nice that you can post your resume, or sell your couch, or ask somebody to come and fix your computer, and you don't have to pay. A lot of the people who use these services couldn't afford to use them if they weren't free.

But why should all the people dealing in real estate get a free ride? I don't mean people who just want to split their rent with a roommie. I'm talking wealthly landlords [craigslist.org] and folks selling million-dollar homes [craigslist.org]. Who benefit not just from the fact that Craigslist is free, but the fact that the housing search software is well-designed. They should pay. If Mister Newmark doesn't want the money, there are plenty of worthy causes.

Re:Hey! We were gonna milk that for all its worth!

And in fact they pretty much don't exist. Craigslist was founded by one guy, Craig Newmark, entirely with his own money. He still owns most of the company, except for one small chunk that he gave away, and that later was sold to eBay.

Sole? Sole proprietorships and very narrowly, privately held corporations, partnerships, etc. make up a large percentage of businesses, and many of them operate in accord with interests of their owners beyond simply maximizing financial return or market value of the business.

Widely, publicly held companies whose management's sole duty is to maximize the financial return to the owners may make up most really big businesses, but they certainly aren't most businesses.

Re:Hey! We were gonna milk that for all its worth!

Sole? Sole proprietorships and very narrowly, privately held corporations, partnerships, etc. make up a large percentage of businesses, and many of them operate in accord with interests of their owners beyond simply maximizing financial return or market va

Re:Hey! We were gonna milk that for all its worth!

Sole Proprietorships make make up the majority of businesses, but, if you look at it in terms of revenue, I think you will find the largest businesses make most of the money, and have the greatest economic impact.

Last I heard, the vast majority of all

Re:Hey! We were gonna milk that for all its worth!

Did you read TFA? They charge for real estate in NY. Granted, they made that decision because of spam, but not all ads are free.

Re:Hey! We were gonna milk that for all its worth!

"He still owns most of the company, except for one small chunk that he gave away, and that later was sold to eBay."

Actually, ebay owns 25% of Craigslist [cnn.com].

Re:Hey! We were gonna milk that for all its worth!

What kind of company turns up its nose at $500 million?

the kind of company that knows it has more of a future by restraining its greed rather than by indulging it.

Re:...Costco?

CostCo pays their employees very well for retail and treats their suppliers with respect. In return, their suppliers try hard to keep them as a customer, and CostCo's "shrinkage" (i.e. mostly employee theft) is the lowest in the industry.

Their profits are essentially the annual membership fee. Once you've paid that, you're buying everything pretty much at cost (including those higher salaries.)

They do not advertise and dispense with most of the corporate BS. Which means the customer doesn't have to pay for all of that overhead either.

Re:...Costco?

Totally... In addition to what you said, CostCo treats their employees so well that there are waiting lines to get a job in most areas, whereas there are usually no queues for jobs at Wal-Marts or Targets. I understand that they get good pay and decent benefits compared to most companies, and relative to other retail/wholesalers you wouldn't even think they were in the same business... Plus I've heard that they have a strict seniority system and with that comes vacation benefits and that sort of stuff.

Also, from what I hear, they have what is probably the most liberal return/warranty policy of any company on the planet, though I haven't had a need to exercise that feature.

I'm still cautious of huge "big box" retail chains, but on the whole, I'm pleased with CostCo. They seem to be non-evil and that's good enough for me. Plus, I can buy a5 gallon bucket of pickels without feeling guilty, and damnit, that's the way it should be.

Re:...Costco?

I do most of my grocery shopping at CostCo, as well as the shopping for a variety of other products. It's definitely true that some things are more expensive there, but I suspect that that has to do with negotiating power of other large chains. You defin

Returns

I've heard numerous complaints about most of the places around here in relation to returns (Future Shop, Radio Shack, London Drugs, etc). In particular, I've yet to see somebody manage to return a digital camera that has decided to die an untimely death...even with warranty

However, with Costco, you bring in your item and you get a replacement. Sometimes even when the warranty has already passed. For that reason I highly recommend them for such things as digital cameras, etc, simply because when it comes to returns, they don't treat customers like potential cons.

