Craigslist: a platform eroded by platforms

Craigslist grew rapidly by leveraging hyper-local network effects – but now faces market share erosion as other platforms enter niche segments. Who will win, and how?

Launched in 1995 by Craig Newmark, Craigslist.org began as a hyper-local classified ad website. A newcomer to San Francisco, Newmark searched for a way to find out about local events of interest to software developers; finding nothing that fit his needs, he would research events and email them to his friends. Initially, word-of-mouth drove readership growth, and new users began to use the distribution list for more categories than events. Expanding into a web-based platform, Craigslist ultimately evolved to enable users to post or browse posts of apartments for rent or sublet, items for sale or barter, jobs and freelance work, and even personal ads of varying levels of propriety.

Value Creation through Local Network Effects
From its earliest days, Craigslist benefited from hyper-local network effects to create value for its users. San Franciscans read the email bulletins to find interesting events near them, ideally in their own neighborhood; they would have had little interest in events taking place in other cities. The localized geographic focus was critical for jobs and items for sale, as well. Users looking for a new job would generally prefer not to have to relocate, and employers would value finding someone to start the job (or complete freelance work) immediately, without high transportation or relocation costs. Users looking to buy a used couch might prefer one that could be carried home on foot, and sellers would prefer to deliver a couch if they didn’t have to carry or drive it very far. Thus, the more local users perused work opportunities, the more local employers would be likely to find an employee (and thus, the more they would be inclined to post on Craigslist); the more sellers used Craigslist to post merchandise, the more buyers would browse the site looking to buy. Further, the breadth of categories featured on the platform meant that visitors posting jobs might end up perusing the ‘apartments for rent’ sections, and vice versa. User growth skyrocketed in Craigslist’s early years, reaching 9 billion monthly page views in 2008, when the company was valued at a formidable $5 billion.

Image Source: https://www.wired.com/wp-content/uploads/archive/images/article/magazine/1709/ff_craigslist_f

Value Capture
Unlike many ‘unicorn’ companies we read about today, Craigslist did not monetize its platform by charging most or all of its users, launching freemium programs, or evolving into a subscription. Rather, the company charged flat fees for posts in specific categories, such as $25-75 per job listing in certain top cities such as San Francisco, and $10 per apartment listing in New York City. Craig Newmark never prioritized monetizing the platform, and has maintained that he never really wanted to charge users for engaging with Craigslist; despite this, even these few flat-fee postings drove revenues of $80 million in 2008. Craigslist kept the platform extremely streamlined – to the point of having a very clunky and unattractive user experience and no customer service – and thus kept headcount and costs low, driving profitability.

Image Source: http://static1.businessinsider.com/image/4dd4d1cf4bd7c8c90f000000/craigslist-competition

Recent Challenges: The Emergence of Niche Platform Competitors
Craigslist’s growth did not remain perpetually meteoric. Ultimately, competitors did emerge and begin to steal market share from Craigslist – but not by competing head-on.

Craigslist originally won the market because of its strong, local network effects, and by being the ‘everything’ platform spanning jobs, personals, housing, sales, etc. Further, Craigslist’s $0 price tag for most users in combination with its strong network effects presented an enormous barrier to entry for potential competitors; for a long time, none emerged. However, Craig Newmark ideologically avoided improving the site’s user experience, and Craigslist never offered customer service or any sort of quality assurance or security on the transactions resulting from its platform. This created an area of opportunity for competitors who could differentiate their products on these three factors: user experience, customer service, and consumer confidence.

The rise of Airbnb, Etsy, Match.com, Stubhub, Upwork, all indicate that new platform companies were able to take over specific segments of Craigslist’s initial product offering. Each offered superior user experience, customer service, and quality assurance. For example: users slowly began to shift from searching vacation rentals on Craigslist to vacation rentals on Airbnb, where they could browse glossy pictures, easily determine rental locations, read reviews and assess pricing, and book instantly; they were also had the security of an Airbnb refund if the rental fell short of its advertisement. Users were willing to pay – listers, through a commission, and renters, through fees to Airbnb – for these product and service upgrades. At its outset, Airbnb even leveraged Craigslist’s scale to acquire its earliest customers! This is a classic case study of how to break up network effects through product differentiation, with the unique elements of a piggy-back strategy, and of being able to charge users more for a new competitor’s product than for the incumbent’s.

So what is the future of Craigslist? Will it always have a large share of the local-network market, or will that, too, eventually be eroded by emerging e-commerce competitors operating on a global scale?