Re:...Costco?

Costco is generally considered to be a "model company" in how it treats its employees and customers.

There's a couple of not-necessarily-unbiased articles about it (both seem to take a WALMART BAD! COSTCO GOOD! spin, which while I probably agree with it, is pretty definitely a spin):
http://reclaimdemocracy.org/articles_2004/costco_e mployee_benefits_walmart.html [reclaimdemocracy.org]
http://www.seattleweekly.com/news/0450/041215_news _costco.php [seattleweekly.com]

Also, someone mentioned Costco sells items at their cost and only makes a profit on memberships. That does not appear to be accurate:

"Costco caps its profit margin on most products at 14% and allows itself slightly higher margins only on its Kirkland Signature store brand (a name derived from its previous headquarters in Kirkland) with a strict 15% profit limit."

(From the Costco page at Wikipedia, with a reference to a source article.)

Unheard of...

What kind of company turns up its nose at $500 million?

Perhaps, one that has decided that it doesn't need $500 million?

I know, it hurts my brain too.

Re:How about for charity?

How about letting people decide for themselves what charity they want to donate to, instead of forcing you choice upon them? The simplest way to do this is to not take the money off them in the first place.

Business Ethics

That "industry analyst" should tell his wife that "she is leaving thousands of dollars on the table" by not becoming a part-time prostitute.

Re:Business Ethics

Better yet, she should tell her husband that she's not going to "leave thousands of dollars on the table" so she's going to divorce his sorry ass and take half his stuff.

Re:Business Ethics

I think you just reminded me why MAD uses pictures to convey its humor.

I didn't RTFA but...

What kind of company turns up its nose at $500 million

The kind that likes to keep its readership? How much would viewship go down if they had to be subject to ads? Or how many people will just get adblocking software? I know I already do.

Is that money they turned down for real?

Is it possible that if craigslist didn't offer most ads for free, they wouldn't be where they are today, and they couldn't have cashed in? Was linus turning away millions by not charging $50 a copy for linux? Charging money for all ads on craigslist would be killing the proverbial gold-egg laying goose because it's not producing fast enough.

Re:Is that money they turned down for real?

They do not suggest charging money for the ads currently on craiglist. What is suggested is allowing companies to place an ad (textual, banner, or otherwise, who knows) at the top of all the different pages, which get tens of millions of views per day.

The kind of company..

that isn't driven to make all the money possible as soon as possible. Part of the reason CraigsList is so popular and people appreciate/use it so much is because they aren't a bunch of sell outs who will spam you with ads at every possible opportunity.

Also, sometimes when running a business, the best place to be is not necessarily the "biggest" and/or "most visible" place to be. Not every company dreams of or wishes to aspire to growing into some kind of huge behemoth like Wal-Mart.
---
http://wi-fizzle.com [wi-fizzle.com]

magic word

that isn't driven to make all the money possible as soon as possible. Part of the reason CraigsList is so popular and people appreciate/use it so much is because they aren't a bunch of sell outs who will spam you with ads at every possible opportunity.

100% right on. you used the word "spam", and while i know you meant visual spam, it reminded me of something.

One of my favorite things about craigs list is that you *never* need an account to use it, so you know they aren't spamming you. no crap in the mail box, no crap in the box, so lots of people use it and it works.

their whole point has been conmunity-focused interaction. it's impossible to have a community if the participants are all on the receiving end of the host's spam. if they had ads, or required accounts, it wouldn't be a community, and it wouldn't be used the way it is

A company...

* that doesn't want the crap politics that happens every day in corp america

* who genuinely thinks customers come first

* that wants nothing to do with the power plays in the industry (their power play is right there with their loyal customers!)

* dont want venture caps knocking on their door

* who hates the idea that facebook wants 2 Billion for less traffic and prestige than their site

* who feels that their size is good and right for them, not for wall street.

* whose leaders and owners can sleep without worries at night

Have you ever listened to Craig in an interview? Do so, and you'll find 10 more reasons than I cited, easy.

Re:A company...

the kind of company that would probably generate that much
traffic in the first place.

Re:A company...

As listed here: http://www.craigslist.org/about/help/post-fees.ht m l [craigslist.org]

"All posts are free, except for:
-job listings in New York City, Los Angeles, and the S.F Bay Area
-brokered housing posts in New York City"

how shortsighted

"What kind of company turns up its nose at $500 million?" how about a successful one? one with integrity, and one in touch with its user base, and one that wants to stay around?

people also scoffed at google's little one-line blurb text ads when they came out. are they scoffing now?

i'm certain there are plenty of guys who would love to put interstitials and flash animation on craigslist. and such people would drive craigslist into the ground. you don't make money on the long term by destroying your user base's allegiance by pissing them off

so your choice is: make $500 million this year, and much less year and year after that, as your user base abandons you, by putting annoying ads on craiglist. or: make $25 million this year, and keep growing, and stay the place to go to for online classifieds for all time, since you have won and deserve and keep the respect and allegiance of your userbase

"the customer is always right" ever hear that one? some people just don't get it: they are very shortsighted. they are willing to destroy craigslist's user base for a fast buck, thereby making less money over the long haul. that's a nice sound business sense

Re:how shortsighted

Perhaps a Firefox extension is in order...

The mind boggles

An analyst claiming that an advertising site could make more money...by advertising. There's some sort of feedback loop here I just can't wrap my mind around.

The endless potential for benefit

Our economic lives could virtually always be exploited in countless ways if we were willing to do so. Not everyone wants to live their lives in a way to allow them to exploit every "opportunity" that can be imagined. Not everyone really wants to truly maximize the economic value of their lives either. If someone wants to just have a business of their choice without pinching all "opportunities" to fill eyeballs with the paid messages of others, I hardly consider that a tragedy, no matter what kinds of dividends it could pay to the "greater economy". Nor do I consider it a failing of the economic system that competition doesn't force him to do so. I personally would consider that more of a rare victory for the the role of humanity in our economic system - a trend I hope continues at a stronger pace than has been the case for the past few decades in the US.

Sometimes, just creating a simple system of mutual benefit, and leaving it simple, is of much greater value than the usual constant gamesmanship of economically preditary behavior. Even in the middle of a ruthlessly free market.

Ryan Fenton

No, because that money does not exist long-term.

They rely on their reputation, and part of that reputation is the lack of annoyances. People buy, sell, and trade there because they don't have to put up with the crap that smothers most commercial websites. If they started selling ad space, their profits would probably experience a temporary spike, followed by a long, slow death as people jumped ship.

There are other classifieds sites. We don't *have* to go to Craigslist. We go because we want to. If we stop wanting to, then Craigslist dies. Since ads would drive us away, allowing them would be short-term profitable and long-term suicide.

Dodging the cluestick

They rely on their reputation, and part of that reputation is the lack of annoyances.

What amazes me is that this is not more obvious to so many people in the business world. The Web really just a series of interconnected user experiences. The author of this WSJ piece seems to think Craigslist is wacky - just plumb daft! - for forgoing potential revenue in favor of taking care of customers. After all, if Craigslist is taking care of its employees and making money, why wouldn't it want to have 10x the employees and 20x the profits! Why wouldn't it want to control the world?!

This snarky little tidbit reveals how little Mr. Carney understands Craigslist, the Web, and customer satisfaction. At the end of the day, all he can think of is all of that (vaporous, as biendamon pointed out) potential profit that *someone* is missing out on:

Having taken advantage of their hospitality for the better part of an afternoon, I stand to take my leave, but my hosts insist on driving me back to my hotel. Once there, we say our good-byes and, belatedly, a thought occurs to me -- an afterthought, perhaps. If Craigslist does what its users ask of it, and Craigslist doesn't need or seem to want all the ad revenue it declines to collect, maybe we, as end-users, should ask them to post some banner ads and give us the money instead. There's something wrong, I suppose, in that reasoning. But I like the idea.