 

Sources:

First Image: https://shopify-ecommerce-university.s3.amazonaws.com/production/legacy/guides/50-ways/header-images/criagslist

https://www.craigslist.org/about/factsheet

http://www.businessinsider.com/2008/4/craigslist-valuation-80-million-in-2008-revenue-worth-5-billion

https://www.wired.com/2009/08/ff-craigslist/

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

http://www.incomediary.com/craig-newmark-interview-founder-of-craigslistcom

http://smallbusiness.chron.com/craigslist-money-27287.html

https://www.craigslist.org/about/press/npostinterview

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

https://growthhackers.com/growth-studies/airbnb

9 thoughts on “Craigslist: a platform eroded by platforms

  1. hi sonali, great post. i love thinking about craigslist and especially enjoy craig’s eccentric behavior. i think he’s a crazy genius!

    in the long-term, my money is on craigslist for a few reasons:
    1. early entrance – because craigslist essentially reinvented online classifieds, it till date benefits from embedded network effects that few can compete with (trust me, we @ eBay tried, even having had financial stakes in Craigslist)
    2. company structure – because craigslist is still run out of craig’s home in the inner sunset and isn’t a corporation (.org). craig has openly said he doesn’t care about profits and wants to simply provide the best service for the economy. it’s very hard for corporations with shareholder and internal pressure to compete with a mission like that
    3. hyper-local connectivity – the hyper-local market is something a lot of people have tried to crack (nextdoor, kijiji, etc) – though some have achieved success in particular markets, having an international hyper-local network is extremely difficult if not impossible. because craigslist has been able to achieve this down to the neighborhood-level through its early entrance, it offers an unparalleled service to its local users

  2. Great post Sonali. Never really thought about Craigslist being slowly eroded like this. However, I believe Craigslist still has staying power due to the fact that its built such strong network effects. The brand recognition alone is so strong and the marketplace is very robust. The fact that it is completely free has allowed it to build a lot of trust in consumers eyes who don’t see it as a platform that’s trying to make money off of them. However, there are services like AirBnb that have probably had huge impacts on certain categories of their business. The question in my mind is if there will be an AirBnb-eque unicorn in each of their major categories to the point where they become irrelevant…

  3. Very interesting post and interesting platform in that it really hasn’t gone out of its way to change the product, provide any services, or really monetize its strong network effects, yet still has such staying power. It’s not even a wikipedia-like model where it leverages crowds to improve the product. Although certain things like dating or vacation rentals have largely been disrupted by things like okcupid or Airbnb, craigslist remains a popular platform to multi-home as there is really no cost for listing or looking on craigslist.

    One thing I still can’t believe, is that we don’t have any better solutions for finding apartment rentals than craigslist. Possibly different in other cities, but I am shocked that right now the best way to find an apartment in San Francisco is still craigslist.

  4. This was a great read, Sonali! Apart from some of the great observations noted in the comments already, I wonder how Craigslist has been able to remain simply a facilitator platform while likely the same users require a higher standard of service from other platforms (i.e. Uber, Amazon, Stubhub). Is it just because it’s free for users? Or because the user interface is so bad that users expect minimal guarantees? Or because the company has remained so private that people don’t feel like they’re interacting with a “big, bad” corporate? It seems that while Craigslist certainly forfeits revenue and some users in its current model, it avoids a lot of headaches in the meantime.

  5. Interesting read! When we think about platform disruptions, we rarely think of a giant platform losing its luster one small function at a time. I agree with the first two comments–I’m also bullish on Craigslist chances for two more reasons: (1) Craigslist is an aggregator, and that in itself is a competitive advantage. It’s helpful to know, from a user’s standpoint, that I can go on this one website if I want to look for an apartment, sell furniture, or hire someone for a small job, knowing that it’s very powerful on a local level. This is also a very powerful way for Craigslist to leverage the same network of users across so many different categories/functions. (2) Because Craigslist is so full of information (their homepage has 150+ things you can click), the rudimentary/no-frills interface actually becomes an asset, particularly for less tech-savvy users.

  6. Thanks Sonali for the post!

    I agree with Ali that I think there is value in having one platform to do a number of jobs. However I feel the lack of reviews or sense of security/promise of quality is what has essentially taken me away from Craigslist. Granted I haven’t had to look for an apartment now for over 5 years but I feel our generation has been trained by Amazon to review consumer feedback and commentary to understand what we are getting into when we pay. It could be Christy’s point that the user experience is so rudimentary that we expect so little from the site, but I think this minimalist attitude towards customer’s needs is why these other platforms are seeing such great success targeting a smaller industry and providing the customer service and support needed to build trust with users.

  7. Really interesting post Sonali! Definitely interesting how Craigslist is still very relevant today even with all these other platforms popping up to cater to specific categories. I agree with a lot of the comments above — Craigslist will likely remain a strong brand and platform for users because it caters to absolutely everything and users can easily multi-home across platforms. I wonder if someday they will decide to upgrade and update the user interface of Craigslist to make it more friendly. I don’t think this will happen in response to other platforms coming to market (competition), but rather an internally-driven desire. That would certainly improve the user experience on Craigslist, in addition to providing everything on one platform.

  8. Really interesting read. Do you think that there is still a place for locale-based general platforms, if craigslist were to add features etc to contribute to the user experience?

  9. Thanks for the great post, Sonali. I’ve often been baffled by how long its taken competitors to come in and threaten Craigslist’s dominance, because the UX is SO horrible. I know, I for one, would be willing to pay a small transaction fee to upgrade the UX. My question, however, is about multihoming in this context. This seems like a situation in which multihoming effects would be high. If I’m trying to sell my living room couch, I’m probably going to post on Craiglist and whatever other platform options are available (assuming the posting process isn’t insanely arduous). It seems to me that this these high multihoming effects should have encouraged new entrants to enter sooner. I’m curious, if you have an opinion, on how multihoming works in this context and why the effects weren’t high enough to offset the local NE and low price point?

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