Argh! Someone put some banner ads on Craigslist, and do it quick, before Carney gets an aneurysm!

Points from TFA

So to paraphrase Jim Buckmaster (Craigslist CEO): The company has 21 employees and has been profitable since 1999. They have no venture capitalists or stock holders so they are beholden to no one. Their policy is to only implement things users want. Users don't want banner ads. They aren't above charging commerical interests who use the site for profit, such as real estate brokers.

And that's pretty much it. The guy is happy and making enough money as-is, apparently.

Fascinating.

I'm all starry eyed about this guy all of a sudden. I mean, a true public servant nerd. His very existence totally undermines some of the basic tenets of capitalism. Of course, he could just cash in so fast it's amazing. But he doesn't, for some reason. And they send this guy from the 'money news source' and he manages to impress him. Not to be stared at like some kind of crazy, but to impress him and then take him back to his hotel. I mean, it's not like Craig's List is that impressive- you could rebuild it in a month (week? Three day codefest?) with the right developers. So customer service is key.... And that's what he provides. I'm bowled over.

I love the 'give us the money instead' comment, though. I've always wondered if there would ever be a way for an Internet company to farm big corporations for real people.... At first, I thought that that was what Google ad revenue was doing.

Re:Fascinating.

His very existence totally undermines some of the basic tenets of capitalism.

...or else his existence is the epitome of the greatness of capitalism.

On the other hand, fidelslist and jungilslist are both pretty good, except that A) they do have banner ads, and B) Fidel and Jung Il are the only ones allowed to post to them.

What kind of company...

turns up its nose at half a billion dollars? No company. What kind of analyst says that a company like Craigslist can generate half a billion dollars in revenue? An analyst hyping himself, I'd say. Remember analysts who said that the Dow would hit 20,000?

Maybe it's worthwhile to heap accolades on Craigslist for being a "good" company. Or, just maybe, they're happy with reasonable year over year growth, rather than uncontrollably exploding, not unlike a supernova.

Besides, it strikes me that if the name of the game is for Craigslist to draw its members to view classifieds on its various sites, then it would be a disservice to those members who advertise on Craigslist to send the viewing members away from the site - even if classifieds are free. I kind of think that the idea of the sort of commercial ads mentioned in the WSJ article probably strays from the Craigslist business model.

-h-

Always lower prices. Always.

That's Craigslist, making it impossible to compete because of their low, low prices. And it's working. The newspaper industry is furious at being underpriced. Tough.

Consumers are becoming more aware these days

Maybe Sergey Brin can take some notes.

It's a tough concept to grasp but sometimes money isn't everything. At least Sergey is now realistic about the old "Do no evil" mantra but it's pretty sad to hear effectively, "Yes, we are filtering content for the Chinese government but... " I and I think many others stop when we hear rationalizations. Yeah it's a lot of money but consumers are waking up and paying attention. Google is helping an authoritarian government control its citizens, I don't want to hear rationalizations. Corporations need to start weighing in "ethical capitalism" costs. Sure the profits might be huge now but when you weigh in the ethical costs, those profits aren't so large.

The key to this consumer awarness is information. We can easily learn about sweatshops thanks to the internet. We can learn about content filtering thanks to the internet. We can learn about AT&T splicing fiber for the NSA thanks to the internet.

You can no longer rationalize and use advertising and PR as effectively as before, consumers are less ignorant. /end rant

Re:Consumers are becoming more aware these days

You have swallowed the Google pill so you feel better about your stock options in Google. I understand.

It is black and white, they are making money off of censoring Chinese citizens by collaborating with the Chinese government. This isn't complex.

Do you remember when Slashdot had no ads?

We all loved it with no ads, and then something happened and we debated about whether or not to add ads to slashdot, and it basically came down to, "we have to if we want to survive". Faced with that, most slashdotters preferred slashdot with ads to no slashdot.

If craigslist can survive without pimping ads to users, more power to them, and their userbase will only grow.

Diminishing Returns

Why is it that authors of these articles can never understand the simple fact that the reason I go to Craig's List is precisely because I'm not being bombarded with ads and junk and a horrible cluttered layout? Doesn't anyone remember how refreshing Google was when it first started (and still is to a certain extent, except the other companies have de-cluttered their pages)? Yahoo was a horrible experiment gone wrong in seeing how much crap could be jammed into a portal!

Sure, if craig's list had ads, they'd make some more money, but a lot of people, myself included, wouldn't visit as often or at all, and therefore the article's total sum of potential earnings is an over-estimate.

No need for ads, just hire more people...

If they can make $25 mil with just 21 employees, think how much they could make if they hired 500 employees?

And how about Toyota?

Wow, that makes me think how much more money Toyota could make this year if they stopped making such high quality reliable vehicles, and just bolted a crappy SUV body to a cheap truck chassis, and sold it for a giant profit, like GM did. It would probably take at least 5 years before consumers really caught on, and in the meanwhile execs and shareholders could make many billions. Of course then they'd implode and Hyundai (or whoever up and coming) would have incentive to beat them in quality and steal all their customers, the way GM has lost all their customers to Toyota. Yep, real geniuses we have in business in America these days.

From the Wall Street to the WSJ to the board room, the culture of short term thinking to screw the customer is pervasive. It's all about rape and pillage for the shareholders, kill the company (after offloading the stock to E-Trade suckers) and then invest somewhere else. Where will investors go once US business is depleted? China & India of course.

Craigslist has plenty of ads...

Indeed, Craigslist is plenty of ads. Analysts who say that Craigslist should seek more profit by making people view ads they aren't interested in in order to see the ads they are actively seeking by viewing Craigslist in the first place are, well, perhaps missing the source of Craigslist's dominant position.

More than money

"What kind of company turns up its nose at $500 million?"

One led by a person believing there is more to their enterprise than money. I think I'd like to work there.

logical flaw in analists analysis

The targeted ads would devalue the free ads.
If the free ads are worth less then there will be less customers.
Less customers, less content, less visitors, less paid advertising revenue.

Not to mention the incalculable value of goodwill and trust - I mean you just can buy that!

Better go back to analyst school there buddy.

25mil is good

lets see 21 people 25 million a year.
I can live on that.

Why Be greedy?

If he is crazy, he is crazy like a fox.

The business cost essentially nothing to run, and is making reasonable profits to allow for the founder to live a lifestyle in excess of 99.99% of americans. Every year the market share grows, because who can compete with free? When he is ready to to sell out, the marketing "geniuses" on wallstreet will look at the number of page impressions, assume they can plaster the site with flash add and make BILLIONS. He will sell out for billions, and wallstreet will run the site into the ground. What's not to like?

What kind indeed

"What kind of company turns up its nose at $500 million?"

The kind that believes industry analysts and experts who say outrageous things are likely talking out of their asses.

Half a billion? I really really doubt it.

Re:I Had No Idea

Sex and drugs are part of the answer to the parent question in the article. When the buy.com 10% off orders over $100 ads hit the site, they're going to be obligated to remove sections like "Services, Erotic", "Rants and Raves" and "Casual Encounters" -- or at least begin policing them by means other than community flagging. Yes, "Casual Encounters" is 100 men begging for sex, 1 woman laughing, and 200 bots posting single-picture links to "hotcamgirlzmilfsecks dot com" -- but that doesn't make the content any less objectionable to advertisers. In the evenings, in my town, there's an ad a minute posted in "Services, Erotic" for escorts and call-girls -- most of them legitimate (or, as legitimate as a hooker can be). ...great place to find someone giving away a washer and dryer though.